NFRD

What is the NFRD?

The Non-Financial Reporting Directive (NFRD) is a part of European Union legislation that mandates large companies to disclose non-financial and diversity information. Implemented in 2014, its primary aim is to increase transparency and inform stakeholders about the social, environmental, and governance (ESG) practices of large public-interest entities. This directive applies to organisations with over 500 employees, including listed companies, banks, and insurance firms, requiring them to report on how they manage various ESG issues.

Who must comply with the NFRD?

Compliance with the NFRD is mandatory for large EU-based public-interest entities with more than 500 employees. This includes a broad spectrum of organisations from listed companies to financial institutions. However, as the regulatory landscape evolves, entities currently complying with the NFRD will need to transition to the Corporate Sustainability Reporting Directive (CSRD). The CSRD expands the scope to include all large companies and all companies listed on regulated markets in the EU, regardless of their size. This shift means that many more companies will soon need to adhere to more stringent sustainability reporting requirements under the CSRD.

The transition from the NFRD to the CSRD

The transition from NFRD to CSRD marks a significant step forward in the EU's commitment to sustainable development. The CSRD aims to rectify the limitations of the NFRD by enhancing the scope and detail of required disclosures and introducing more rigorous reporting standards. This move is designed to provide stakeholders with a more comprehensive understanding of companies' sustainability impacts and performance, ensuring reports are more comparable and reliable.

Timelines for the transition from NFRD to CSRD

The transition from NFRD to CSRD is governed by a phased timeline. The CSRD will be applicable in stages, beginning with companies already subject to the NFRD in fiscal years starting on or after January 1, 2024. The directive will gradually encompass a wider range of companies over the following years, with the intent to include even SMEs listed on regulated markets by 2026, subject to certain exemptions. This staged approach allows companies ample time to prepare for compliance, ensuring they can meet the more comprehensive reporting requirements.

CSRD Timeline showing when companies must comply with EU climate regulations

Considerations for Sustainability Managers

For sustainability managers navigating this transition, several key considerations should be top of mind:

Start preparing for the CSRD’s expanded reporting requirements by evaluating your current sustainability reporting processes and identifying any gaps that may be present.
Invest in robust systems for collecting and managing ESG data, ensuring accuracy and comprehensiveness.
Engage with key stakeholders, including investors, customers, and employees, to better understand their expectations for sustainability reporting.
Stay informed on the latest developments and best practices in sustainability reporting, including any updates to the CSRD guidelines and technical standards.
View the transition not just as a compliance exercise, but as an opportunity to integrate sustainability more deeply into your business strategy, driving long-term value and resilience.