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Corporate Update: Enhanced Transparency For Large Companies And Groups?

07 September 2017

Newly-published regulations require certain large companies and groups to make disclosures of non-financial and diversity information for financial years commencing on or after 1 August 2017. We examine the scope of these new obligations and the measures that affect companies and need to put in place to ensure compliance.

In August 2017, European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 (the Regulations) came into force. The purpose of these Regulations is to transpose into national legislation a number of European Directives on disclosure of non-financial and diversity information by certain large undertakings and groups. The Regulations will apply to financial years beginning on or after 1 August 2017.

Non-financial information

The first objective of the Regulations is to increase transparency of certain large Irish companies on environmental and social matters. This objective is achieved by requiring any company that satisfies all of the three following criteria to provide a non-financial statement:

  • it is a large company[1]  or a parent company of a large group company
  • it, or the group of which it is the parent company, has an average of more than 500 employees, and
  • it is a public interest company[2]

The Regulations oblige relevant large companies and groups, on an annual basis, to prepare a non-financial statement on:

  • environmental matters
  • social and employee matters 
  • respect for human rights, and
  • bribery and corruption

The non-financial statement on the above matters must include:

  • a summary of the applicable company’s business model
  • a description of the policies pursued by the applicable company in relation to each of the above matters
  • a description of the main risks related to these matters linked to the company’s operations, and
  • include an analysis of the non-financial key performance indicators relevant to the particular business.

In an instance where the information on any of the above matters is, in the opinion of the directors, commercially sensitive, then an applicable company can omit including this information in the non-financial statement. The directors must be satisfied that the omission does not prevent a fair and balanced understanding of the applicable company’s development, performance, position and impact of its activity.

The Regulations adopt a “report or explain” approach. This means that any affected company that does not pursue policies in one or more of the above matters must explain why in each case.

The non-financial statement should be included in a specific section of the company’s directors’ report attached to the annual financial statements of the company. It can also be presented in a separate statement published on the company website or annexed to the company's annual return. The auditors of the relevant company must, when preparing the auditor’s report, establish that the company has prepared the non-financial statement.

Diversity

The second objective of the Regulations is to promote diversity in corporate boards. A large company that has shares admitted to trading on a regulated market must include a diversity report in its corporate governance statement. This report will include:

  • a description of the diversity policy applied in relation to the company’s board of directors with regard to aspects such as age, gender, or educational and professional backgrounds
  • the objective of that diversity policy
  • how that diversity policy has been implemented by the company, and
  • the results of that policy in the financial year.

Again, the Regulations take an “adopt or explain” approach in relation to the diversity report. The auditors must confirm whether in their opinion, based on the work undertaken in the course of the audit, the information required is contained in the corporate governance statement.

Consequences of breaching the Regulations

Any person that fails to comply with the Regulations will be liable on a summary conviction to a fine of up to €5,000 or to imprisonment for a term not exceeding 6 months or to both. The director of corporate enforcement will have the power to investigate for suspected offences under the Regulations and to enforce the Regulations.

Conclusion

These new measures affecting certain large companies is an opportunity for businesses to integrate sustainability into the decision-making process and help companies identify critical sustainability risks and opportunities. Greater transparency of large traded companies’ diversity policies will assist informing the market of their corporate governance practices and put indirect pressure on such companies to have diversified boards. Companies should assess whether they are required to comply with the Regulations and, if so, ensure that they have adequate measures in places to ensure they comply with their obligations. 

Should you require further advice on the Regulations, please contact a member of our Corporate team. 

 


[1] In order to qualify as large, a company must exceed at least 2 of the following 3 criteria:

  • a net turnover of €40,000 million;
  • a balance sheet total of €20 million
  • an average number of employees of 250.

[2] Transposed into Irish law as “ineligible entities” at Section 275 of the Companies Act 2014 (as inserted by section 12 of the Companies (Accounting) Act 2017).  Ineligible entities include:

  • an undertaking with transferable securities admitted to trading on a regulated market;
  • a credit institution;
  • an insurance undertaking; or
  • an undertaking designated by a member state as a public interest entity (such an companies that are of significant public relevance because of their size, nature of business or number of employees).

The content of this article is provided for information purposes only and does not constitute legal or other advice.

 

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