Overview of EU Non-Financial Reporting Directive (NFRD) reportingOverview of EU Non-Financial Reporting Directive (NFRD) reporting https://www.esgenterprise.com/wp-content/uploads/2021/09/EU-Non-Financial-Reporting-Directive.jpg 1055 699 ESG Enterprise https://www.esgenterprise.com/wp-content/uploads/2021/09/EU-Non-Financial-Reporting-Directive.jpg
The EU Non-Financial Reporting Directive (NFRD) was introduced in the EU in 2018. Since its introduction, all 28 EU countries have adopted the directive into their national law. Each country is adopting this directive in different ways that align with their laws, therefore businesses must understand the requirements that applies to them based on their location. This article takes a detailed look at all you need to know about NFRD reporting. Read on.
What does EU Non-Financial Reporting Directive (NFRD) reporting entail?
Based on the EU NFRD, organizations must publicly disclose documents such as annual reports, integrated reports, and sustainable reports in the different disclosure categories.
Organizations have to share their business models, policies that have been adopted regarding non-financial issues, the non-financial key performance indicators, outcomes of adopted policies, and the related risks associated with the issue and the organization’s operations.
With this system, organizations must have a policy in place to address the issue or explain why no policy exists. If an organization does not have a policy that addresses any of the core issues, it should publicly disclose the reason to avoid negative publicity and other associated costs.
The required disclosure categories are as follows: social and employee aspects, diversity on board of directors, environmental matters, anti-corruption and bribery issues, and respect for human rights.
Requirements across countries
Apart from the core disclosure categories highlighted above, countries have adopted the directive in peculiar ways, as stated earlier. These countries have thus included extra requirements.
For example, countries like Austria, Belgium, Finland, and Spain require publishing information such as the distribution of employees according to age and gender, executive remuneration, and the diversity of the board of directors.
Countries like France are particularly known for extra stringent requirements such as information on social and environmental issues such as circular economy, employee retention, and pollution prevention.
Even with countries making extra requirements, some included the directive in their national laws without extra information or peculiar modifications.
How organizations should report non-financial information
The criteria for the applicability of the EU Non-Financial Reporting Directive (NFRD) to organizations is based on parameters such as the balance sheet total, net turnover, and the average number of employees.
Companies with a minimum of 500 employees in the most recent fiscal year must abide by the directive. These companies are described as large public interest entities.
Even with the criteria for the applicability of the directive for organizations, the requirements differ across countries.
For example, in countries like Sweden, organizations with more than 250 employees must abide by the directive. For Luxembourg, companies with a minimum of 250 employees are referred to as public interest entities.
In Greece, the criteria for reporting environmental and social data include having more than ten employees, a balance sheet total of more than EUR 350,000, and a turnover of more than EUR 700,000. The 500-employee limit also applies in Greece when the other criteria are not met.
Organizations are at liberty of reporting the required information. This can be done in a peculiar report. Guidelines are also available for the preparation of the reports. The available guidelines include European and international guidelines such as the OECD guidelines, the UN Global Compact, and the ISO 2600.
The OECD guidelines are particularly suited for multinationals, while the ISO 2600 aligns with the EU Commission.
Frameworks are also available for the reporting of the details. Companies are at liberty of applying these frameworks. However, when a framework is used, it should be stated. One of the most commonly used frameworks is the GRI standards, applied to all topics.
As highlighted above, non-compliance with the reporting of non-financial information could cause serious consequences. As long as the directive has been approved and transposed into the national law, it becomes enforceable through national administrative mechanisms applied to the national law.