It happened that last couple months I heard too much talks about the mandatory non-financial reporting in the EU.  In a way of  “question – answer” , I will try to describe the most important issues.

What Directive are we talking about?

The Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups entered into force on 6 December 2014, after having been published in the EU Official Journal on 15 November 2014. The Directive 2014/95/EU amends Directive 2013/34/EU on the annual financial statements, consolidated statements and related reports of certain types of undertakings.

When does the Directive 2014/95/EU actually start to effect the companies?

Following Article 4, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 6 December 2016Member States shall provide the provisions to be applied to all undertakings for the financial year starting on 1 January 2017 or during the calendar year 2017.

To what kind of company the Directive 2014/95/EU is to be applied?

Following Article 1 of the Directive, the new disclosure requirements apply to large public-interest entities with more than 500 employees. The concept of public-interest entities is defined in Article 2 of Directive 2013/34/EU, and includes companies listed in EU markets, as well as some unlisted companies, such as credit institutions, insurance companies, and other companies that are so designated by Member States because of their activities, size or number of employees.

What information is to be disclosed?

The Directive 2014/95/EU aims at improving the transparency of certain large EU companies as regards non-financial information, and focuses on relevant, useful information.

Article 1 of the Directive establishes that companies concerned shall include in the management report a non-financial statement containing information relating to, as a minimum:

– Environmental matters

– Social and employee matters

– Respect for human rights

– Anti-corruption and bribery matters.

What concretely is expected to be disclosed in nonfinancial report?

Article 1 of the Directive define which non-financial statement shall include:

a) a brief description of the undertaking’s business model;

b) a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes implemented;

c) the outcome of those policies;

d) the principal risks related to those matters linked to the undertaking’s operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks;

e) non-financial key performance indicators relevant to the particular business.

Which reporting framework or guidance will be considered as appropriate for disclosure of non-financial information?

The Directive has been designed in a non-prescriptive manner, and leaves significant flexibility for companies to disclose relevant information in the way that they consider most useful. Companies may rely on national frameworks, Union-based frameworks such as the Eco-Management and Audit Scheme (EMAS), or international frameworks such as the United Nations (UN) Global Compact, the Guiding Principles on Business and Human Rights implementing the UN ‘Protect, Respect and Remedy’ Framework, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the International Organisation for Standardisation’s ISO 26000, the International Labour Organisation’s Tripartite Declaration of principles concerning multinational enterprises and social policy, the Global Reporting Initiative, or other recognised international frameworks. Companies may also consider the sectorial OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, as appropriate.

The Directive 2014/95/EU coverage\influence?

All EU member states. From Eastern Europe perspective: for Eastern Europe: Bulgaria, Czech Republic, Hungary, Poland, Slovakia is obligatory from 1 January 2017, for Ukraine and Moldova is nonobligatory but important taking into account the increased transparency expectations while the integration into EU market, and has no influence\coverage on Belarus and Russia.

What is the current stage of the process?

At the moment of this article’s publication (21.03.2016), public consultation on non-financial reporting guidelines has been opened. The purpose of this public consultation is to collect views from stakeholders on non-binding guidance on methodology for reporting of non-financial information following the Directive 2014/95/EU. You may submit your opinion on the following link. Deadline for the submission is 15 April 2016.

The consultation is part of the Commission work related to preparing non-binding guidelines on methodology for reporting non-financial information by December 2016.

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