What is NFRD?
The Non-Financial Reporting Directive (NFRD) was the EU’s former directive for non-financial reporting. The directive came into force in 2014 and aims to improve transparency and comparability in companies’ reporting of environmental, social, and governance (ESG) aspects.
Which companies were covered by NFRD?
NFRD applies to large public-interest entities with more than 500 employees. This includes:
- Listed companies
- Banks and insurance companies
- Other companies that are significant due to the nature of their business, size, or number of employees
In total, approximately 11,000 companies in the EU are covered by NFRD.
What is required under NFRD?
Under NFRD, companies must include a non-financial statement in their management report. The report must contain information about the company’s:
- Business model
- Policies and results related to environmental, social, and employee matters, respect for human rights, and anti-corruption
- Principal risks related to these areas and how the company manages them
- Key non-financial performance indicators
Companies have a degree of flexibility in how they report under NFRD but are encouraged to use recognised frameworks such as GRI, SASB, or TCFD.
Differences between NFRD and CSRD
NFRD will be replaced by the Corporate Sustainability Reporting Directive (CSRD), which introduces several significant differences:
- CSRD covers more companies, including small and medium-sized enterprises (SMEs).
- CSRD requires more detailed and standardised reporting according to mandatory EU standards.
- CSRD requires external assurance of the sustainability information.
- CSRD introduces digitalisation requirements for reported information.
Although NFRD has contributed to increased transparency regarding companies’ sustainability work, CSRD is expected to lead to more comprehensive, comparable, and reliable sustainability information that can form the basis for responsible investments and business decisions.