The Non-Financial Reporting Directive (NFRD) legally defines the reporting of non-financial key figures for EU companies. The EU directive – also known as Directive 2014/95/EU – was adopted in 2014. Since it came into force in 2018, it requires affected companies to expand their management reports to include non-financial sustainability disclosures.
All 28 EU member states have transposed the European directive into national law since then. In Germany, the directive was transposed into German law in 2017 and has been applied since 2018 under the name CSR Directive Implementation Act (CSR-RUG).
Which companies are affected by the NFRD?
The NFRD requires large public interest entities to implement its reporting standards. This affects:
Listed companies with more than 500 employees (including subsidiaries)
What do companies need to report?
The reporting requirements of the NFRD aim to implement the United Nation’s Sustainable Development Goals (SGDs).
It therefore requires companies to make disclosures in the following areas:
Social aspects and employees
Compliance with human rights
Combating corruption and bribery
Diversity on the Board of Directors
The importance of NFRD for future sustainability reporting
The NFRD will be gradually replaced by the Corporate Sustainability Reporting Directive (CSRD) from 2024. The reporting requirements provided by the CSRD are significantly stricter compared to the NFRD. Among other issues, they include:
an expansion of the target group to include companies with more than 250 employees (from 2025) and SMEs (from 2027)
a broader definition of materiality ("double materiality")
an expansion of the reporting content
the introduction of uniform EU reporting standards, the European Sustainability Reporting Standards (ESRS)
the obligation to verify and validate sustainability disclosures
With the NFRD, the EU has nevertheless created an important framework as a basis for mandatory sustainability reporting. For the first time, the NFRD obliges the affected companies to disclose non-financial information separately. Initial accounting standards and audit benchmarks have been established. This represented an important step toward greater transparency and signals the increasing importance of sustainability criteria for investment decisions.
The NFRD thus set the stage for further developments in ESG reporting obligations. These will be necessary to implement the EU's climate targets in a timely manner – including becoming the first continent to achieve climate neutrality by 2050.