New obligations for entities of public interest to disclose non-financial information

Royal Decree-law 18/2017 of 24 November requires certain entities of public interest to disclose non-financial and diversity information.

Entities of public interest (among others, companies whose transferable securities are admitted to trading on the official secondary securities markets, companies whose transferable securities are admitted to trading on the alternative stock market belonging to the segment of companies in expansion, credit institutions and insurance companies) must disclose certain non-financial information with respect to the financial years beginning on or after 1 January 2017. They must comply with such obligation, either in the management report or by way of a separate report, if they have an average number of employees during the financial year in excess of 500 and, in addition, at the date of closing of two consecutive financial years and in accordance with the individual balance sheet, they meet at least two of the following requirements:

• total assets of more than € 20 million;
• net turnover of more than € 40 million; and
• average number of employees of more than 250

For groups that meet the above requirements at consolidated level, the parent company of the group must comply with the referred obligation in its consolidated management report or in a separate report.

The subsidiary companies of the group that meet the above requirements but are included in the consolidated management report or, as the case may be, in the separate report of another group company that fulfils the obligation, will be exempt from its fulfilment. However, these companies must include in their management report a reference to the identity of the parent company and the place where the consolidated information is available.

The above companies will have to disclose the information necessary to understand the company’s or, as the case may be, the group of companies’ performance, results and situation and the impact of its activity on, at least, environmental and social matters, employees, respect for human rights, and anti-corruption and anti-bribery matters.

In particular, the following information regarding the company (in case of individual accounts) or the group (in case of consolidated accounts) must be included:

• A brief description of the business model.
• A description of the policies pursued in relation to the matters set out above, including the processes implemented to identify and assess the risks and those regarding verification and control, including the measures adopted.
• The main risks relating to those matters arising in connection with the operations including, where relevant and proportionate, its business relationships, products and/or services which are likely to cause adverse impact in those areas of risk, and how it manages those risks.
• Non-financial key performance indicators relevant to the particular business. Generally applied standards of non-financial key performance indicators that fulfil the European Commission guidelines in these matters can be used.

Likewise, listed companies must broaden the content of the annual corporate governance report to include a description of the applicable diversity policy applied to the board of directors, including its objectives, the measures adopted, the way in which they have been implemented and the results for the reporting period, as well as the measures that, if applicable, the appointment committee has agreed accordingly. If no diversity policy is applied, an explanation should be included in this respect. However, listed companies that meet the conditions to be qualified as “small entity” or “medium-sized entity” in accordance with Spanish accounts auditing legislation shall only be required to include information about the measures adopted on gender, if any.

The auditor will only need to verify that the non-financial information is included in the relevant report (management report, separate report or, in the case of a listed company, annual corporate governance report). Therefore, it is not necessary for the audit report to include an opinion on whether the content and presentation of the non-financial information comply with the applicable legal requirements.

The enshrinement of this obligation in Spanish Law is the result of the transposition of EU Directive 2014/95 of the European Parliament and of the Council of 22 October 2014. As a consequence of this enshrinement, the Spanish legal provisions that regulate the management report (articles 49 of the Commercial Code and 262 of the Capital Companies Act), the annual corporate governance report to be published by listed public limited companies (article 540 of the Capital Companies Act), as well as the performance of the account auditors in relation to non-financial information (article 35 of the Account Auditing Act) have been amended accordingly.