Non-financial disclosure obligations

Regulatory framework and future prospects for non-financial reporting

By amending the Accounting Directive (Directive 2013/34/EU), the Non-Financial Reporting Directive  (Directive 2014/95/EU, “NFRD”) has introduced a requirement for certain large companies to include a non-financial statement as part of their annual public reporting obligations.

In particular, the companies falling within the scope of NFRD are large Public Interest Entities, with more than 500 employees as of the balance sheet date.

The scope of the non-financial statement is currently limited to four main subjects, and namely:

  • Environment;
  • Social and employee issues;
  • Human rights;
  • Bribery and corruption.

With respect to those issues, the NFRD requires companies to disclose information about their business model, policies (including implemented due diligence processes), outcomes, risks and risk management, and Key Performance Indicators relevant to the business.

As of today, the NFRD does not introduce or require the use of a non-financial reporting standard or framework, nor does it impose detailed disclosure requirements such as, for instance, a list of indicators per business sector.

In fact, the required reporting is limited “to the extent necessary for an understanding of the development, performance, position and impact of the company’s activities”, meaning that companies should disclose not only how sustainability issues may affect the company, but also how the company affects society and the environment, according to the so-called double materiality principle.

Therefore, companies are free to adopt any reporting standard they deem fit having regard to their business (e.g. the TCFT, the UN Global Compact, the OECD Guidelines for multinational enterprises, the ISO 2600 standard, etc.).

The Directive has been further integrated by the Commission which in 2017 published non-binding guidelines for companies on how to report non-financial information. Subsequently, in 2019, the Commission published additional guidelines on reporting climate-related information, which integrate the recommendations of the Task Force on Climate-related Financial Disclosures, as part of the Sustainable Finance Action Plan.

With its Communication on the Green Deal of the 11th December 2019, the Commission committed to review the Non-Financial Reporting Directive in 2020 as part of the strategy to strengthen the foundations for sustainable investment. The directive has been therefore put to public consultation on the 20th February, and will be amended accordingly in the following months.

With specific regard to the Italian legal system, the NFRD has been implemented with legislative decree n. 254 of the 30th December 2016, in force as of the 25th January 2017, and applicable from the 1st January 2017.

The decree, which enumerates with greater detail than the directive the minimum reporting requirements, provides the possibility for companies which are not required to non-financial reporting, to provide a non-financial statement on a voluntary basis on the areas identified by the decree, with simplified regime for SMEs.

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