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FINANCIAL REPORTING FACULTY

Content of the strategic report

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Updated: 03 Nov 2022 Update History

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Contents
Establishing the disclosure requirements of the strategic report is a complex process as the report contains a number of components with different scoping criteria.

Visit The strategic report and how to prepare one for guidance on the purpose and preparation of the report.

To determine which disclosures are required in the strategic report, each company will first need to determine which category or categories it falls under based on its size and nature. A careful review of all categories is required as companies are likely to fall into multiple categories.

Below is an overview of the various categories of company and the disclosures they trigger.

Please note

A careful review of all categories is required as companies are likely to fall into multiple categories.

All companies that are not small

All companies must prepare a strategic report for each financial year, except for those that fall within the small companies exemption. The strategic report and how to prepare one provides more detail on which companies fall within the small companies exemption.

Large companies

Large companies are defined as those exceeding the medium company size thresholds on the two-year rolling basis, and on a group basis if the company is a parent. Further guidance is available at How to determine the size of a company.

  • Key performance indicators – non-financial

    The review of the company’s business as outlined above must, to the extent necessary for an understanding of the development, performance or position of the company’s business, include, when appropriate, analysis using other non-financial KPIs, including information relating to environmental and employee matters.

  • Section 172(1) statement

    The s172(1) statement describes how the directors, when performing their duty under s172 of CA 2006 to promote the success of the company for the benefit of its members as a whole, have had regard to the following matters:

    • 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 s172(1) statement is required at an individual company level. This means that all companies in scope of this requirement within a group, including subsidiaries and parent companies, are required to produce an individual s172(1) statement within their strategic report.

Quoted company

Quoted companies are those whose equity share capital: has been included in the Official List in accordance with the provisions of Part 6 of the Financial Services and Markets Act 2000; is officially listed in an EEA State; or is admitted to dealing on either the New York Stock Exchange or the exchange known as Nasdaq.

  • Gender split

    The strategic report must include a breakdown showing at the end of the financial year the number of people of each gender who were each of directors, senior managers and employees of the company or group. For this requirement, senior manager is defined as a person who has responsibility for planning, directing or controlling the activities of the company, or a strategically significant part of the company, and is an employee of the company.

  • Information on environmental matters, the company’s employees, and social, community and human rights issues

    To the extent necessary for an understanding of the development, performance or position of the company’s business, information is required to be provided about environmental matters (including the impact of the company’s business on the environment), the company’s employees, and social, community and human rights issues. This information also includes details about any company policies in place for these matters and the effectiveness of those policies. When the strategic report does not provide information on these matters, the strategic report must state which kinds of information it does not contain.

  • Information on trends, company strategy and business model

    The strategic report must include:

    • To the extent necessary for an understanding of the development, performance or position of the company’s business, information on the main trends and factors likely to affect the future development, performance, and position of the company’s business.
    • A description of the company’s strategy.
    • A description of the company’s business model.

Public interest entities (PIEs) with > 500 employees

PIEs have transferable securities admitted to trading on a UK regulated market or are banking or insurance companies. The requirements apply if the company, or group if it is a parent, had more than 500 employees on average (on the current year basis.) 

  • Non-financial information statements

    A non-financial information statement must contain information, to the extent necessary for an understanding of the company’s development, performance and position and the impact of its activities, relating to, as a minimum:

    • environmental matters (including the impact of the company’s business on the environment);
    • the company’s employees;
    • social matters;
    • respect for human rights; and
    • anti-corruption and anti-bribery matters.

    For the above matters, a non-financial information statement must include a description of the policies pursued, any due diligence processes implemented by the company in relation to those policies, and the outcome of those policies. If the company does not pursue any policies in relation to the above matters it must outline its reasons for not doing so. In addition, a non-financial information statement must include a description of the principal risks relating to the above matters arising in connection with the company’s operations and, where relevant and proportionate:

    • a description of its business relationships, products and services which are likely to cause adverse impacts in those areas of risk; and
    • a description of how it manages the principal risks.

    The following information is also required in a non-financial information statement:

    • a brief description of the company’s business model;
    • a description of the non-financial key performance indicators relevant to the company’s business; and
    • references to, and additional explanations of, amounts included in the company’s annual accounts.
  • Non-financial and sustainability information statement – additional climate-related disclosures

    For financial years starting on or after 6 April 2022, PIEs must also include the additional climate-related disclosures meaning the existing non-financial information statement will be expanded and renamed the non-financial and sustainability information statement.

    The non-financial and sustainability information statement is additionally required to include the following climate-related financial disclosures:

    • a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities;
    • a description of how the company identifies, assesses and manages climate-related risks and opportunities;
    • a description of how processes for identifying, assessing and managing climate-related risks are integrated into the company’s overall risk management process;
    • a description of the principal climate-related risks and opportunities arising in connection with the company’s operations and the time periods by reference to which those risks and opportunities are assessed.

    The following requirements can be omitted if the directors of the company reasonably believe that these disclosures are not necessary. In cases where this option is taken, a clear and reasoned explanation as to why it is appropriate to omit the information must be given.

    • a description of the actual and potential impacts of the principal climate-related risks and opportunities on the company’s business model and strategy;
    • an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios;
    • a description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
    • a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.

    This statement must be included in the strategic report, but it can cross-refer to other parts of the annual report where appropriate. Any material information must be included in the annual report; references outside the annual report can relate only to complementary information.

AIM companies and high turnover (> £500m in the financial year) companies with > 500 employees

  • Non-financial and sustainability information statement – additional climate-related disclosures

    The disclosures outlined below are broadly aligned to the TCFD framework  and apply for financial years starting on or after 6 April 2022.

    A company’s non-financial and sustainability information statement is required to include the following climate-related financial disclosures:

    • a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities;
    • a description of how the company identifies, assesses and manages climate-related risks and opportunities;
    • a description of how processes for identifying, assessing and managing climate-related risks are integrated into the company’s overall risk management process;
    • a description of the principal climate-related risks and opportunities arising in connection with the company’s operations and the time periods by reference to which those risks and opportunities are assessed.

    The following requirements can be omitted if the directors of the company reasonably believe that these disclosures are not necessary. In cases where this option is taken, a clear and reasoned explanation as to why it is appropriate to omit the information must be given.

    • a description of the actual and potential impacts of the principal climate-related risks and opportunities on the company’s business model and strategy;
    • an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios;
    • a description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
    • a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.

    A company that falls within this category (AIM and high turnover companies with > 500 employees) is required to include the above disclosures in a non-financial and sustainability information statement. If the entity is not also a PIE with > 500 employees, it is not required to include the other information outlined in the PIE with > 500 employees category above.

    The non-financial and sustainability information statement must be included in the strategic report, but it can cross-refer to other parts of the annual report where appropriate. Any material information must be included in the annual report; references outside the annual report can relate only to complementary information.

Further ICAEW resources