The Non-Financial Reporting Directive (NFRD) started in all EU member states in 2018. The NFRD is now a national law, and all 28 member states of the EU are expected to comply if their company meets the requirements to participate in the NFRD. The NFRD set out rules for disclosures of non-financial and diversity information by certain large companies. It applies to large public-interest companies with more than 500 employees. This covers approximately 11,700 large companies and groups across the EU, including listed companies, banks, insurance companies, and other companies designated by national authorities as public-interest entities. Information that requires disclosure is environmental matters, social matters and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards. In April 2021, a proposal for the Corporate Sustainability Reporting Directive (CSRD) was developed.



The CSRD proposals significantly enhance the scope of the existing NFRD rules to cover all large undertakings as well as all those listed on EU-regulated markets, with the exception of micro-entities. Moreover, in contrast to the NFRD, the CRSD sets out in far greater detail the non-financial information that entities should report. As expected, the CSRD introduces mandated EU sustainability standards, to be prepared by the European Financial Reporting Advisory Group (EFRAG) and adopted via secondary legislation. The standards should be based on the recent recommendations recently made by the EFRAG Task Force on Non-Financial Reporting Standards, with the first set of standards due for adoption by 31 October 2022.

The scope of the reporting obligations will be widened to apply to all non-SMEs and certain SMEs with securities listed on EU-regulated markets (estimated as capturing approximately 49,000 companies in the EU, up from approximately 11,700 reporting under NFRD). Information reported by these companies will be subject to third-party assurance by auditors (initially on a limited assurance basis) and digitally tagged so that it could feed into the European Single Access Point envisaged under the Capital Markets Union Action Plan. Obligation to report on a ‘double-materiality’ basis will be clarified with companies being obliged to make disclosures about (i) the impact of the company on sustainability matters as well as (ii) how sustainability matters affect the undertaking’s development, performance and position.