Important Government Review of Non-Financial Reporting Requirements

United Kingdom

The Department for Business and Trade (DBT) and the Financial Reporting Council (FRC) is holding a call for evidence as an initial step in their review of non-financial reporting requirements. The call is open - to companies, accounting firms, financial market participants and other stakeholders - until 16 August 2023. The responses will inform the UK’s future approach to reporting requirements and active participation is encouraged.

The review is being launched at a time of increased market and international regulatory focus on non-financial reporting. Over time, increased requirements in this area have led to complex reporting within annual reports which do not necessarily achieve the consistency and comparability investors are now seeking. In light of this increased focus and considering the need to be aligned with international changes, such as the International Sustainability Boards (ISSB) global reporting standards, the aim of the review is to update and rationalise the UK’s framework for non-financial information , allowing companies  to produce information that is focused, comparable and concise.

The intended outcomes are three-fold:

(i) ensure that investors, and other stakeholders, can use the information produced efficiently, driving effective decision making;

(ii) create focused reporting to support meaningful engagement with the information at board level, driving strategic decision making by companies

(iii) provide a platform for organisations to demonstrate their positive impact, and commitment to addressing key social issues. 

The review will also consider if current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, remain fit for purpose.

The call is seeking views on the following:

  • Costs and benefits of current non-financial reporting requirements as well as opportunities for streamlining the process; this will encompass readability, accessibility and alignment across regulators.
  • Thresholds and definitions used to determine which companies should comply with certain requirements; the review is seeking to rationalise and simplify thresholds.
  • How reporting that sits outside of the annual report requirements (such as modern slavery or gender pay gap reporting) fits into the wider non-financial reporting framework.
  • The future of the non-financial reporting framework in the UK; this will involve considering initiatives on an international scale, and how these can be integrated, identifying priorities and how non-financial reporting links to the transition to net zero. 
  • How any changes could interact with the ambition for the UK to become a centre for green finance as set out in the Mobilising Green Investment: 2023 Green Finance Strategy.

With many organisations presently considering new reporting requirements under the EU’s Corporate Sustainability Reporting Directive (which has extra territorial effect for certain non EU organisations), we would encourage clients to respond to the call for evidence  so as to inform coherent outcomes.

Separately, until 2 July, the DBT and the FRC are seeking a Chair and members for a new UK Sustainability Disclosure Technical Advisory Committee which will advise the DBT on the ISSB’s IFRS Sustainability Disclosure Standards, issued this week. Outreach on these standards will follow.

Article co-authored by Sofia Sotgia, Trainee Solicitor at CMS.