For accounting periods commencing on or after 1 January 2019 there are four new narrative reporting requirements for large private companies. These have been brought in under the Companies (Miscellaneous Reporting) Regulations 2018 (SI 2018/860). In addition, large private companies and LLPs will be required to report on their carbon emissions for accounting periods commencing on or after 1 April 2019.
Section 172 statement
The Strategic Report is required to include a statement which describes how the directors have had regard to the matters set out in section 172 a to f when performing their duty under section 172, ie the duty to promote the success of the company. The section 172 matters are:
- The likely consequences of any decision in the long term;
- The interests of the company’s employees;
- The need to foster the company’s business relationships with suppliers, customers and others;
- The impact of the company’s operations on the community and the environment;
- The desirability of the company maintaining a reputation for high standards of business conduct; and
- The need to act fairly as between members of the company.
The Department for Business, Energy and Industrial Strategy (BEIS) has issued some frequently asked questions to support the application of this new requirement which state that what should be included will depend upon the circumstances but companies may include information on some or all of the following:
- The issues, factors and stakeholders the directors consider relevant in complying with section 172 (1) (a) to (f) and how they have formed that opinion;
- The main methods the directors have used to engage with stakeholders and understand the issues to which they must have regard; and
- Information on the effect of that regard on the company’s decisions and strategies during the financial year.
Further guidance has been produced by the Financial Reporting Council (FRC) in their updated “Guidance on the Strategic Report”.
Directors’ Report statement of engagement with employees
A statement must be included in the Directors’ Report that summarises:
- How the directors have engaged with employees; and
- How the directors have had regard to the employee interests, and the effect of that regard, including on the principal decisions taken by the company during the financial year.
Directors’ Report statement on business relationships
A statement must be included in the Directors’ Report summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the company during the financial year.
Statement of Corporate Governance Arrangements
A statement must be included in the Directors’ Report stating:
- Which corporate governance code, if any, has been applied and how.
- If the company has departed from the code it must set out the respects in which it did so, and the reasons.
- If the company has not applied any corporate governance code, the statement must explain why that is the case and what arrangements for corporate governance were applied.
To assist companies to meet these requirements a voluntary framework has been developed called the Wates Corporate Governance Principles for large private companies.
Energy and Carbon Reporting
The requirement to disclose information relating to energy and carbon emissions has arisen through the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (SI 2018/1155). Disclosures to be made in the Directors’ or Members’ Report are of:
- The annual quantity of emissions in tonnes of carbon dioxide resulting from activities for which the company is responsible involving:
– the combustion of gas; or
– the consumption of fuel for the purposes of transport.
- The annual quantity of emissions in tonnes of carbon dioxide equivalent resulting from the purchase of electricity by the company for its own use, including for the purposes of transport
- A figure in kWh, which is the aggregate of:
– the annual quantity of energy consumed from activities for which the company is responsible involving:
a) the combustion of gas; or
b) the consumption of fuel for the purposes of transport; and
– the annual quantity of energy consumed resulting from the purchase of electricity by the company for its own use, including for the purposes of transport.
- If the company has, in the financial year to which the report relates, taken any measures for the purpose of increasing the company’s energy efficiency, the report must contain a description of the principal measures taken for that purpose.
- The methodologies used to calculate the information.
- At least one ratio which expresses the company’s annual emissions in relation to a quantifiable factor association with the company’s activities.
Apart from in the first year of application comparative figures must be given.
There are some scope exemptions from the reporting based upon the level of energy consumed or if the disclosure would be seriously prejudicial to the interests of the company or LLP but the reasons for non-disclosure must be given.
Where to find help?
If you have any queries on the changes, please get in touch with your usual Saffery Champness partner.