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  • Writer's pictureGokhan Gureser

The EU Non-Financial Reporting Directive (NFRD Requirements) and Corporate Sustainability Reporting

Updated: Jul 4, 2023


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NFRD Requirements

The Non-Financial Reporting Directive (NFRD) plays a central role in the European Union's (EU) sustainability reporting landscape. As a directive aimed at large companies, it sets out the reporting requirements for disclosing non-financial information. Recently, the EU introduced the Corporate Sustainability Reporting Directive (CSRD) proposal, which aims to enhance and expand upon the existing directive. The CSRD seeks to harmonize sustainability reporting standards across EU member states and strengthen the disclosure of sustainability information. This comprehensive framework aligns with the EU's commitment to sustainable development and addresses the growing importance of Environmental, Social, and Governance (ESG) factors. In this dynamic landscape, companies are encouraged to conduct audits and report on key performance indicators (KPIs) that reflect their business model and value chain. The proposed changes are set to come into effect by 2021, and they require companies to disclose more detailed sustainability information, ensuring that stakeholders have access to relevant and reliable data. This introduction sets the stage for exploring the intricacies of the NFRD, the evolving EU directives, and the importance of sustainability reporting for listed companies and beyond.


Understanding the Corporate Sustainability Reporting Landscape: CSRD, NFRD, and EU Directives


The landscape of corporate sustainability reporting is shaped by several key directives, including the Corporate Sustainability Reporting Directive (CSRD) and the Non-Financial Reporting Directive (NFRD). These EU directives provide a framework for companies to enhance their reporting practices and disclose non-financial information. Navigating Non-Financial Reporting: A Closer Look at the EU's Non-Financial Reporting Directive (NFRD)


Navigating Non-Financial Reporting: A Closer Look at the EU's Non-Financial Reporting Directive (NFRD)


The EU's Non-Financial Reporting Directive (NFRD) plays a crucial role in promoting transparency and accountability. This directive requires large public-interest companies to disclose non-financial and diversity information in their reports. It sets out detailed reporting requirements, ensuring that companies evaluate and disclose their non-financial performance. With the upcoming proposal for a Corporate Sustainability Reporting Directive (CSRD), the evolution of sustainability reporting is taking a significant step forward.


Ensuring Transparency: Meeting Reporting Requirements under the NFRD and CSRD

To ensure transparency and meet the reporting requirements of the NFRD and the forthcoming CSRD, companies must comply with the regulatory standards set by the EU. These directives require companies to publish comprehensive sustainability reports that address social and environmental sustainability issues. By disclosing non-financial risks and implementing sustainability matters into their business model, companies can enhance their transparency and demonstrate their commitment to sustainable practices.


The Evolution of Sustainability Reporting: From NFRD to CSRD

The evolution of sustainability reporting has seen a transition from the NFRD to the proposed CSRD. The NFRD has played a significant role in driving sustainability reporting practices, but the CSRD aims to further improve and standardize reporting across the EU. It extends the scope of reporting to include more companies, especially large public-interest entities. By adopting European sustainability reporting standards, the CSRD seeks to harmonize reporting practices and provide stakeholders with consistent and comparable sustainability information.


Enhancing Accountability: The Role of Auditing in Non-Financial Reporting Directive Compliance

Auditing plays a crucial role in enhancing accountability and ensuring the accuracy and reliability of non-financial reports. Companies subject to the NFRD are required to obtain assurance of their sustainability information through an independent audit. This provides stakeholders with confidence in the reported non-financial performance of large companies and fosters trust in the disclosed information. Auditing helps companies align with the disclosure requirements of the NFRD and demonstrates their commitment to transparent and reliable reporting.


Aligning with EU Standards: Exploring the Implications of the EU Taxonomy Regulation and NFRD

The EU Taxonomy Regulation and the NFRD go hand in hand when it comes to aligning sustainability reporting with EU standards. The Taxonomy Regulation provides a framework to assess and classify economic activities that contribute to environmental objectives. The NFRD complements this by requiring companies to disclose how their activities align with the EU taxonomy and contribute to sustainable development. By complying with both regulations, companies can demonstrate their commitment to sustainable practices and contribute to the EU's environmental and sustainability goals.


Building a Sustainable Future: The European Union 's Proposal for a Corporate Sustainability Reporting Directive

It aims to create a robust framework for sustainability reporting that promotes transparency, accountability, and comparability among companies operating within the EU. The proposal seeks to enhance the existing reporting landscape by introducing new reporting requirements, standardizing reporting formats, and aligning with global sustainability reporting standards. By encouraging companies to disclose comprehensive information on their environmental, social, and governance (ESG) performance, the EU aims to drive positive change, support sustainable investment decisions, and contribute to the achievement of its ambitious sustainability goals.


Unlocking Value: NFRD Requirements and the Disclosure of Non-Financial Risks

It emphasize the significance of non-financial reporting and the disclosure of risks beyond financial metrics. The NFRD sets out specific requirements for companies to disclose non-financial information, including environmental, social, and governance aspects, in their reports. By complying with these requirements, companies can unlock value by demonstrating their commitment to sustainability, managing non-financial risks effectively, and enhancing their reputation among stakeholders. This disclosure enables investors, customers, and other stakeholders to make informed decisions and evaluate the long-term sustainability performance of companies.


Embracing Change: How Companies need to Comply with the NFRD and Enhance Reporting Practices

It highlights the evolving landscape of non-financial reporting and the importance of companies adapting to meet the NFRD requirements. Companies must not only comply with the existing reporting obligations but also proactively enhance their reporting practices to align with evolving sustainability standards and stakeholder expectations. This involves adopting robust measurement methodologies, setting meaningful sustainability targets, integrating sustainability into their business strategies, and ensuring accurate and reliable reporting. By embracing change and improving their reporting practices, companies can gain a competitive edge, enhance stakeholder trust, and contribute to a more sustainable future.


Shaping the Future of Non-Financial Reporting: Disclosing Non-Financial Information in line with EU Directives

It recognizes the pivotal role of non-financial reporting in shaping the future of sustainable business practices. As the EU directives set the framework for reporting requirements, companies are encouraged to disclose comprehensive and reliable non-financial information aligned with these directives. This includes reporting on social and environmental impacts, sustainability strategies, and progress towards achieving sustainability goals. By adhering to these directives and providing transparent non-financial information, companies contribute to building trust, fostering sustainable development, and aligning their operations with the broader sustainability objectives outlined by the European Union.

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