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ACCA
ACCA believes that non-financial information provides crucial context for shareholders to understand companies’ development, performance, position and impact. As such, ACCA believes that the non-financial disclosures required under the EU Non-financial Reporting (NFR) Directive should be placed within the annual report, as part of the management report (in the UK, Strategic Report).
Although not mentioned in the EU NFR Directive as an applicable framework for non-financial reporting, in ACCA´s view, the Integrated Reporting Framework provides the optimal framework for demonstrating the connectivity between non-financial and financial information. Within the overarching framework of integrated reporting, the GRI (G4) and SASB provide the best bases for comparable general and sector-specific reporting.
It is important for the concept of materiality to inform the application of non-financial reporting requirements: for information to be useful and understandable, only information that is of strategic importance should be disclosed.
The implementation timeline is very tight: the EC is to publish non-binding guidelines on non-financial reporting by 6 December 2016, and the Directive is to be transposed into Member State laws by the same date. The requirements are to apply to companies during 2017. It is very important that the EC makes their guidance as practical and helpful as possible to companies reporting under the Directive. Companies in the UK will be looking to the FRC to provide consistent guidance on the implementation of the Directive in the UK, but the FRC will need to consider the timing and content of the EC’s non-binding guidelines.
The Directive requires auditors to ‘check’ whether the non-financial statement has been provided. To avoid widening the expectation gap, the EC needs to clarify the intended scope of the auditor’s responsibilities around non-financial information. ACCA believes that specific independent assurance on non-financial reporting should be market-led, rather than mandated.
Regarding diversity disclosures, further guidance is needed to put the disclosures around diversity policy in the context of the company’s objectives.
EuropeanIssuers
The guidelines should be principle based, and avoid putting forward too detailed solutions or reporting methodologies as they are less likely to apply to all companies concerned by the reporting obligation. Detailed guidelines usually pose the risk of box-ticking and less reflection on non-financial reporting within the company.
It is important that “materiality” is addressed by the guidelines. In EuropeanIssuers´ view, the concept of materiality means that each company identifies among all the sustainability issues the ones that are most pertinent in terms of impacts and risks. Material information is about real impacts or risks, such as stemming from the companies’ activities, its products or services.
EuropeanIssuers believes that the main users of non-financial information are investors as they have a strong economic interest in the company.
Companies need flexibility to choose any framework (international, national or sectorial) they want to follow. It would be useful if the guidelines provided a list/reference to existing frameworks and some examples to help companies that will disclose non-financial information for the first time. However, guidelines should not become a new framework and should not give preference to any existing framework over another.
The EC should refrain from inventing a new set of KPIs applying to European companies.
FEE
In FEE´s response it emphasises that these guidelines should address materiality to help reducing the administrative burden of preparation, and enhance the relevance of the information disclosed. Materiality is crucial in the reporting process to give a clear picture of the company’s development, performance and position, and how it manages risk.
For companies that already prepare such information, high-level, principles-based guidance is sufficient. For new adopters, more detailed guidance is required and the EC should provide this, including general and sectoral KPIs, by reference to existing frameworks.