The European Union (EU) Directive on Non-Financial Reporting (2014/95/EU) requires companies to include non-financial statements in their annual reports or in a separate filing from 2018 onwards, including information on environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards. This directive applies to public-interest companies with more than 500 employers in the EU, which constitutes approximately 6,000 companies and groups (listed companies, banks, insurance companies, and other public-interest entities). It recommends the use of international standards such as UN Global Compact, OECD Guidelines, ISO 2600, or Global Reporting Initiative (GRI). This directive amends the accounting directive 2013/34/EU.
In June 2017, the European Commission provided Guidelines on non-financial reporting to help companies disclose relevant non-financial information in a more consistent and more comparable manner. And in June 2019, as a supplement to these 2017 guidelines the European Commission published Guidelines on reporting climate-related information which integrate the recommendations by the TCFD. In addition, the Article 8 of the Taxonomy Regulation requires financial and non-financial organisations covered by the Non-Financial Reporting Directive (NFRD) to include information in their non-financial information statements on how, and to what extent, their activities are “associated with” environmentally sustainable economic activities.
In its 11 December 2019 Communication on the European Green Deal, the Commission committed to review the non-financial reporting directive in 2020 as part of the strategy to strengthen the foundations for sustainable investment. In line with that commitment, on 20 February 2020 the Commission launched a public consultation on the review of the NFRD.
On 21 April 2021, the European Commission adopted a package of measures, which includes a proposal for a Corporate Sustainability Reporting Directive (CSRD). The CSRD expands the scope of NFRD to all listed companies, including SMEs and introduces mandatory EU sustainability reporting standards for environmental, social and governance aspects to be further worked out by the European Financial Reporting Advisory Group (EFRAG). The proposed CSRD also further clarifies the obligation to report according to the double materiality perspective: ie companies should report (i) information necessary to understand how sustainability matters affect them, as well as (ii) information necessary to understand the impact they have on people and the environment.