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New Non-financial Reporting Requirements are in Effect. Do They Apply to You?

The 2014 EU Directive requiring disclosure of non-financial information has gone into effect as of January 1, 2017. Applicable to public companies operating in the EU with more than 500 employees, the directive mandates disclosure of extensive non-financial information in companies’ annual reports.

Annual reports for 2017 must include a description of a company’s policies and business practices in at least the following issue areas: environmental protection, human rights, anti-corruption, and employee protection.

Companies must report on more than just the policies they craft to address these issues. For each area, they must provide a description of:

  • The main risks, including the manner in which the company manages such risks,
  • The due diligence procedures they use to identify, prevent, and resolve potential adverse effects and manage the risks,
  • The outcomes or results of these measures, and
  • The non-financial key performance indicators that demonstrate progress or a lack of progress.

This means that companies must now report on how effective their policies and practices have actually been. And the reporting requirement extends to companies’ supply chains, triggering a likely a trickle down impact, forcing smaller and medium sized upstream companies, both private and public, to report even when the law does not directly apply them.

With two years advance notice of this requirement, many companies have adopted policies for sustainable and socially responsible operations, and actively track their practices and outcomes for each. Many well-known EU companies, such as Volvo and BP, have publicized policies and programs that meet or exceed the new EU mandated non-financial disclosures.

Official guidelines for reporting will be published by this spring, but the directive requires companies to begin collecting data this month. These guidelines are expected to follow many established protocols, such as ISO 2600 for social responsibility and OCED’s guidelines for multinational enterprises.