Changes to the UK's narrative reporting framework have come into effect for financial periods starting on or after 1 January 2017.

The UK introduced a new narrative reporting framework in October 2013 in the form of the strategic report. Since then, the EU has agreed a Directive to harmonise non-financial reporting requirements across member states. The EU's disclosure requirements broadly reflect the UK's framework, but have required some changes to it.

The changes, which take effect through changes to Part 15 of the Companies Act 2006, affect large listed companies, banks and insurance undertakings with over 500 employees. These companies will now have to prepare a non-financial statement as part of their strategic reports. The non-financial statement must disclose (to the extent necessary to understand the company's development, performance and position and the impact of its activity):

• environmental, social and employee-related matters; and
• respect for human rights and anti-corruption and bribery matters.

The information must include a brief description of the company's business model, a description of the company's policies in relation to these non-financial matters, the outcome of the policies, a description of the relevant principal risks and how the company manages them. If the company does not have policies, it must explain clearly and with reasons why this is the case.

There is some overlap with the enhanced business review that quoted companies must produce as part of their strategic report under the UK's existing regime. To prevent duplication, compliance with the new requirements is deemed to fulfil certain requirements of the existing regime.

Separately, the Directive requires large listed issuers to disclose information about their diversity policy in the corporate governance statement of their annual reports. This change has been implemented by the Financial Conduct Authority which has made the necessary changes to the Disclosure Guidance and Transparency Rules (Rule 7.2). There is overlap between this new requirement and the UK Corporate Governance Code. The latter provides that the report of an issuer's nomination committee in its annual report should contain a detailed description of the board's diversity policy.

https://www.legislation.gov.uk/uksi/2016/1245/pdfs/uksi_20161245_en.pdf

https://www.handbook.fca.org.uk/instrument/2016/FCA_2016_70.pdf

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