Back in December 2014, the European Commission introduced new legislation requiring certain companies to disclose relevant non-financial information, aptly titled the EU Non-Financial Reporting Directive (EU NFRD). Member states have until the end of 2016 to enshrine the new directive into national law. So, the time has now come for large companies residing within the EU to report against the new directive. Making the start with disclosing information relating to their 2017 financial year.
Businesses that have previously published non-financial information will be better placed to adapt to the new legislation. However, the breadth of information required may still necessitate a great deal of planning. This overview will provide direction for companies on how best to capture and report against the new directive.
Background
As of this year, the EU NFRD will be a legal requirement for companies with more than 500 employees who are of ‘public-interest’ by the member state(s) in which they reside. This may vary from country to country as some member states elected to reduce the employee threshold when transposing the directive into national law.
Applicable companies should report on a range of issues. These include the Environment, Social Impacts, Human Rights and Anti-Corruption and Bribery. The report should also include a brief description of the business model, risks associated with the areas above and details of non-financial KPIs. These areas aim to encapsulate current best practices and align with established initiatives. These include the UN Sustainable Development Goals (SDGs), Paris Climate Agreement and the Task-Force on Climate Related Financial Disclosures (TCFD). The intention is that the increased transparency within the private sector will lead to more robust growth by encouraging businesses to adopt more sustainable practices, increasing trust among stakeholders. Get the latest news on ESG & Sustainability regulations here.
Collecting the Relevant Information
A company’s preparation will be highly dependent on what information they already capture, as well as the EU jurisdiction they fall into. However, the process of evaluating what additional non-financial areas need to be collated remains the same. Organizations should initially examine which details of the disclosure are material to the business. Before that, they should have undertaken a gap analysis to determine which areas they do not currently report on. Taking the UK as an example, companies should already be publishing information on human rights, gender diversity, business models, and carbon emissions. This means that only anti-bribery and corruption will be an additional requirement.
There is no single method for collecting data and no standardized approach is given. This flexibility can make the process confusing. However, it does allow companies to initially take a pared-down approach while they figure out what methods need to be in place to collect data in later years.
The EU NFRD also requires companies to include how non-financial information is incorporated within their business models, risks and KPI’s. For some businesses, this will require a major shift away from thinking of these elements purely in terms of financial outlook.
Preparing Your Report
Organizations are free to disclose non-financial information however they see fit. Although most countries strongly encourage the use of well-established voluntary frameworks. Out of the frameworks, GRI is the most applicable. It is the most widely used framework and covers all the core aspects of the directive. GRI places a strong emphasis on materiality. Using the GRI Materiality Principle is a long-standing method of assessing what influences the decisions of a company’s stakeholders.
Furthermore, to accurately assess the risks associated with a company’s activity they need to consider their value chain. GRI recognizes this, asking organizations to report on their direct impacts. And in addition, to report on those that they contribute to via relationships with suppliers and customers. With EU NFRD’s emphasis on integrating sustainability into business strategy, GRI provides the ideal framework to assess a company’s influence and inform better decision-making.
Cority and the EU NFRD
Here at Cority, we have mapped the EU Non-Financial Reporting Directive within our sustainability software solution to the GRI Standards. Due to the detailed and prescriptive nature of the GRI Standards, clients can use this mapping to easily identify the metrics and KPIs required for compliance with the new EU regulations, collect data from across the organization and consolidate information into external reporting templates.
There is a number of other GRI-mapped frameworks available in the Cority sustainability software solution including ISO 26000, OECD Guidelines for Multinational Enterprises, the Sustainable Development Goals, UN Global Compact, UN Guiding Principles on Business and Human Rights and the UN Women’s Empowerment Principles.
