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Knowledge

What exactly is the extension of the CSRD to the NFRD?

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The CSRD (Corporate Sustainability Reporting Directive) significantly expands the existing NFRD (Non-Financial Reporting Directive), both in terms of scope and substantive requirements. Here are the main extensions that the CSRD introduces over the NFRD:

 

1. Wider scope

  • NFRD: The NFRD applied to large publicly traded companies with more than 500 employees, including banks and insurance companies. This limited the reporting obligations to a relatively small number of companies within the EU.

  • CSRD: The CSRD extends the scope to all large companies, including large non-listed companies (i.e. companies with more than 250 employees, a turnover of more than €40 million, or a balance sheet total of more than €20 million). In addition, all listed companies, including SMEs (small and medium-sized enterprises) with some exceptions, are also subject to CSRD reporting requirements.

 

2. More Detailed Reporting Requirements

  • NFRD: The NFRD set reporting requirements on a limited number of non-financial aspects, such as environmental, social and employee related issues, human rights, and anti-corruption.

  • CSRD: The CSRD requires more detailed and comprehensive reporting on ESG (Environmental, Social, and Governance) aspects. Companies must report not only on their own performance, but also on their value chains and the impact of their activities on climate change. This also includes forward-looking information, such as sustainability goals and strategies.

 

3. Mandatory Reporting Standards

  • NFRD: Under the NFRD, companies had some flexibility in how they reported, with no set standards. Companies could choose from various reporting standards, such as the GRI (Global Reporting Initiative) or the UN Global Compact.

  • CSRD: The CSRD introduces mandatory EU-based reporting standards, known as the European Sustainability Reporting Standards (ESRS). These standards ensure consistent, comparable, and reliable ESG reporting across the EU.

 

4. External Verification

  • NFRD: Under the NFRD, there was no requirement for external audit or verification of the non-financial reporting, leading to varying levels of reliability and quality.

  • CSRD: The CSRD requires companies to have their ESG reporting verified by a third party, similar to how financial data is audited. This increases the reliability of the reported information.

 

5. Digital Rapportage

  • NFRD: The NFRD did not have any specific requirements for how reports had to be submitted digitally.

  • CSRD: The CSRD requires companies to submit their reports in a standardized digital format, which facilitates the accessibility and analysis of this information for stakeholders.

 

6. Increasing Transparency and Scope

  • NFRD: The NFRD focused primarily on the reporting of historical information on non-financial performance.

  • CSRD: The CSRD requires not only historical reporting, but also forward-looking information, such as the long-term risks and opportunities related to sustainability, as well as the impact of business strategies on ESG goals.

 

7. Stakeholder engagement

  • NFRD: Stakeholder engagement was present, but the emphasis was more on shareholders and financial stakeholders.

  • CSRD: The CSRD places a stronger emphasis on the interests of a broader group of stakeholders, including employees, customers, communities, and the environment. This makes the reports more relevant to a larger audience.

 

The CSRD is a significant extension of the NFRD and marks a shift towards a more detailed, uniform and audited approach to sustainability reporting within the EU. This strengthens companies' transparency and accountability regarding their sustainability performance and impact.

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