The draft bill on how to implement the EU Directive 2014/95/EU on non-financial reporting and diversity has finally been reviewed by the Belgian Council of State and presented to the Chamber of Representatives on June 30th. It’s not too early as this new regulation already concerns the 2017 reporting year. So does your company fall under this new legislation? And if so, do you already have some insight into how this will impact your next annual report?
Is your company affected by this new Belgian legislation?
All Belgian listed companies or public interest companies with more than 500 FTE and making a profit of more than 17 million or with a turnover exceeding 34 million EUR are affected by the bill. In Belgian law, public interest companies refers to credit and insurance institutions and companies responsible for the liquidation and bankruptcy of firms.
What are the reporting requirements?
Information related to at least environmental, social, human rights, anti-corruption and bribery matters must be disclosed. For each of these topics, the policies in place, the results, the associated risks and the performance indicators have to be reported. Additionally, listed companies will have to report information on the board and management diversity policy and results. Overall, this remains, however, vague and potentially far reaching. Specifications on how to report and which KPI’s are to be disclosed are certainly lacking. That’s where the concept of ‘materiality’ comes into the picture.
Which environmental and social aspects should I focus on?
The basis for disclosure must be a so-called materiality assessment according to the European provisional guidance. This means that the company itself must assess the importance/relevance of information and topics in his own context of operations. Indeed, some aspects might be of high importance for a specific activity or geographical region, and less important when looking at another activity or region.
This means that your choice of topics and the context of activity is very important and the key to the reporting requirements! While evaluating the materiality of information, you could look at, for example, your business model, your risks and opportunities assessment, specific sector trends, the expectations of relevant stakeholders, impact of the activities, etc.
Through a materiality assessment, companies will be able to define which aspects in the above categories (social, environmental, human rights, anti-corruption and bribery) are of importance and therefore must be disclosed (e.g. health and safety, waste, training, etc.). However, the European guidance mentions that any other material issues identified outside these categories should also be disclosed. Hence, the guidance also addresses topics such as conflict minerals and supply chains.
But exactly what information should be disclosed?
For each of the identified material topics, companies have to outline the relevant policies in place, the results (through KPIs), and the procedures in place with regards to the risk management of these aspects.
The risk assessment should not be limited to the operations of the company, but should go beyond its boundaries and look at the whole value chain. Questions you may want to ask yourself are things such as; are there any corruption or social risks related to my suppliers? Or does my customer face any safety risks when using my product?
Moreover, the principle of ‘forward-looking’ should be applied. I.e. when assessing risks and looking at results, the short, medium and long-term are to be taken into consideration. To this end, targets are expected to be disclosed.
Indicators are essential when disclosing outcomes and results. Some KPIs such as energy consumption, GhG emissions, employee diversity are already regularly disclosed. The challenge will be to report on material topics within the categories of human rights, anti-corruption and bribery. One might think of the number of employees that have received the appropriate training, the number of pending or completed legal actions on anti-competitive behavior or corruption, or the number of breaches on the Company’s Code of Conduct, etc.
Where should the information be disclosed?
The information is to be reported in the financial report, the annual report, or in a separate report and published in the Central Balance sheets of the Belgian National Bank. However, when external verification is applicable, the external auditor should include in its verification statement that the required non-financial information has been included in the financial statement, annual report or separate report and will have to verify that the non-financial information is in line with the financial statement.
As a whole, this bill will help improve transparency on what a company does, how and why it does it, and hopefully, increase trust between companies, their stakeholders and society.