The Non-Financial Reporting Directive (the NFRD - Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups), amending the Accounting Directive, was adopted in 2014.




Companies within the scope of the NFRD had to report in accordance with its provisions for the first time in 2018 (covering financial year 2017). The NFRD applies to large public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent companies of a large group with an average number of employees in excess of 500 on a consolidated basis (public-interest entities are defined in the Accounting Directive as companies with securities listed in EU regulated markets, banks (whether listed or not), insurance companies (whether listed or not) and any other companies designated by Member States). The NFRD exempts subsidiaries from its reporting obligations if their parent company does the reporting for the whole group, including the subsidiaries.

Approximately 11 700 companies are subject to the reporting requirements of the NFRD (this figure takes account of how Member States have transposed the Directive, not taking account of national transposition, about 2 000 companies are within the scope of the NFRD).

The NFRD requires certain large companies to include a non-financial statement as part of their annual public reporting obligations. The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective) - often known as ‘double materiality’. The NFRD identifies four sustainability issues (environment, social and employee issues, human rights, and bribery and corruption) and with respect to those issues it requires companies to disclose information about their business model, policies (including implemented due diligence processes), outcomes, risks and risk management, and key performance indicators (KPIs) relevant to the business. It does not introduce or require the use of a non-financial reporting standard or framework, nor does it impose detailed disclosure requirements such as lists of indicators per sector.




The Corporate Sustainability Reporting Directive (CSRD) is a proposal to amend the NFRD published by the European Commission on 21 April 2021 (Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting {SEC(2021) 164 final} - {SWD(2021) 150 final} - {SWD(2021) 151 final}, COM(2021) 189 final, 2021/0104 (COD)).


Natasha Cazenave, ESMA Executive Director, at the ICI Investment Management Conference on 24 March 2022 (Key priorities for the asset management industry in 2022: sustainable finance and systemic risk, ESMA34-466-282)

One key challenge is the lack of data. A legislative proposal on corporate sustainability reporting is currently being discussed in the Council and the European Parliament. Once adopted and applied, this will help reduce some of the biggest data gaps fund managers are grappling with. The work being done at the international level with the ISSB to develop common standards for corporate sustainability reporting will of course be paramount.


CSRD, as drafted by the EuropeanCommission, addresses shortcomings of the NFRD for both users and preparers relating to a lack of comparability, reliability and relevance of data (identified through a public consultation in 2020). The said CSRD proposal extends the scope of NFRD requirements to include all large companies, whether they are listed or not and without the previous 500-employee threshold. This change would mean that all large companies are publicly accountable for their impact on people and the environment. It also responds to demands from investors for sustainability information from such companies. The Commission also proposed to extend the scope to include listed Small and Medium-Sized Enterprises (SMEs), with the exception of listed micro-enterprises. For reasons of investor protection, it is especially important that investors have access to adequate sustainability information from listed companies. If listed SMEs do not report sustainability information, they may find themselves at risk of exclusion from investment portfolios. This risk will grow as sustainability information becomes ever more important throughout the financial system. The said European Commission's Proposal envisioned for the first time the introduction of a general EU-wide audit (assurance) requirement for reported sustainability information. The EU Member States are, however, allowed to open up the market for sustainability assurance services to so-called ‘independent assurance services providers'. This means that Member States could choose to allow firms other than the usual auditors of financial information to assure sustainability information. The CSRD Proposal also amends provisions of the Accounting Directive, the Transparency Directive, the Audit Directive and the Audit Regulation.


On 28 November 2022 the Council gave its final approval to the CSRD. The CSRD, as finally adopted, introduces more detailed reporting requirements and ensures that large companies and listed SMEs are required to report on sustainability matters such as environmental rights, social rights, human rights and governance factors. The new sustainability reporting rules will apply to all large  companies  and to all companies listed on regulated markets except listed micro undertakings. These companies are also responsible for assessing the information applicable to their subsidiaries. The rules also apply to listed SMEs, taking into account their specific characteristics. An opt-out will be possible for listed SMEs during a transitional period, exempting them from the application of the directive until 2028.

For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds. These companies must provide a report on their environmental, social and governance (ESG) impacts, as defined in this directive.

The European Financial Reporting Advisory Group (EFRAG) will be responsible for developing draft European standards. The European Commission will adopt the final version of the standards as a delegated act, following consultations with EU member states and a number of European bodies.

The application of the regulation will take place in four stages:

  • reporting in 2025 on the financial year 2024 for companies already subject to the NFRD;
  • reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD;
  • reporting in 2027 on the financial year 2026 for listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings;
  • reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.


Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (CSRD) was published in the EU Official Journal on 16 December 2022.


Coherence with the Taxonomy Regulation and SFDR


Under the EU Taxonomy Regulation, the same companies that are subject to NFRD – and the additional companies brought under the scope of the proposed CSRD, if approved by the co-legislators, include in their non-financial statement information on how and to what extent their activities are associated with environmentally sustainable economic activities. The reporting standards of the CSDR would also include indicators that correspond to the indicators contained in the Sustainable Finance Disclosure Regulation (SFDR). The indicators for this will be specified in a separate Commission Delegated Act.

Companies will have to report these indicators alongside other sustainability information mandated by the proposed CSRD. The reporting standards to be developed under the CSRD would fully take into account these indicators and build on the 'substantial contribution' and ‘do-no-significant-harm' criteria of the taxonomy.


Directive on corporate sustainability due diligence


Published on 23 February 2022 by the European Commission Proposal for a Directive on corporate sustainability due diligence (COM(2022) 71 final, 2022/0051 (COD)) will complement the NFRD and its proposed amendments in the form of CSRD by adding a substantive corporate duty for some companies to perform due diligence to identify, prevent, mitigate and account for external harm resulting from adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and in the value chain.

Of particular relevance of the proposal on CSRD is that it mandates disclosure of plans of an undertaking to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement.


The two initiatives are closely interrelated:
- first, a proper information collection for reporting purposes under the proposed CSRD requires setting up processes, which is closely related to identifying adverse impacts in accordance with the due diligence duty set up by Directive on corporate sustainability due diligence;
- second, the CSRD will cover the last step of the due diligence duty, namely the reporting stage, for companies that are also covered by the CSRD;
- third, Directive on corporate sustainability due diligence will set obligations for companies to have in place the plan ensuring that the business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement on which the CSRD requires to report.


Thus, the intention of the Directive on corporate sustainability due diligence is to lead to companies’ reporting being more complete and effective and the complementarity to increase effectiveness of both measures and drive corporate behavioural change for those companies.



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