On 2 November 2018, the text on non-financial and diversity information approved by the Economy and Business Commission of the lower house of the Spanish Parliament was submitted to the Senate. This text refers to the Draft Bill that amends the Code of Commerce, the consolidated text of the Companies Law, approved by Royal Decree 1/2010, of 2 July, and the Audit Law 22/2015, of 20 July (the "Draft Bill").
The Draft Bill has its origins in Directive 2014/95/EU of the Parliament and Council, of 22 October 2014, which amends Directive 2013/34/EU as regards the disclosure of non-financial and diversity information by certain large companies and groups (the "Directive"). At first, it was transposed to our legal system by means of Royal Decree 18/2017, of 24 November. In its preamble, it states that the objective of the Draft Bill is to identify risks in order to improve sustainability and increase the trust of investors, consumers and society in general. It is expected that disclosing this non-financial information will contribute to supervising and monitoring the impact that these companies' activities have on society.
The affected companies shall have to issue on an annual basis a statement on their non-financial situation. This statement will either be included in the consolidated management report, which is attached to the consolidated annual accounts, or it will be written as a separate report, expressly stating that the information included is part of the management report. The non-financial statement must at least include the following information: (i) environmental and social matters, (ii) employee-related matters (including any measures that may be adopted in support of the principles of equal treatment and equal opportunity, human rights and anticorruption and bribery strategies), and (iii) tax contribution matters.
The Draft Bill determines the specific information that will have to be included in relation to each of the above matters. For instance, in relation to environmental matters, the Draft Bill sets out that these companies will have to publish information about the sustainable use of resources as well as any measures taken to protect biodiversity and fight pollution. Regarding employee and social-related matters, the Draft Bill specifies that companies will have to publish the average salary of their directors and managers, including the variable remuneration, any allowances, compensation or other items perceived, disaggregated by gender. In relation to tax information, companies will have to specify their profits by country, the taxes they have paid on their profits and any public subsidies they may have received.
Non-financial information must be published on the company's website within the six months following the end of the financial year, having to be free, easily accessible to the public and available for five years.
Non-financial information will be verified by an independent assurance services provider. Therefore, auditors will have to verify that the information appears in the management report or the separate report, as appropriate and in accordance with any applicable legal requirements.
What companies will it affect?
The new requirements for non-financial information will be applicable to those companies that prepare consolidated accounts, as long as they always meet the following requirements:
- that during the financial year the average number of employees working for the companies of the group exceeds 500; and
- that (a) they are considered entities of public interest in accordance with the auditing legislation; or (b) during two consecutive financial years, they at least meet two of the following conditions on closing date:
- That the total amount of the consolidated assets exceeds Euros 20,000,000.
- That the total amount of the consolidated net turnover exceeds Euros 40,000,000.
- That the average number of employees during the financial year exceeds 250.
Entry into force
The Draft Bill specifies that the amendments introduced will apply to financial years commencing from 1 January 2018, and that three years after the law has been enforced, the obligation of submitting the non-financial consolidated information will be applicable to the companies mentioned above, but in this case the number of employees working for the companies of the group during the financial year is reduced to 250. Therefore, companies with over 250 employees on average will have a three–year transitional period to allow them to gradually adapt to the new non-financial information requirements.
The text to be submitted to the Spanish Parliament is pending a report by the Economy and Business Commission, since different parliamentary groups have submitted their amendments to the Draft Bill. The deadline to process the Draft Bill in the Senate is 22 November.
This law will incorporate the Directive into Spanish Law, increasing the transparency requirements for large companies with the aim of improving their sustainability, as well as their social impact and corporate responsibility.
This brief summary will have to be reviewed once the final text of the Draft Bill has been published in the Official Gazette and, if appropriate, further developed by regulation.