In recent years, the demand for companies to provide greater transparency on a wider range of non-financial reporting matters has led to a significant increase in the body of non-financial reporting requirements set out in UK company law. Some of these reporting requirements have been driven by UK-specific initiatives, while others have their origins in EU law. 

These developments have undoubtedly improved the transparency of non-financial information disclosed by companies, but the rather piecemeal approach to introducing them has resulted in significant complexity within the underlying regulatory framework. For example, the number of different thresholds of companies, both in terms of the size and nature, has increased significantly. In addition, the reporting requirements themselves can be complex and are duplicative in places.

Revisiting the framework behind non-financial reporting

The UK’s exit from the EU has provided the government with an opportunity to revisit the framework behind non-financial reporting. Yet in many ways this review is long overdue. For some time, ICAEW has called for the UK government to review and refresh the underlying legislative framework and to rationalise the scope and requirements for the strategic report and directors’ report. Now, more than ever, it is critical for government to ensure that the legislative foundations for non-financial reporting are sufficiently clear and robust in order to support the coherent integration of future non-financial reporting developments into UK company law.

One future development in particular that requires consideration is the recent publication of the International Sustainability Standards Board's (ISSB's) first two IFRS Sustainability Disclosure Standards. The UK government has already committed to establishing a formal mechanism for endorsing these – and other ISSB standards – which should be launched soon. It will be important for any future requirements to report against the ISSB’s standards to align with the wider reporting framework for non-financial reporting. 

Call for evidence

Against this backdrop, the Department for Business and Trade (DBT) has launched a call for evidence seeking stakeholder views on:

• the non-financial reporting requirements that companies and limited liability partnerships (LLPs) need to comply with in order to produce their annual report, ie, the information required within the strategic report and directors’ report;
• certain requirements that sit outside of the Companies Act, for example reporting on modern slavery and gender pay;
• how IFRS Sustainability Disclosure Standards should be incorporated into the UK’s non-financial reporting framework; and
• whether the existing company law thresholds remain appropriate. 

What will be the outcome of the review?

The UK government will use the information collected from the call for evidence to develop detailed proposals for public consultation in 2024. Depending on the feedback received on those later consultations, the government will look to legislate for future changes. As a separate exercise, the government will also be conducting outreach in relation to IFRS Sustainability Disclosure Standards.

While it may be some time before the results of the call for evidence manifest into concrete changes to UK company law, the feedback collated at this early stage will be instrumental in guiding the government’s future plans. For this reason, ICAEW’s Corporate Reporting Faculty will be busy over the summer months gathering members’ views to help formulate our response to DBT. The deadline for submitting views is 16 August 2023. Members can share views before then with faculty staff at crf@icaew.com.

Sarah Dunn, Senior Manager, Corporate Reporting, ICAEW