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Out-Law Analysis 1 min. read

Obliged companies are to publish their first non-financial strategic reports in the first half of 2018

ANALYSIS: Traded companies, banks and insurers with a calendar financial year will be assessing how to comply with new non-financial reporting obligations over the coming months, including the obligation to report on anti-bribery and anti-corruption matters.

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 ("Non-financial Reporting Regulations") implement the 2014 Non-Financial Reporting Directive in the UK. The Non-financial Reporting Regulations apply to financial years beginning on or after 1 January 2017, and therefore a significant number of companies will be reporting under the new regime in the first half of 2018.

What do the new reporting regulations require?

The Companies Act already required medium and large companies and qualifying partnerships to prepare a 'strategic report' on the company's business and principal risks. Additionally, all quoted companies were, and still are, under an obligation to provide information on environmental, employee, social, community and human rights matters in their strategic report.

The Non-financial Reporting Regulations add to these existing duties. Traded companies, large banks and insurance companies are now required to include further 'non-financial information' in the strategic report, including in respect of anti-bribery and corruption matters ("ABC"). Banks and insurance companies that are considered large for reporting purposes and had an average of more than 500 employees throughout the relevant financial year are subject to the new reporting duties. The information can be reported on a consolidated group basis.

What non-financial information is required?

The Non-financial Reporting Regulations require relevant companies to produce a 'non-financial information statement' in their strategic report containing information on:

  • environmental matters, including the impact of the company's business on the environment;
  • the company's employees;
  • social matters;
  • respect for human rights; and
  • ABC matters.

Details of a company's business model, policies, due diligence procedures, risks and non-financial key performance indicators must also be provided. If the company does not have policies in the relevant areas, an explanation should be given as to why not.

Information should be provided "to the extent necessary for an understanding of the company's development, performance and position and the impact of its activity". There is also an exception on reporting if disclosure about impending developments or negotiations would be seriously prejudicial to the commercial interests of the company, provided that this lack of reporting does not prevent a fair and balanced understanding of the company's position.

The Financial Reporting Council intends to finalise guidance on the reporting obligation in the first half of 2018.

This duty is in addition to any modern slavery statement which a company might be under an obligation to produce under the Modern Slavery Act.

Why is this significant?

A wider group of companies are now obliged to report on non-financial areas; a more structured report is to be produced; and reporting on ABC is specifically required.

Neil Carslaw is regulatory lawyer at Pinsent Masons, the law firm behind Out-Law.com.

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