It is not news that the European Union is moving towards imposing a general, coordinated regulatory framework for the Member states of the Union concerning the disclosure of non-financial information. In this regard is adopted the Directive 2014/95/EU of the European parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (“NFRD”). Its objective is to raise the average levels of the transparency requirements for disclosure of non-material externalities, i.e. the social and environmental information provided by undertakings, as well as to establish a minimum requirements in this respect.
Key aspects of the Directive
The Directive requires some of the large undertakings – public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year; to submit along with their management report a non-financial statement. It should contain information, needed to understand the development, the performance, the position of the undertaking and the impact of its activity, relating to environmental matters; social and employee aspects; respect for human rights; anti-corruption and bribery issues. The NFDR envisions in the absence of a policy on one of these areas, the undertakings shall include in the non-financial statement a clear explanation why there is no such policy.
A similar regulation is introduced for the public-interest entities which are parent undertakings of a large group exceeding on its balance sheet dates, on a consolidated basis, the criterion of the average number of 500 employees during the financial year. Along with their report they shall include a consolidated non-financial statement containing accordingly the aforementioned information necessary for the non-financial statement.
Another key point is the requirement for the undertakings to report about their diversity policy applied in relation to the undertaking’s administrative, management and supervisory bodies with regards to certain aspects, such as gender, age or professional background, as well as the objectives of this policy, the way it has been implemented and its results. The latter corresponds with one of the main goals of NFDR to ensure diversity representation of gender and age at various positions around the company.
Effect and impact of the Directive
The Directive has applied since 5 December 2014 and has given the Member States of the Union a deadline until 6 December 2016 to incorporate it into their national law. Thus, the undertakings concerned by the Directive had to report the required information in accordance with the EU act for the first time in 2018, covering the financial year 2017. Under the Directive, the undertakings should disclose this information in their annual report, although some Member States have chosen to allow undertakings to do so in a separate report, if they wish to.
In 2017 the European Commission produces a non-binding guideline on how to report the non-financial information.
Our legislation in order to apply the Directive, adopts an Act for the amendment and supplementation of the Value Added Tax Act on 8 December 2020 (State Gazette, No 104 of 2020), that amends the Accounting Act. That introduces precisely the required by the EU law non-financial statement and consolidated non-financial statement for the respective large undertakings.
You can read the full text of the Directive here.
Last but not least, in the following article we will discuss the CSRD the newest directive in the area, containing much more precise and wider regulation and providing the newest standards.