UK watchdog prepares guidance on corporate environmental, social and diversity disclosure

The Financial Reporting Council, the UK’s accounting and governance watchdog, is readying guidance on companies’ disclosures on environmental, social and diversity issues.

Initial draft guidance prepared by FRC staff on the new Strategic Report, which will replace the existing ‘business review’ section of annual reports, calls for companies to provide “a holistic and meaningful picture” – in a concise, material and forward-looking way.

“To the extent necessary for an understanding of the development, performance or position of the entity’s business, the strategic report should include information about: a) environmental matters (including the impact of the business of the entity on the environment); b) the entity’s employees; and c) social, community and human rights issues.”

The reporting would include the financial and non-financial key performance indicators (KPIs) that are used by directors and show a breakdown of directors, senior managers and employees by gender.But the FRC draft adds that if directors consider certain information “important but not material to shareholders” then it can be “located elsewhere, for example in a sustainability report”.

The guidance is “mindful” of the Integrated Reporting initiative, which seeks to combine financial and sustainability reporting. Although the strategic report is required by UK legislation, the FRC says its new guidance and the proposed International Integrated Reporting Framework “encourage similar qualitative characteristics and content”.

The draft is currently for information only and the FRC is not yet seeking comments, although it is not anticipated that the final ‘Exposure Draft’ will differ from the staff draft. When published officially it will have a three-month comment period.

The new strategic report requirements come in for companies reporting on or after September 30.

The FRC is implementing the government’s plans set out in 2010 to ensure that directors’ social and environmental duties are covered in company reporting. Link