Everything You Need to Know About the NFRD
Summary
The NFRD (Non-Financial Reporting Directive) is a European directive requiring large companies to publish non-financial information on their environmental, social and governance (ESG) impacts. Its aim is to improve corporate transparency and accountability to investors and other stakeholders.
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NFRD : definition
The NFRD (Non-Financial Reporting Directive) is a European directive adopted in 2014. This directive aims to improve the transparency of large companies in terms of non-financial information. It requires companies to publish detailed reports on their environmental, social, human resources management, human rights and anti-corruption impacts. The aim of the NFRD is to provide investors and other stakeholders with clear and comparable information for assessing sustainability risks.
What are the objectives of the NFRD directive?
The NFRD (Non-Financial Reporting Directive) was set up to achieve several key objectives in terms of corporate transparency and sustainability:
Improving transparency: The directive requires large companies to disclose non-financial information, enabling investors and other stakeholders to better understand their environmental, social and governance (ESG) impacts.
Standardizing reporting: By imposing common reporting criteria, the NFRD makes it easier for companies to compare their ESG performance.
Strengthening corporate responsibility: By requiring organizations to disclose information on sensitive issues such as human rights and anti-corruption, the NFRD encourages companies to integrate more responsible practices within their organization.
Facilitating decision-making: The information provided by NFRD enables stakeholders to make informed investment and risk management decisions.
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What does the NFRD require?
The NFRD (Non-Financial Reporting Directive) requires large European companies to publish non-financial information in their annual management report. This information must cover several key areas, including environmental impacts, social and human resources issues, respect for human rights, and the fight against corruption. Companies must explain the policies they have put in place to manage these different aspects, the results they have achieved, and the main risks they have identified. The aim is to provide a clear and transparent view of companies’ sustainability and responsibility practices.
Which companies are concerned?
The NFRD mainly applies to large European companies, i.e. those meeting at least two of the following criteria:
- have more than 500 employees,
- sales in excess of 40 million euros,
- or a balance sheet total in excess of 20 million euros.
This includes both listed companies and certain large unlisted companies. The directive also applies to groups of companies meeting these thresholds on a consolidated basis. The aim is to target organizations that have a significant impact on the economy and society, encouraging them to be more transparent in terms of sustainability.
Impact of the NFRD on companies
The NFRD has a significant impact on corporate transparency and accountability. By imposing strict non-financial reporting requirements, it pushes companies to integrate more sustainable and ethical practices into their operations. The directive obliges companies to assess and communicate their environmental, social and governance (ESG) impacts, which may require adjustments to their risk management and strategies.
In addition, the NFRD raises awareness of sustainability issues among organizations and stakeholders (investors, consumers and regulators). Companies must now prove their commitment to responsible practices, which can improve their reputation and access to finance. However, this obligation also entails additional costs in terms of data collection and compliance, requiring dedicated tools such as D-Carbonize’s Carbon Cockpit and specific skills.
The transition from NFRD to CSRD
The transition from the NFRD to the CSRD (Corporate Sustainability Reporting Directive) marks a strengthening of non-financial reporting requirements for companies. Adopted in 2021, the CSRD broadens the scope to include a greater number of companies, and imposes more detailed and harmonized reporting standards at European level. Companies will have to provide more accurate ESG information, verified by an independent third party, and comply with new standards developed by EFRAG. The aim of this transition is to improve the transparency and comparability of data, thereby strengthening the confidence of investors and stakeholders.
