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Non-Financial Reporting and Diversity Act strengthens compliance programs

| News | Corporate Compliance

Claudio Aguiló analyses in the Confilegal the 11/2018 Law of 28th of December and the importance of the Compliance

The disclosure of non-financial information of companies is increased with the aim of identifying risks to improve sustainability and increase the confidence of investors, consumers and society in general.

As a result of the transposition of Directive 2014/95/EU, on 29 December 2018 the BOE published Law 11/2018 of 28 December, amending the Commercial Code, the Consolidated Text of the Law on Capital Companies and the Law on Auditing Accounts, in the area of non-financial information and diversity (hereinafter "the Law"), which came into force on 30 December 2018.

  • What is the purpose of this law?

The objective is no other than the obligated companies:

  1. Can measure, monitor and manage their performance and the impact of such risks on society;
  2. Increase sustainability and the confidence of investors, consumers and society at large; and
  3. Prevent, mitigate and/or diminish identified non-financial risks, not only in the company itself, but also in its supply chains and subcontracting.
  • Which companies are required to file the non-financial information statement?

Companies that meet the following requirements are required to present individual or consolidated non-financial information:

That the average number of employees employed by the company or group during the financial year exceeds 500.

That either they are considered public interest entities in accordance with auditing legislation, or, for two consecutive fiscal years, on the closing date of each of them, either individually or consolidated, as the case may be, at least two of the following circumstances:

That the total of the asset items exceeds €20,000,000.

The net annual turnover exceeds €40,000,000.

That the average number of workers employed during the financial year exceeds 250.

  • From which financial year should the financial information be published?

The application of the Law affects financial years commencing on or after 1 January 2018 and, for the purposes of complying with the parameters or requirements indicated, the two consecutive computable financial years will be the one commencing on or after 1 January 2018 and the immediately preceding one.

Three years after the Law’s entry into force, the obligation to present the statement of non-financial information shall apply to all companies with more than 250 employees that are either considered public interest entities in accordance with auditing legislation, except for small and medium-sized companies in accordance with Directive 34/2013, or for two consecutive financial years that, at the closing date of each of them, meet at least one of the following circumstances:

  1. That the total of the asset items exceeds 20,000,000 €.
  2. That the net amount of the annual turnover exceeds 40,000,000 €.
  • What should the non-financial information statement include?

A brief description of the business model, including its business environment, organization and structure, the markets in which it operates, its objectives and strategies as well as the main factors and trends that may affect its future evolution.

A description of the policies it applies to such matters, including the due diligence procedures applied for the identification, evaluation, prevention and mitigation of significant risks and impacts and for verification and control, including what measures have been taken.

The results of these policies, including key non-financial performance indicators that allow for the monitoring and evaluation of progress and favour comparability between companies and sectors.

The main risks, related to these issues, linked to business activities, including business relationships, products or services that may have negative effects, explaining the processes of detection and evaluation of these risks and negative impacts.

Key indicators of non-financial results of the specific business activity, with criteria of comparability, materiality, relevance and reliability, with the aim of enabling the comparison of information over time and between entities.

  • Other significant information

In addition, the statement of non-financial information shall include meaningful information on the following matters:

  • - Environmental

They should include information on pollution prevention, emission reduction, waste management, sustainable use of resources, climate change and protection of biodiversity.

The organisation shall identify the environmental risks arising from the business activity and its commercial relations with third parties, and adopt the necessary measures, controls and procedures to prevent, mitigate and/or diminish their adverse effects.

In this regard, the statement of non-financial information relating to environmental issues should include at least the following issues:

The environmental compliance policies that are applied effectively and efficiently within the organisation, as well as the results derived from their application.

The identification of the main environmental risks detected with respect to the business activity, as well as their respective impacts, if they have materialized.

And the measures, controls and procedures adopted for their identification, evaluation, prevention, mitigation and/or diminishment.

  • - Social and personnel issues

As well as relating to human rights, which should include information relating to the classification of staff, contracts, dismissals and remuneration disaggregated by sex, policies of disconnection from work, employees with disabilities; work organisation, conciliation and absenteeism; health and safety, accidents at work and occupational diseases, disaggregated by sex; social relations, social dialogue and collective agreements; training policies; accessibility for people with disabilities; and measures adopted to promote equal treatment and opportunities between men and women, and prevention of risks of human rights violations and measures to redress possible abuses.

In this case the organizations to complete the statement of non-financial information may apply the following instruments:

  • Egalitarian Personnel Selection Policies, that allow to assure the existence of an equal treatment in the access to any job by any citizen.
  • Protocols of Equality and Non-Discrimination, which guarantee that no worker will suffer discrimination based on sex, ethnicity, sexual condition, etc., in the development of their work functions and promotion within the company.
  • Code of Ethics and Disciplinary System that, respectively, prohibit and sanction certain conducts that may be contrary to equality, non-discrimination, human rights, etc.
  • Plan for the Prevention of Risks at Work, Health and Hygiene, which allows workers to carry out their work functions in their work post under optimum health and safety conditions.

Thus, non-financial information should include at least the following aspects:

  • Compliance policies in social and labour matters and respect for human rights that are applied effectively and efficiently within the organisation, as well as the results derived from their application.
  • The identification of the main social, labour and human rights risks detected with respect to the business activity, as well as their respective impacts, if they have materialized.
  • And the measures, controls and procedures adopted for their identification, evaluation, prevention, mitigation and/or diminishment.
  • - Corruption

Which should include information on measures to prevent corruption, bribery and money laundering, contributions to foundations and non-profit entities.

In this case, rganisations may apply the following instruments to comply with financial reporting:

  • The Anti-Corruption, Anti-Bribery and/or Prevention of Money Laundering and Financing of Terrorism Policies that are effectively and efficiently applied within the organisation, as well as the results derived from their application.
  • The identification of the main risks derived from corruption, bribery, money laundering and financing of terrorism detected with respect to the business activity, as well as their respective impacts, if they have materialized.
  • And the measures, controls and procedures adopted for their identification, evaluation, prevention, mitigation and/or diminishment.

Thus, given that the Regulatory Compliance Programs include a large part of the minimum content that should be included in non-financial information reports, organizations that have Compliance Policies and/or Regulatory Compliance Programs will have greater ease in complying with the publication of non-financial information.

Therefore, there is a close link between the minimum content that must be included in the statement of non-financial information and a large part of the Compliance Programs that the organizations have implemented.

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