Non-Financial Reporting Directive (NFRD)

NFRD stands for Non-Financial Reporting Directive, or in Dutch “richtlijn niet-financiële rapportage” (abbreviated to NFI Directive). To learn more about the requirements from the NFRD, it is important to first understand what non-financial reporting is and why it is important.

What is non-financial reporting?

Non-financial reporting entails the reporting on environmental, social and human resources issues, respect for human rights, and the fight against corruption and bribery. Certain large companies are required to include this information annually in their directors’ reports. In a so-called “non-financial statement,” they must present a fair and complete picture of their risks, policies and their results in these areas. This should lead to a good understanding of the company’s development, performance and position, and the impact of its activities on society.

In 2013, the European Parliament (EP) concluded that it is important for business to provide sustainability information to indicate sustainability risks and increase investor and consumer confidence. According to the EP, non-financial information (NFI) reporting is important to bring about change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection. In this context, such reporting helps to measure, monitor and manage the sustainability performance of companies and their impact on society.

What does the law say about non-financial reporting?


The EP position mentioned above led to the adoption of the European Non-Financial Reporting Directive in October 2014. The inclusion of the word “at least” in Article 1 NFRD shows that the list of thematic aspects to be reported on is non-exhaustive. Thus, other non-financial aspects can also be covered. The company itself must assess which information is relevant (“material”). This is based on its own analysis of how important that information is to understand its development, performance, position and impact.

Under Article 2 NFRD, this guideline was followed in 2017 and 2019 by (non-binding) guidelines on non-financial reporting from the European Commission (EC). The purpose of these guidelines is “to help companies disclose high-quality, relevant, useful, consistent and more comparable non-financial (environmental, social and governance) information in a way that promotes resilient and sustainable growth and jobs and ensures transparency for stakeholders.”

The 2017 guidelines include many frameworks that companies can use as a starting point in their non-financial reporting, such as those of the Global Reporting Initiative, the International Integrated Reporting Frameworks and the United Nations Sustainable Development Goals. The 2019 guidance complements that of 2017 on climate reporting, taking as its starting point the recommendations of the Task Force on Climate-related Financial Disclosures.

The Netherlands

Because the NFRD is a directive, in order to become applicable, it first had to be transposed into national legislation in all EU member states. For the Netherlands, this was done through two decrees: the Decree on Disclosure of Diversity Policy of December 2016 and the Decree on Disclosure of Non-Financial Information of March 2017. These decrees require large listed companies, banks and insurers since 2018 (for the reporting year 2017) to include a non-financial statement in their management report and a diversity statement in their corporate governance statement. ‘Large’ here means that at least two of the three following requirements must be met:

  • a balance sheet total of more than €20 million;
  • net sales of more than €40 million;
  • an average number of employees for the fiscal year of more than 250 (diversity policy reporting) or more than 500 (the other non-financial reporting), respectively.

Non-financial reporting in practice: what does the AFM think?

In 2018 and 2019, the Financial Markets Authority (AFM) investigated compliance with the new reporting rules.

Based on a 2018 report, it can be concluded that the regulator was far from satisfied. Following its thematic investigation into NFI in the management reports of 89 companies, the AFM concluded that reporting on various non-financial aspects “can and must improve.”

NFRD becomes CSRD

In 2020, the European Commission (EC) concluded that the NFRD, combined with the two EC guidelines on non-financial reporting, was not having the desired effect. For that reason (and as part of the European Green Deal), the EC proposed a new version of the NFRD. This proposal, the CSRD, entered into force on Jan. 5, 2023, as part of the EC’s Sustainable finance package.

Because these guidelines are non-binding, the information reported does not provide sufficient insight for stakeholders to get a good picture of how the company is dealing with sustainability issues. The EC hopes that high quality and reliable public reporting on sustainability aspects will lead to more funding towards sustainable activities. The technical implementation of the CSRD is done by issuing a delegated act that is directly applicable: the European Sustainability Reporting Standards (ESRS).

NFRD versus CSRD: what are the differences?

Under the NFRD, companies covered by the scope must disclose non-financial information. This term is actually incorrect because it implies that this information is not relevant from a financial point of view. However, information on sustainability is becoming increasingly relevant for a proper assessment of company performance, which is why the CSRD introduces the term “sustainability information.”

The management report is significantly expanded to include a “sustainability report,” which must include much detailed information on the impact of corporate activities on the environment, society and good governance (ESG).

In addition to the sustainability report, the company must also provide information on the diversity policy pursued with respect to the board of directors and, if applicable, the supervisory board.

Relative to the NFRD, the CSRD will result in the following substantive changes, among others:

  • Conducting a materiality assessment to identify the material topics to be reported on. This relates to the impact of the company on society and the environment on the one hand, and the impact of society and the environment on the company itself on the other.
  • Formulating long-term environmental, social and governance objectives and policies (in line with the Paris Climate Agreement).
  • Conducting an ongoing due diligence process on the company’s own business and value chain, in order to identify sustainability risks and negative impacts on people and climate in a timely manner.
  • More detailed reporting requirements and mandatory use of European sustainability reporting standards.
  • Reporting in line with the SFDR and Taxonomy Regulation.
  • Mandatory auditing of information published under the CSRD.
  • The information must be “machine readable” and capable of being included in the European Single Access Point.

Another  important difference between the NFRD and the CSRD is the scope. The scope of the CSRD is quite a bit larger than that of the NFRD. The CSRD is expected to apply to about 50,000 companies operating in the EU, while the NFRD applied to less than 12,000 companies.

Our articles explain CSRD compliance in more detail. Want to keep up to date with developments in the CSRD and other ESG laws and regulations? Our monthly Risk & Compliance newsletter will keep you informed.

How can we help?

Do you need help with compliance with the NFRD or other laws and regulations? Through a compliance quick scan or gap analysis, our consultants can provide clear insight into the extent to which your company is complying with the current legal regulations in light of regulatory expectations. They can also advise you on the impact of future laws and regulations on your organization. In order for you to be as prepared as possible for what is to come. Please feel free to reach out to us.