In July 2017, the BBC made headline news when the sheer scale of their gender pay gap was revealed. The revelation that the top 7 earners were men, and that only a third of the top 96 earners were women, shocked many and came in for fierce criticism. After all, if gender inequality is currently woven into the BBC’s framework, a trusted and publicly-funded organisation who are perceivably far more accountable to stakeholders than the majority of their competitors, then it begs the question; how can companies be urged to be more transparent in the way they treat their employees?
How did this gender pay gap slip under the radar for so long? Gender inequality across salaries has long been something spoken about, however, it has traditionally been hard to pin point where it is happening. There is a relatively obvious solution to this problem. Companies that report on non-financial issues, such as diversity and gender equality, can address them, as the matter is out in the open and organisations can be held to account. Indeed, issues such as these may well be something that companies themselves do not realise, until they are forced to report on it and are thus made aware of it. The key therefore to solving this issue is to ensure that organisations increase transparency to their stakeholders.
There are several ways in which large companies in the UK are now being driven into transparency, one of them being the EU Non-Financial Reporting Directive (EU NFRD). Introduced by the EU in 2014, the EU NFRD aims to improve the transparency and consistency of non-financial disclosures by large businesses.
What is EU NFRD?
The EU NFRD was introduced by the EU in early 2014 and transposed into UK law in late 2016. The EU NFRD applies to all financial years starting on or after 1st January 2017. It is now mandatory for public interest entities (including listed companies, insurance undertakings and financial institutions with over 500 employees) to report on five key matters:
- human rights
- anti-corruption and bribery.
Specifically, companies will be required to report on (for each of the five non-financial matters) policies which they have set out and the outcomes of the derived policies. Where no policies have been pursued, the company must offer a full explanation for why this is the case. This Directive compliments a number of other non-financial reporting-focused legislative requirements introduced over the past few years such as the Modern Slavery Act. However, questions remain around how companies will choose to comply with the legislation and whether the NFRD will be enough to make transparency and accountability an integral part of large businesses.
How can the EU NFRD bring about transparency?
As companies begin to start (or improve) reporting on non-financial matters, and transparent reporting becomes the norm, rather than exception, within the business community, it will start to become obvious which matters organisations have addressed and which they haven’t. The way these key non-financial matters are addressed is very important because it could begin to have a catastrophic impact on companies’ reputation.
Companies have the choice to reveal all or state why they are not reporting on specific matters, however it’s not likely to reflect well on a business if it they freely admit they are doing nothing to tackle social issues, such as gender inequality. Given the qualification thresholds, as public interest entities begin to report on these matters, other non-qualifying companies risk being left behind and also risk a reputational shadow being cast upon them thanks to assumptions made by the public based on their choice not to disclose. It is essential that companies understand and address the requirements in the EU NFRD to ensure transparency of reporting, and ultimately, tackle these non-financial risks.
To learn more about the EU NFRD, what it requires and who is caught by it, download a copy of our free EU NFRD guide here.