Empty Link Skip to Content

New Non-Financial and Diversity Disclosure Obligations

Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (the “Directive”) has been transposed into Irish law by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 (the “2017 Regulations”).

Annex_A_November_2017 PDF | 0.04 MB

Under the 2017 Regulations, certain Irish incorporated companies will be obliged to make annual disclosures on certain non-financial and board diversity matters for financial years beginning on, or after, 1 August 2017.  There are two distinct obligations introduced under the 2017 Regulations: (i) non-financial reporting and (ii) diversity reporting – and each has different qualifying criteria.  It is possible for a company to fall under the scope of either one or both reporting obligations.

Any relevant disclosures are required to be included in the directors’ report which accompanies the annual statutory financial statements, or otherwise, in the case of the non-financial matters, published using the alternative method of publication referred to below.

This note considers the potential application of the 2017 Regulations with specific reference to the cohort of US listed groups with Irish incorporated holding companies (“Irish HoldCos”).

Non-Financial Reporting

What companies are in scope?

In order for the non-financial reporting obligations in the 2017 Regulations to apply to a company, the following criteria must be met:

1. The company must be a “large company” under the Companies Act 2014.  A company will be a “large company” for this purpose if, in relation to a financial year, either it or the group of which it is the holding company fulfils two or more of the following requirements:

  • aggregate turnover greater than €40m net (or €48m gross);
  • an aggregate balance sheet total exceeding €20m net (or €48m gross); and / or
  • an aggregate average number of employees exceeding 250.

All, or most, of the Irish HoldCos are likely to meet these criteria.  The net thresholds are calculated after set-offs and other adjustments made to eliminate group transactions.  The gross thresholds are calculated without those set-offs and other adjustments.

2. The company, or the group of which it is the holding company, must have an average number of employees exceeding 500.

Once again, all, or most, of the Irish HoldCos should meet this requirement.

3. The company must be an “ineligible entity”.  In broad terms, this means an entity which is not entitled to avail of certain exemptions and dispensations under Irish law on accounting disclosure.

The following companies are characterised as “ineligible entities” for this purpose:

  • companies that have transferable securities admitted to trading on a regulated market of any EEA member state;
  • authorised credit institutions;
  • authorised insurance undertakings;
  • companies carrying on certain specified financial services activities as per the list in Annex A;
  • entities that are designated as “public interest entities” by Ireland or another EU member state, for example, entities that are of significant public relevance because of the nature of their business, their size or the number of their employees;
  • public limited companies (“PLCs”);
  • public unlimited companies;
  • public unlimited companies without a share capital; and
  • investment companies.

As all of the Irish HoldCos are PLCs, they are all “ineligible entities” for this purpose.

Accordingly, all of the foregoing criteria are likely to be met by the Irish HoldCos and the provisions of the 2017 Regulations requiring a “non-financial statement” to be included in the directors’ report of a company (which accompanies its annual statutory financial statements) are likely to apply to them.

Required content of non-financial statement

The non-financial statement of a company must:

(a) be included as a specific section of the applicable directors’ report;

(b) contain information, to the extent necessary for an understanding of the development, performance, position and impact of its activity relating to, at least, the following matters:

  • environmental matters;
  • social and employee matters;
  • respect for human rights; and
  • bribery and corruption;

(c) include a brief description of its business model;

(d) include a description of the policies pursued by it in relation to the matters referred to at subparagraph (b) above, including due diligence processes implemented and a description of the outcome of those policies;

(e) include a description of the principal risks related to the matters referred to in subparagraph (b) above, including (i) its business relationships, products or services which are likely to cause adverse impact in those areas and (ii) how the company manages those risks; and

(f) an analysis of the non-financial key performance indicators relevant to its business.

Where the directors of the company do not pursue policies in relation to one or more of the matters referred to at sub-paragraph (b), above, the non-financial statement is required to include a clear and reasoned explanation for not doing so.

The non-financial statement is also required, where appropriate, to include references to, and additional explanations of, amounts included in the statutory financial statements of the applicable company.

Where the relevant company is a holding company of a group which is required to prepare group consolidated statutory financial statements, the directors’ report take the form of a group directors’ report dealing with the holding company and the subsidiaries included in the consolidation taken as a whole.

"Safe-harbour" exemption

Ireland has exercised its discretion under the Directive to opt for a limited “safe-harbour” exemption.  This allows information to be omitted in relation to impending developments or matters in the course of negotiation where disclosure, in the opinion of the directors, could seriously prejudice the company’s competitive position.  The omission must not, however, prevent a fair and balanced understanding of the company’s development, performance, position and the impact of its activity.  Where information has been so omitted, the relevant company must state in its non-financial statement the fact that such information has been omitted and the reason for such omission.

Alternative method of publication

Ireland has opted to also permit an alternative method of publication of the information required to be included in a non-financial statement that is allowed under the Directive.  Under the alternative method of publication, the information may also be set out in a separate statement and, if so, a copy of such statement must:

(a) be published on the company’s website within six months of the financial year end, provided that a statement that it has been so published, or will be so published,  is included in the directors’ report; or

(b) be annexed to the annual return of the company. 

Where a separate statement is prepared, it must also be attached to every balance sheet of the company that is presented to shareholders at the annual meeting and must be signed by two of the directors of the company.

Application to subsidiaries

Where a holding company has complied with the foregoing requirements then any Irish subsidiaries of that holding company are exempted from these obligations.  The 2017 Regulations only apply to Irish companies but where an Irish holding company complies with these requirements, the relevant national legislation transposing the Directive in the various EEA jurisdictions ought to similarly provide that any subsidiaries of that Irish holding company in those jurisdictions which meet the relevant criteria are not obliged to comply with the equivalent national requirements.

Auditors confirmation

The company’s statutory auditors, when preparing their report on the statutory financial statements, must confirm that that the company has prepared the non-financial statement either in its directors’ report or in a separate statement as permitted.  The Directive allows EU member states to legislate for a more involved review of the content of the statement by an “independent assurance provider” but this option was not taken in the 2017 Regulations.

Diversity Reporting

What companies are in scope?

In order for the diversity reporting obligations in the 2017 Regulations to apply to a company, the following criteria must be met:

1. The company must be a “large company” under the Companies Act 2014. 

The requirements in this regard are set out above and, as indicated, most Irish HoldCos are likely to meet these criteria.

2. The Company must also be a “traded company” under the Companies Act 2014.  The following are companies that are characterised as “traded companies” for this purpose:

  • a PLC;
  • a designated activity company;
  • a company limited by guarantee;
  • a public unlimited company; and
  • a public unlimited company without a share capital,


(a) in the case of a PLC, has shares or debt securities admitted to trading on a regulated market in an EEA member state; or

(b) in the case of any of the other types of company referred to above, has debt securities admitted to trading on a regulated market in an EEA state.

3. In the case of a PLC that only has debt securities admitted to trading on a regulated market in the EEA, to be in scope it must also have shares in issue which are traded in a “multilateral trading facility” in the EEA.  A “Multinational trading facility” is basically a secondary trading facility or system that is not authorised as an EEA regulated market (eg secondary markets such as AIM operated by the London Stock Exchange or the ESM market of the Irish Stock Exchange are multinational trading facilities).

Accordingly, unless an Irish HoldCo has: (i) shares admitted to trading on a regulated market in an EEA member state or (ii) debt securities admitted to trading on a regulated market in an EEA member state together with shares that are traded on a multilateral trading facility in the EEA, it will not be subject to the diversity reporting obligations in the 2017 Regulations.

What are the diversity reporting obligations?

A company that is subject to the relevant obligations must include in its corporate governance statement (which forms part of the directors’ report), a diversity report that includes:

  • a description of the diversity policy applied in relation to the company’s board of directors with regard to aspects such as age, gender or educational and professional backgrounds;
  • the objective of that diversity policy;
  • how that diversity policy has been implemented by the company; and
  • the results of that policy in the relevant financial year.

Where the company does not apply any diversity policy the directors must include in the corporate governance statement an explanation as to why there is no policy.

Penalties for Non-Compliance

Breach of the 2017 Regulations is an offence punishable by a €5,000 fine and / or imprisonment for up to six months.

Guidelines on Non-Financial Reporting

The European Commission has published non-binding guidelines on non-financial reporting.  These guidelines reflect the Commission’s views on the methodology for reporting non-financial information in order to facilitate “relevant, useful and comparable” disclosure of the required information.