Call for evidence outcome

Smarter regulation non-financial reporting review: call for evidence

Updated 18 March 2024

The Department for Business and Trade (DBT), working with the Financial Reporting Council (FRC), the UK regulator for corporate governance, reporting and audit, is conducting a review of the non-financial reporting requirements UK companies need to comply with to produce their annual report and to meet broader requirements that sit outside of the Companies Act. The review will also consider if current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, remain fit for purpose.

This builds on the Smarter regulation to grow the economy policy paper which set out how the government would improve regulation across the board to reduce burdens and drive economic growth now that the UK has left the European Union. Our departure from the EU allows us to shape rules and processes so that they work for the UK’s specific circumstances, including for non-financial reporting.

This call for evidence is the first stage of the review process. See the survey questions to support this call for evidence


The preparation and disclosure of non-financial reporting information plays a vital role in the UK’s corporate governance framework. When considered alongside a company’s financial accounts, the purpose of non-financial reporting information is to:

  • increase transparency by requiring companies to detail their approach to non-financial risks, policies and strategy, as well as detail their progress or approach to broader societal and ethical issues. This transparency reduces the asymmetry of information between directors, investors, and wider stakeholders around companies’ operations. It also serves a wider purpose in society and can be used to inform decisions around where people shop, use services, or take up employment
  • support the board of directors to make policy decisions, set future strategy and allocate resource across their organisation
  • enable more informed investment decisions by providing important information about a company’s operations, risks, opportunities, and ethical practices that is not captured by financial accounts. Properly designed, non-financial reporting facilitates comparable reporting across companies, providing high-quality information that underpins the UK’s reputation as a trusted location for investment and business activity

Over the years the demand for the provision of non-financial information has grown, as investors and other stakeholders seek information to support more sophisticated decision making that is not just narrowly focused on financial return. The UK’s framework for non-financial information needs to be able to respond to this demand but this needs to be balanced with companies being able to produce information that is focused, comparable and concise. This is important for three reasons. First, it will ensure that investors, and other stakeholders, can absorb and use the information produced efficiently, driving effective decision making across the UK economy. Secondly, focused reporting will support meaningful engagement with the information at board level, thereby driving strategic decision making by companies themselves. Finally, it provides a platform for organisations to demonstrate their positive impact, and commitment to addressing key social issues.

The UK also needs to be able to respond to international developments. The International Sustainability Standards Board (ISSB) is developing global reporting standards focused on sustainability issues, to help drive international comparability of information and help reduce the reporting burden for multinational companies. In the Mobilising Green Investment: 2023 Green Finance Strategy the government committed to establishing a formal assessment mechanism for those standards. This assessment mechanism is expected to launch once the ISSB’s first two standards are published. It will be important that future requirements to report against UK-endorsed standards are coherent within the wider body of UK law.

The UK has set out its ambition to be the world’s first net zero-aligned financial centre. As part of delivering on that commitment, the 2023 Green Finance Strategy announced the government’s intention to consult on the introduction of requirements for the UK’s largest companies to disclose their transition plan, if they have one, building on the work of the Transition Plan Taskforce (TPT). This consultation will take place once the TPT has completed its work later in 2023.

The time is therefore right for the government to take a fresh look at the body of requirements companies need to comply with to ensure that the UK’s corporate reporting framework continues to deliver what investors and other stakeholders need to support economic growth and long-term value creation.

Why the review is taking place

Over time the government and regulators have increased non-financial reporting requirements on companies in response to stakeholder and investor demand, public policy considerations and EU initiatives. Whilst each additional reporting requirement has been designed to increase the transparency and accountability of companies to their members, and wider society, each new requirement has led to an increase in the size and complexity of annual reports. It has also led to an expansion of the types of information companies are expected to report on outside of the annual report, including through public facing channels, like their website or dedicated portals where information can be filed.

Through the non-financial reporting review, the government is looking at what opportunities exist to refresh and rationalise current reporting requirements so that the UK’s non-financial reporting framework is fit for purpose and delivers decision-useful information to the market. This approach is supported by a recent post-implementation review (PIR) covering non-financial reporting contained in the Companies Act, which found that several improvements are necessary to ensure that the UK’s non-financial reporting framework delivers its intended objectives. For completeness, the government is also taking the opportunity to ask stakeholders views on wider reporting requirements including those that sit outside of the annual report, including gender pay gap and modern slavery reporting.

Based on the evidence gathered by the PIR and taking account of broader developments that are relevant to the evolution of corporate reporting in the UK the review will consider the following:

Costs and benefits of current non-financial reporting requirements and opportunities to streamline existing reporting requirements

When considering potential options for streamlining the government will consider the broad informational benefits of that reporting and the value of the information produced. Considerations will cover:

  • how easy, or hard, it is to comply with current requirements, whether there are any difficulties in relation to data collection and what more could be done to make the production and distribution of information easier
  • whether requirements are leading to the production of decision-useful information for use by investors, wider stakeholders and by the board of directors of companies themselves
  • whether information produced by companies is readily available and accessible to stakeholders that may wish to use it to inform investment decisions and support their stewardship role
  • the degree to which stakeholders believe that requirements within company law align with regulatory rules set by other regulators such as the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA)

Thresholds and definitions used to determine whether companies and LLPs must comply with certain requirements

The Companies Act 2006 contains a wide range of definitions and thresholds that are used to determine whether a company must comply with non-financial reporting requirements. The government is keen to explore how these could be rationalised and simplified to provide greater clarity within UK legislation, enhancing the benefits of a tiered approach to corporate reporting where the most economically significant companies are required to produce the most detailed reporting. As part of considering size thresholds, the government will also review whether the existing micro-entity, small and medium reporting thresholds are set at appropriate levels.

The future of the UK’s non-financial reporting framework

There is a wide range of new reporting initiatives in development internationally and domestically we are keen to understand what investors and other stakeholders see as the priorities for the UK’s future non-financial reporting framework. We are seeking views on the best way to integrate standards introduced by the International Sustainability Standards Board (ISSB) into the UK’s reporting framework, as well as the potential role for other reporting initiatives that are designed with sustainability-related goals in mind. Whilst outside the direct scope of the review, account will be taken of the government’s commitment to review the regulatory framework around existing Public Interest Entities (PIEs) and to introduce targeted new reporting for the UK’s largest, most economically significant companies.

Call for evidence

This call for evidence is the first phase of the non-financial reporting review. It will run for 12 weeks and close on 16 August. See the questions to support this call for evidence.

The government asks respondents to note that the call for evidence primarily focuses on non-financial information requirements that are contained in Part 15 of the Companies Act 2006 only, as well as equivalent requirements for Limited Liability Partnerships. Beyond requirements set out in the Companies Act 2006 respondents are invited to provide feedback on other reporting requirements that they need to comply with, as well as any other observations on the UK’s reporting requirements that they consider relevant. For further information on these requirements, please consult the accompanying annexes and additional recommended detail:

  • Annex A sets out a non-exhaustive list of the legal provisions in scope of this review
  • respondents who want further detail can refer to the FRC’s Strategic Report guidance

At this stage, the government is asking companies, accounting firms, financial market participants, and other stakeholders open questions about the costs and benefits of producing non-financial information, the value of information produced, and how the non-financial reporting regime might be improved in future.

Once the call for evidence has closed, the government will use the information collected to develop detailed proposals for public consultation next year. Subject to stakeholder views, the government will then look to legislate for any changes. When assessing future reforms the government will also consider how any changes could interact with its ambitions for the UK to become a centre for green finance as set out in the Mobilising Green Investment: 2023 Green Finance Strategy.

Throughout this process, DBT will be supported by the Financial Reporting Council (FRC), the UK regulator for corporate governance, reporting and audit, who will be provided access to responses to this call for evidence.

Outreach relating to the assessment of the ISSB’s first two standards will also be conducted following the publication of those standards, which is expected in June.

What is non-financial information?

The annual report is an integral and fundamental feature of corporate reporting in the UK. The information that companies include in their annual reports enables corporate transparency, builds trust in business, and can help decision making, including by helping investors and other stakeholders to decide where to invest. Beyond the annual report companies are also required to publish or file additional information on their website, or by filing returns through dedicated portals.

Non-financial information serves several purposes. The core non-financial reporting information contained in the annual report allows a company to explain the information in its financial statements to provide for a greater understanding of its financial performance. It also gives companies an opportunity to describe broader information relating to the business that allows stakeholders to understand how a wide range of factors may affect the company’s performance now and in the future. The provision of broader information also provides companies an opportunity to detail how they will take action to tackle wider societal issues such as narrowing the gender pay gap and what steps an organisation has taken to tackle modern slavery in their operations and supply chains. This information provides important insight about how a company interacts with the environment and societies in which it operates, its approach towards fair treatment of employees, reflecting its culture and its values.

This broader information, whether it is included in the annual report or provided elsewhere, is important to investors, shareholders, consumers and other stakeholders because it demonstrates how the board of directors and management are running the business, managing the risks to the company’s business model, provides insights into culture and values and enables directors to set out their vision for the future strategy of the company.

The Strategic Report

The Strategic Report was introduced in 2013. The primary purpose of the Strategic Report is to “inform members of the company and help them assess how the directors of the company have performed their duty under section 172 (duty to promote the success of the company)”.

As with other aspects of corporate reporting the level of detail that needs to be included in the Strategic Report differs depending on company size and/or type. These thresholds can be complex to understand. Threshold determinants include: relatively simple numerical levels (usually employees, turnover and balance sheet); more complex ineligibility or exemption criteria; company or group level criteria; inclusion of UK only or international activities and/or employees; and other nuances, such as the company’s listing status. Identifying opportunities to simplify reporting thresholds is therefore an important focus of the non-financial reporting review.

The main components and requirements of the Strategic Report are described below. This is not an exhaustive description and is instead provided to give an overview of the complexity of reporting for companies.

For all companies required to produce one (all companies except companies that qualify as small) the Strategic Report must contain a fair review of the business and the principal risks and uncertainties it faces. It should provide a balanced and comprehensive view of the company consistent with the size and complexity of the business and, where appropriate, include analysis using financial (and non-financial, for larger companies) Key Performances Indicators (KPIs).

Quoted companies are required to produce a range of enhanced information in their Strategic Report covering issues including:

  • their strategy and business model
  • the main trends and factors likely to affect the future development, performance and position of the company’s business
  • information on environmental matters, company employees, and social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies

Beginning in 2017 similar requirements were introduced for PIEs with over five hundred employees based on the EU Non-Financial Reporting Directive. This required companies within scope of the requirements to produce a separate non-financial information statement within the strategic report and gave exemptions from certain elements of the requirements for quoted companies.

The section 172(1) statement was introduced in 2019 for all large companies. This statement explains how the directors have had regard to the interests and concerns of a wider base of stakeholders and other matters when taking decisions to promote the success of the company for the benefit of the shareholders.

For financial years beginning on or after 6 April 2022 the Non-Financial Information Statement was renamed the Non-Financial and Sustainability Information Statement and economically significant entities[footnote 1] are now required to include disclosures on climate related risks and opportunities, where these are material.

The Directors’ Report

The Directors’ Report is the location for a wide range of other statutory information, including information that is not strategic in nature. All small, medium and large companies need to prepare a Directors’ Report in the UK.

As with the Strategic Report the level of information that needs to be included in the Directors’ Report depends on the size and/or type of the company. At a basic level, and for all companies required to produce one, the report must contain the names of the directors of the company. For medium-sized companies the Directors’ Report also needs to include the amount the directors recommend should be paid by way of dividend. All companies, including small companies (if not using the exemption from audit of accounts), also need to produce a statement as to disclosure to auditors.

Companies with over 250 UK employees must include a statement in the Directors’ Report covering information on engagement with employees, and companies meeting the large size criteria, must include a statement on how the directors have had regard to the need to foster business relationships with suppliers, customers and others (companies can choose to include this information in their strategic report).

Since 2013, quoted companies, and since 2019 large unquoted companies and LLPs, are required to include disclosures covering emissions and energy consumption. All organisations in scope are required to report energy use and emissions with the details dependant on whether they are quoted, unquoted, or an LLP, the methodology used, previous year’s figures, details of the principal energy efficiency measures undertaken in the last 12 months, and at least one ratio that expresses the company’s annual emissions. Guidance on Streamlined Energy and Carbon Reporting (SECR) has been produced by the government to support companies’ understanding and compliance with the legislation.

Other reporting

Beyond the core information included in the annual report certain companies are required to report on other issues that are either specifically relevant to the type of operations the company conducts, or that allow a broad range of stakeholders to hold companies to account on key societal issues.

This call for evidence is seeking a broad range of views from stakeholders on the different reporting requirements that they might be subject to, whether or not they are required to include them in their annual report. This includes modern slavery[footnote 2] and gender pay gap[footnote 3] reporting, and any other reporting requirements stakeholders may wish to provide evidence on. Government is taking a broad approach to allow for a holistic consideration of the different requirements placed on companies, and to allow consideration of whether the range of information is provided to stakeholders in the most appropriate and accessible way.

This call for evidence is not, however, seeking views on the policy intention of modern slavery and gender gap reporting, but rather how these reporting requirements fit within wider non-financial reporting frameworks.

Company size thresholds

The size thresholds that determine some of the information a company needs to produce in their annual report, including both non-financial information and financial statements, are principally derived from EU legislation (covered in the table below).

2 of 3 out of: Micro Small Medium Large
Annual turnover (£) less than 632,000 less than 10.2 million less than 36 million more than 36 million
Balance sheet total (£) less than 316,000 less than 5.1 million less than 18 million more than 18 million
Average number of employees less than 10 less than 50 less than 250 more than 250

As part of this call for evidence we are gathering views on these size thresholds that are set out in the Companies Act[footnote 4]. This delivers and expands on a commitment the government made in May 2022 to update the definition of micro-entities. The evidence gathered as part of this call for evidence will inform policy decisions on size thresholds.

Beyond the micro, small, medium, and large sized thresholds[footnote 5] there are additional categories of economically significant companies relevant for producing information as part of the annual report. They include:

  • quoted and traded companies[footnote 6]
  • traded companies, banks and insurers with more than 500 employees[footnote 7]
  • AIM companies with more than 500 employees
  • other companies above the “Wates” thresholds[footnote 8]
  • other companies that have over 500 employees and over £500 million in turnover

This call for evidence asks for views on the appropriateness and relevance of these thresholds and views on whether they should be rationalised and simplified.

  1. For the purposes of producing a Non-Financial and Sustainability Information Statement an “economically significant” company is defined as traded companies, banks or insurers with 500 or more employees; UK-based AIM companies with 500 or more employees; LLPs with 500 or more employees and a turnover of more than £500 million, and non-listed companies with 500 employees or more and a turnover of more than £500 million. 

  2. Companies that have a turnover of over £36 million are required to produce a Modern Slavery Statement

  3. The threshold for Gender Pay Gap reporting is set under section 78 of the Equalities Act 2010. 

  4. The Companies Act outlines additional factors which may make a company ineligible to file under a specific regime. For example, charitable companies cannot prepare and submit micro-entity accounts to Companies House. 

  5. The government has estimated the number of companies that either have the option to file under the small companies regime, under the medium-sized companies regime or, if ineligible for either, must file full accounts. These estimates are based on Companies House data (included on the FAME database) and Companies House accounts guidance. This analysis suggests there are approximately 3.36 million companies eligible to file under the small companies regime (3 million micro entities and 364,000 small companies); 40,000 under the medium-sized companies regime; and 96,000 which must file full accounts. These estimates show the number of companies that might file under these regimes, as opposed to what their filing decisions are. It is only possible to capture companies who have previously provided financial information and therefore this estimate does not represent the entire company population. 

  6. Analysis suggests that are approximately 850 quoted companies, with “quoted” defined according to section 385 of the Companies Act 2006. This estimate is based on the FRC’s list of PIEs

  7. Analysis suggests there are approximately 430 UK PIEs with more than 500 employees. These estimates are based on the FRC’s list of PIEs, which were matched in the FAME database. 

  8. The Wates Threshold covers large private companies that satisfy either or both of the following conditions: more than 2,000 employees; and a turnover of more than £200 million, and a balance sheet of more than £2 billion.