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What is the Non-Financial Reporting Directive (NFRD)?

  • The Non-Financial Reporting Directive (NFRD) requires companies in scope to publish a non-financial report on their ESG performance together with their annual management report.
  • The NFRD aims to help investors, civil society organisations, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business.
  • The European Union first proposed it in 2014 and set it into force in 2016. The first report was to be disclosed for the financial year of 2018.

Which companies have to comply with the NFRD?

The NFRD applies to approximately 11 700 companies and groups across the European Union, including companies that:

  1. Are a large undertaking, exceeding 2 out of 3 of the following criteria for two successive accounting periods:
    ○ A balance sheet total of EUR 20 million, or
    ○ A net turnover of EUR 40 million, or
    ○ Average number of employees of 500.
  2. Are a public-interest entity, meaning any entity which is:
    ○ Trading transferable securities on the regulated market of any Member State, or
    ○ A credit institution, or
    ○ An insurance undertaking, or
    ○ Designated by a Member States as a public interest entity (more info on how the Member States define the scope here).

What do companies need to disclose under the NFRD?

The non-financial report should include:

  • A brief description of the undertaking's business model;
  • A description of the policies pursued by the undertaking in relation to ESG matters, including due diligence processes implemented;
  • The outcome of those policies;
  • Non-financial key performance indicators relevant to the particular business, across:
    ○ Environmental matters
    ○ Social matters and treatment of employees
    ○ Respect for human rights
    ○ Anti-corruption and bribery
    ○ Diversity on company boards (in terms of age, gender, educational and professional background)
  • The principal risks related to those matters.

A timeline about the NFRD implementation:

  • In 2017 the EU published guidelines to help companies disclose environmental and social information in their non-financial report.
  • In 2019 the EU published additional guidelines on reporting climate-related information in a non-financial report.
  • These EU guidelines are not mandatory and companies may decide to use international, European or national guidelines according to their own characteristics or business environment.
  • The first CSRD report of companies in scope of NFRD is due in 2025 for the financial year of 2024.

What comes next?

The NFRD is in the process of being amended by the Corporate Sustainability Reporting Directive (CSRD). The CSRD will amend the scope and the reporting requirements of the NFRD. In other words, the CSRD will replace the NFRD.

💡 Important for companies reporting on the NFRD: The first CSRD report of companies in scope of NFRD is due in 2025 for the financial year of 2024.

Since the CSRD has been officially approved and adopted by the EU Council, it is just a matter of time before the NFRD is replaced by the CSRD. Find out more about the CSRD and how it impacts your company here.

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