Non-Financial Reporting Directive (NFRD) vs Corporate Sustainability Reporting Directive (CSRD)

22 April 2022 – written by Rutger de Roo van Alderwerelt 

As you most likely have read in our previous article about corporate sustainability reporting (CSRD), the European Union member states will approve and ratify the Corporate Sustainability Reporting Directive (CSRD) by the end of 2022.  

Depending on the size of your company, your company might already apply sustainability standards for ESG reporting to comply with the Non-Financial Reporting Directive (NFRD).  

This blog will briefly introduce the NFRD and explain the main differences from the CSRD.  

Introducing the NFRD

The NFRD is only applicable to approximately 11,600 companies with> 500 employees. This number mainly entailed large, listed companies, banks, and insurance companies. It has been applied since the fiscal year 2018 and covers several reporting requirements:  

  • Environmental protection 
  • Social responsibility and treatment of employees 
  • Respect for human rights 
  • Anti-corruption and bribery 
  • Diversity on company boards (in terms of  age, gender, educational and professional background) 

The companies that have started to report on non-financial information since the fiscal year of 2018 were allowed to choose between several reporting frameworks, amongst others: 

Choosing, as a company, between different reporting standards means there is no unified framework. This makes it very difficult to draw comparisons. It is challenging to produce reliable and detailed disclosures of your company’s social and environmental impact and the overall sustainability of your business operations.  

Moreover, it is believed that the scope of companies required to report in compliance with NFRD is not large enough to improve European companies’ social and environmental impact, which is needed to achieve the goals put forward in the EU Green Deal.  

There comes the CSRD! 

The CSRD was officially proposed in April 2021. One year later, the European Parliament and Council are expected to approve the first draft of the CSRD.  

What will make the CSRD different from the NFRD?

The main objective of the CSRD is to mitigate the shortcomings of the NFRD. The European Commission enlarged the scope to include approximately 49,000 companies that match 2 out of 3 of the below characteristics: 

  • > 250 employees and/or, 
  • > €40-million turnover and/or, 
  • > €20-million total assets listed companies 

These characteristics cover >75% of the total EU companies’ turnover. These companies will be required to comply with the CSRD by 2024 (Fiscal Year 2023). It is worth noting that small and medium listed companies that do not match the above criteria get an extra three years to comply.  

Regarding reporting requirements of the CSRD, those brought forward by the NFRD will be amended. In addition to the NFRD, the following topics are introduced: 

  • Double Materiality Concept – reporting on both the impact the company has on society and the environment and the sustainability risks the company experiences (e.g., due to climate change and scarcity of resources) 
  • Formulating long-term Environmental, Social, and Governance (ESG) objectives and policies 
  • Due diligence on its operation and supply chain 
  • Disclosure of information relating to intangibles (social, human, and intellectual capital) 
  • Reporting in line with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation 
  • Integrated reporting and mandatory external assurance 

In addition, it will be required to format and publish sustainability reports using the European Single Electronic Format (ESEF/XHTML), data tags, and advanced databases.  

Becoming CSRD compliant will be an extensive process. However, cpmview offers the relevant guidance on topics required to prepare for when it comes to corporate sustainability reporting, such as data collection/management, XHTML formatting, and integrated reporting processes.  

Do you want a brief overview of the differences between NFRD and CSRD? You can view a summary in the table below, where we have summarized all the main topics.  

Main Differences NFRD & CSRD 

 Our next blog will be about the role of the CFO in Corporate Sustainability Reporting, so stay tuned! 

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