As businesses increasingly prioritize Environmental, Social, and Governance (ESG) considerations, the transition from the Non-Financial Reporting Directive (NFRD) to the Corporate Sustainability Reporting Directive (CSRD) marks a significant shift in the landscape of sustainability reporting. While both directives aim to promote transparency and accountability, the CSRD introduces more comprehensive requirements, impacting a broader range of companies. But what does this mean for your organization?
NFRD: The Foundation of Non-Financial Reporting
The NFRD, introduced under Directive 2014/95/EU, required EU companies with over 500 employees to disclose non-financial and diversity information. This included listed companies, banks, and insurance firms. The directive sought to make ESG-related data accessible to investors and stakeholders while encouraging corporate responsibility for social and environmental challenges.
Under the NFRD, companies reported annually on their performance and impact, focusing on predefined non-financial topics such as business development, environmental initiatives, and governance practices. While it laid the groundwork for ESG reporting, its limited scope and lack of standardized reporting left room for improvement.
CSRD: A Step Towards Standardization and Transparency
The CSRD, effective from January 1, 2024, strengthens and expands the NFRD’s framework. Its key objectives are to standardize sustainability reporting and improve comparability across organizations. With an estimated 49,000 companies now required to comply (up from 11,700 under the NFRD), the directive casts a wider net, bringing SMEs and supply chains into the fold by 2026.
One of the most significant updates is the introduction of double materiality, requiring companies to report both their impact on the environment and society (Impact Materiality) and how sustainability issues affect their operations (Financial Materiality). Additional requirements include due diligence on supply chains, long-term ESG goal setting, and alignment with the EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR).
What Does This Mean for Your Business?
For large organizations, the CSRD mandates external audits, digital tagging for machine readability, and detailed disclosure of intangible assets like intellectual and social capital. SMEs, though not directly affected until 2026, must prepare as larger companies push requirements down their supply chains.
By adopting the CSRD framework, companies can enhance transparency, foster trust, and align with evolving stakeholder expectations. Early preparation helps identify potential challenges, enabling smoother transitions and improved compliance with sustainability standards. Preparing now will ensure your organization remains competitive in a sustainability-driven market.
