The new obligation for large companies to disclose non-financial information

A few days (and hours) before the change of the year, on 29 December 2018, the law implementing the Directive 2014/95/EU of the European Parliament and the Council of 22 October 2014 into Spanish law was published in the Spanish Official Gazette. This implementation, materialized in the Law 11/2018, of 28 December, which amends the Commercial Code, the consolidated text of the Corporate Companies Act approved by Royal Legislative Decree 1/2010, of 2 July, and Law 22/2015, of 20 July, on Account Auditing, in matters of non-financial information and diversity, which introduces some relevant changes in corporate companies’ regulation.

The main objective of the Directive is to ensure that Member States of the Union have adequate and effective means for the disclosure of non-financial information by certain companies. According to the Directive, obligated companies must provide in the financial statements of each year, adequate information on those aspects in respect of which, by reason of their business, there is a probability of materialising certain risks with serious effects of the market or society. However, because of the additional administrative burden of this obligations, this duty does not apply to every company, exempting small and medium-size companies, as defined in Article 3 of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013, from this obligation.

Consequently, the new Law 11/2018 establishes that the Spanish companies obliged to prepare the Management Report must prepare and provide in said report a statement with non-financial information or a separate report with such information, provided that during two consecutive financial years at least, two of the following requirements are met:

  • That the total of the assets items exceeds 20 million euros;
  • That net amount of annual sales exceeds 40 million euros;
  • The average number of employees during the financial year exceeds 250 people.

In addition to these requirements, the company will be also obliged to prepare a statement of financial if also meets the requirement that the average number of workers employed during the financial year exceeds 500 people. These requirements are equally applicable to those companies obliged to draw up consolidated annual accounts.

If the requirements defined above are met, the annual accounts of the obligated company, whether consolidated or individual accounts, must contain non-financial information necessary to understand the evolution, results and situation of the company or group of companies and its impact on the environment, social, respect for human rights, the fight against corruption as well as those relating to personnel and the measures adopted to promote equal treatment and opportunities, among other matters. All of this may be included in the annual accounts’ management report itself or by means of a separate report, expressly defined as a separate item on the agenda and approved in the minutes of the General Shareholders’ Meeting.

As noted above, small and medium-sized companies will be exempt from drawing up this non-financial statement. However, if a parent of a group of companies is at the same time a subsidiary of a larger group, that company will be also exempt from the obligation to prepare said report provided that the company and its subsidiaries are included in the consolidated management report of the superior parent company that complies with that obligation.

The new obligation to non-financial information statement in individual or consolidated accounts applies for financial years beginning on or after 1 January 2018. In addition, the calculation of the two consecutive financial years in which the requirements must be met in order to be applicable such obligation will be the one that begins as from 1 January 2018 and the immediately preceding one. This implies that on next financial year 2019 the companies that already meet these requirements will be obliged to prepare the aforementioned report.