NFRD
What is it?
The Non-Financial Reporting Directive (NFRD) is the EU directive that requires companies in scope to disclose non-financial ESG information in their annual reports. This information includes information on environmental matters, social matters and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards.
It aims to help investors, civil society organisations, consumers, policy makers and other stakeholders, to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to how they conduct their business.
Who does it apply to?
Have to have exceeded at least 2 out of 3 of the following criteria:
Balance sheet total of 20 million euros
Net turnover of 40 million euros
Average number of employees of 500
In addition, companies in scope might also be a public interest entity which is:
Trading transferable securities on the market of any EU member state
A credit institution
Insurance undertaking
Designated by a Member State’s as a public interest entity
What needs to be disclosed:
An overall description of the undertaking business model, as well as a description of the policies pursued by it related to ESG and what the due diligence processes implemented are.
Non-financial, specific matters of disclosure include:
Environmental matters, such as information on greenhouse gas emissions, energy consumption, water consumption, waste production and biodiversity;
Social matters and treatment of employees such as employment, working conditions, training and development, diversity, and equal opportunities;
Respect for human rights in its own operations and supply chain;
Anti-corruption and bribery
Diversity on company board
Risks associated with such policies
Because these EU guidelines are not mandatory nor do they require a specific format for non-financial reporting, companies may decide to use international, European or national guidelines, depending on that company’s characteristics. Companies who choose to use this framework as a reporting mechanism, will have to do so by 2025, for the financial year of 2024.
The NFRD is important because it helps to improve the transparency and accountability of companies. By disclosing information on their non-financial performance, companies are giving investors and other stakeholders a better understanding of their impact on society and the environment and investors can guarantee more informed investment decisions.