The end of last year has brought about extremely promising news. On 10 November 2022, the European Parliament adopted the final Corporate Sustainability Reporting Directive (CSRD) text, which amends the current Non-Financial Reporting Directive (NFRD). The new directive will require companies in the European Union to publicly disclose information and data about environmental, social affairs and governance matters.

What is the NFRD?

The Non-Financial Reporting Directive has been around since 2018. All 28 member states of the EU are expected to comply if their company meets the requirements to participate in the NFRD. Companies are required to share their business impact, development, performance and their positioning regarding a list of non-financial disclosures. The report needs to contain, for example, the company’s environmental impact, such as its greenhouse gas emissions and social impact.

The difference between NFRD and CSRD

First and foremost, the CSRD is much more progressive, and even companies that still need to be required to report should prepare to be able to do so in a few years. The NFRD only affects a few companies as the CSRD does due to the CSRD’s new, more detailed requirements that aim at reforming sustainability reporting. Only large companies are required to report according to the NFRD. In contrast, under CSRD, a company is required to report if they meet two of the following three criteria: 250 or more employees, a forty million euro revenue, or twenty million euros in assets.

Experts welcome the news

On 5 January this year, the directive entered into force. Most sustainability experts are delighted because it will modernize and support the rules related to social and environmental information that companies are required to report on. Finally, we are a significant step closer to eliminating greenwashing!

What does it mean, and which companies are affected?

The new regulation requires all large companies and all listed companies – except for listed micro-enterprises – to disclose information on the risks and opportunities arising from social and environmental issues stemming from their activities. Simply put, this will increase a company’s accountability, make it more transparent, prevent greenwashing or divergent sustainability standards and practices, and ease the transition to a sustainable economy. Approximately 50 000 companies are affected. And this is only the start. In the upcoming years, more and more companies will need to report on their environmental and social impacts.

This will help investors, civil society organizations, consumers and all other stakeholders to assess companies’ sustainability performance. This has been especially relevant since the Green Deal. The new rules will ensure that investors and other stakeholders have access to the information they need to assess investment risks related to climate change and other sustainability issues. It will also promote a culture of transparency about companies’ impacts on people and the environment.

The first companies required to report will have to apply the new rules for the first time in the financial year 2024 for reports published in 2025. These companies cover more than 75% of the total turnover of EU companies. Listed SMEs that do not fall into the group required to report will have an additional three years to comply.