Below you can find a quick guide with the complete Q&A about the European Union’s new business directive for the disclosure of non-financial information.
What is the EU 2014/95 non-financial reporting directive?
The EU 2014/95 directive is an official instruction from the European Union. It says the largest European organizations will need to be transparent regarding their non-financial information. In this way, big companies will have to disclose non-financial information about their businesses. Therefore, firms will need to share data regarding their environmental protection policies, social responsibility strategies or anti-corruption and bribery tactics.
Why was the EU 2014/95 non-financial reporting directive created?
The EU has ratified this directive for two main reasons. One is because more transparency leads to more confidence, which means that both investors and consumers will be more confident in investing and/or buying from companies and brands that they know better. Specifically, when it comes to investors, it becomes easier for them to estimate the risks and opportunities of a potential future investment if they can get to know about companies’ policies and strategies and how they’re performing in non-financial sides of the business.
Although producing this reporting will give mean more work for companies, it might also help them thrive in the long run. According to McKinsey, we’re living in times where sustainable investments are growing and it is therefore important that organizations prove their investors that they’re worthy.
- More info in our article: what is CSR (Corporate Social Responsibility)?
What impact does the EU 2014/95 non-financial reporting directive have on organizations?
The new legislation’s diversity of issues and degree of depth creates the need for organizations to have appropriate systems of data management. Therefore, organizations will need to guarantee they can collect the information that’ll allow them to build a detailed inventory of their processes. They’ll also need to check their communication strategies and workforce.
To which organizations does the EU 2014/95 non-financial reporting directive apply to?
The reporting of non-financial information refers to large public interest entities (PIEs). PIEs can be either registered companies, credit institutions, insurance undertakings or organizations designated by the UE member states as public-interest entities. If companies are PIEs and have over 500 employees and:
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- Have a balance sheet total of more than €20 million or
- Have a net turnover profit of over €40 million
They’re forced to report their non-financial information on what concerns their environmental, social and governance impacts and risks.
What must be reported in the EU 2014/95 non-financial directive?
Organizations should at least disclose information about how they deal with environmental, social and personnel matters. Practices of respect for human rights and the fight against corruption and bribery must also be disclosed. In this way, solid information should be given about:
- The policies pursued (and if they exist, diligence procedures that have been implemented should be included);
- The outcomes of the policies implemented;
- The main risks of their business activities and their management;
- Non-financial indicators.
Insights about companies’ business models are important so that the context of the information given can better be placed in its correct context. Hence, companies’ are required to describe their business models – it’s mandatory.
Also, large (>500 employees) listed companies must disclose information about their diversity policies on what concerns their executive and supervisory boards – this aims to foster innovation and growth, in opposition to little diversity that can lead boards to feel comfortable and settle down. Moreover, organizations must demonstrate how these policies are implemented and describe what are their objectives and the results achieved.
Wondering what a description of an organization’s diversity policy could be? Well, there are plenty of options – from age and gender to the nationality, to the area of expertise or professional experience.
How to report and comply with the EU 2014/95 non-financial directive?
Organizations have some flexibility to choose the way through which they’ll share their relevant information. This means that they can choose from many guidelines like ISO 26000, the UN Global Compact, the Global Reporting Initiative G4, the Integrated Reporting Framework, or the OECD.
In 2017, the European Commission released its own guidelines to help organizations to share their environmental and social information. Nonetheless, these guidelines aren’t compulsory and companies can choose if they’d rather use other guidelines like the ones mentioned above.
- More info in our article: how to make an amazing CSR report.
Why don’t small companies need to comply with the EU 2014/95 non-financial reporting directive?
According to the UE guidelines on non-financial reporting, the European Commission stood out that:
“The disclosure requirements for non-financial information apply to certain large companies with more than 500 employees, as the cost of obliging small and medium-sized enterprises to apply them could outweigh the benefits.”
Image credits to European Union on Shutterstock