CSRD: what are the differences with the NFRD?
Summary
The CSRD (Corporate Social Responsibility Directive) and the NFRD (European Standards on Non-Financial Disclosure) have similar objectives of transparency in the communication of environmental, social and governance data, but differ in their regulatory approach.
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Introduction
Although they have similar objectives in encouraging transparency and disclosure of environmental, social, and governance data, the CSRD (Corporate Social Responsibility Directive) and the NFRD (European Standards on Non-Financial Disclosure) are two separate regulations that address the disclosure of non-financial information by companies in the European Union.
The regulatory nature
The NFRD was replaced by the CSRD (Corporate Sustainability Reporting Directive) in June 2021. The transition from NFRD to CSRD was made to strengthen ESG disclosure standards in Europe, improve the comparability of reporting, and encourage more companies to report on their sustainability performance. The CSRD is therefore the recent evolution of the European regulation on non-financial disclosure.
The NFRD
The NFRD Directive introduced in 2017 the obligation for large listed companies and large public companies to disclose non-financial information. Each EU Member State was responsible for transposing the NFRD into its national legislation, which led to some variations in how the Directive was implemented from country to country.
The CSRD
In June 2021, the NFRD was replaced by the CSRD, a directive that expands the scope of non-financial disclosure, requiring more companies, including some unlisted companies and listed SMEs, to disclose ESG information. The CSRD also introduces more detailed requirements, including the possibility of mandatory external audits in certain cases.
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Although the CSRD and NFRD have similar transparency objectives, they are two distinct sets of regulations.
The scope of the regulations
The CSRD affects a larger number of companies than the NFRD. It requires large EU companies, including some listed and unlisted companies, to disclose ESG information, while the NFRD only applied to listed companies.
Companies affected by the CSRD
The CSRD involves more than 50,000 companies in the European Union to report on their environmental and societal impact.
Among the companies concerned, those that meet at least two of the following criteria:
More than 250 employees;
A balance sheet equal to or greater than €20 million;
A turnover equal to or greater than €40 million.
As well as listed SMEs that exceed two of the following thresholds:
More than 10 employees (on average over the financial year);
A balance sheet equal to or greater than €350,000;
A turnover equal to or greater than €700,000.
Companies affected by the NFRD
The NFRD applied only to large publicly traded companies and large public companies with more than 500 employees. It targeted the disclosure of non-financial information, including environmental, social, and governance (ESG) information.
The obligations of these regulations
The CSRD expands the transparency obligations and scope of non-financial information disclosure compared to the NFRD. This new directive aims to optimise the quality of the data collected by promoting transparency and comparability of results between companies.
It also introduces more detailed requirements and the possibility of mandatory external audits, while encouraging the use of recognised ESG reporting standards.
The obligations of the CSRD
The CSRD establishes specific disclosure obligations for companies, including the identification of materiality issues, the disclosure of essential ESG data, and the implementation of external audits for certain reports.
It defines methodologies for data collection to harmonize results and compare the sustainability performance of the companies concerned. In doing so, it reinforces the need for disclosure following established standards.
The obligations of the NFRD
The NFRD imposed less specific disclosure obligations, primarily requiring the publication of sustainability reports. It did not contain requirements as detailed as the CSRD but was intended to encourage companies to comply with voluntary reporting standards, such as the Global Reporting Initiative (GRI) guidelines.
The NFRD did not include specific provisions requiring a mandatory external audit of non-financial reports. The reports were primarily subject to internal audit processes.
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