With the transposition into Irish law of the 2014 EU Directive on Non-Financial Reporting, 2018 will see a significant change in the annual directors’ reports of large Irish companies. Pursuant to Regulations promulgated in August 2017 by the then Minister for Jobs, Enterprise and Innovation, Francis Fitzgerald, applicable companies are now required to include in their annual directors’ reports a statement addressing designated non-financial information, including human rights.
Non-financial disclosure requirements by companies of a certain size has been legislated for in a number jurisdictions on certain human rights issues: the United Kingdom Modern Slavery Act 2015 requires large companies to describe the steps taken (or not taken) to address slavery and human trafficking in their operations and supply chain, while the under-threat Dodd-Frank Act in the United States requires disclosures in relation to “conflict minerals” by companies registered with the Securities and Exchange Commission.
The new Irish law applies to larger companies also, including those that have an average number of employees over 500. For such companies, the “non-financial statement” in the annual directors’ report must:
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:
(i) environmental matters;
(ii) social and employee matters;
(iii) respect for human rights;
(iv) bribery and corruption
The statements shall include a description of policies pursued in relation to such matters and “due diligence processes implemented and a description of the outcome of those policies”. Directors must also report on the environmental, human rights and other risks of the companies operations and “where relevant and proportionate”:
- its business relationships, products or services which are likely to cause adverse impacts in those areas, and
- how the applicable company manages those risks
Unlike under the UK’s Modern Slavery Act 2015 whereby companies are not required to explain the absence of any steps taken, but to merely state that fact, under this Irish law directors of a company that does not pursue relevant policies shall provide “a clear and reasoned explanation for not doing so”.
The 2017 Regulations also require the filing of a “diversity report”, which must describe “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”. Such a report must also explain the objective of the policy, its implementation, and results achieved during in the year.
These new non-financial disclosures will require companies to come to terms with their environmental and societal impacts, and to report on those impacts under threat of penalty (including a fine or term of imprisonment of up to six months). When the Regulations entered into force, the Minister stated:
“I believe that public disclosure of this type will help to encourage sustainable growth in Irish enterprise. I expect that it will also be of interest to investors, consumers, non-governmental organisations and wider society.”
It is not clear whether there will be any assessment of the content of such reports by the Irish authorities, which in turn will place that significant burden on those other parties that the Minister mentioned. Nevertheless, it is a step in the right direction in terms of requiring business enterprises to address their human rights performance.