Published and draft legislation - Spain

Non-financial information and diversity

Act 11/2018, 28 December

On 28 December 2018, Act 11/2018 passed into law, amending the Code of Commerce, the consolidated text of the Corporate Enterprises Act and the Auditing Act. As discussed in issues 13 and 17 of Progreso, the purpose of the regulation is to improve transparency and sustainability in public-interest entities and increases confidence among investors, consumers and the general public.

We should remember that Act 11/2018 emanates from Royal Decree 18/2017, which was passed in order to definitively transpose onto the Spanish statute book EU Directive 2014/95, 22 October 2014, on non-financial information disclosure and diversity in large corporations and certain business groups.

We draw attention below to the most important new additions made in the new law to the existing Royal Decree:

Non-financial information statement

Act 11/2018 contains more detailed regulations affecting the content of the non-financial information statement that will be included jointly with or separately from the management report, and establishes that it must contain the following information:

  • A short description of the group's business model, including its business environment, organization and structure, the market in which it operates, its aims and strategies and the main factors and trends that could affect its future development.
  • The group's policies, especially due diligence processes used to identify, assess, prevent and mitigate significant risks and impacts, including the measures adopted; the results of these policies, which should incorporate key non-financial result indicators so that any progress can be tracked and assessed; these indicators should make it easier to make comparisons across companies and sectors
  • The principal risks linked with the group's activities, describing the procedures for identifying these, assessing them and including information about the impacts detected
  • Key non-financial results indicators relating to the business activity itself, that meet like-with-like comparison criteria, are significant, relevant and credible, using generally applied standards to do this

Disclosure of the management report

The management report must be made available to the public free of charge and should be easily accessible on the company website within six months after the end of the financial year, for a period of five years.

Shareholders Meeting

The new law specifies that the non-financial information statement must be submitted, with its own item on the order of business, at the Annual General Meeting for approval. An independent third party will have to verify that the non-financial information is included in this statement.

Scope of application

The law will apply to the financial periods after 1 January 2018, for companies filing consolidated accounts and meeting the following requirements:

  • Having on average during the period more than 500 workers employed by the companies in the group
  • Being considered institutions of public interest under the auditing legislation, or otherwise meeting, for two consecutive financial periods, and on the date of closing each of these periods, at least two of the following circumstances:
    • Total consolidated asset items above EUR 20 million
    • Net consolidated annual turnover above EUR 40 million
    • More than 250 workers employed on average over the period

Three years after the law comes into force, it will be mandatory for companies with more than 250 workers to present a consolidated non-financial information statement. It will also be mandatory for institutions of public interest under the terms of the auditing legislation, and for those meeting at least one of the following criteria for two consecutive periods and on the end-date of both periods:

  • Total asset items above EUR 20 million
  • Net annual turnover above EUR 40 million

Listed companies

Finally, Act 11/2018 contains amendments to the regulations applying to companies listed on the stock exchange. Specifically, they must include in their annual corporate governance report:

  • A description of the diversity policy applying to the Board of Directors and its support committees, as well as to the management body: aims, measures taken, procedures for including enough women on the board to encourage a balanced mix of women and men on this body, and the company's results for the period covered by the reports.
  • An explanation as to whether shareholders have been informed of the firm's diversity criteria and goals, in the event of members of the board, of committees, and of the management body being chosen and renewed.