CSRD vs NFRD: What's the Difference?

Introduced in 2014, the Non-Financial Reporting Directive (NFRD) was a landmark regulation designed to hold large companies accountable for their performance on non-financial matters. Understanding CSRD vs NFRD is essential for grasping how EU sustainability reporting has evolved. However, it faced significant criticism for its limited scope, lack of mandatory third-party verification and vague reporting requirements. In response, the European Union (EU) introduced the Corporate Sustainability Reporting Directive (CSRD), a more comprehensive framework aimed at addressing these shortcomings. For businesses operating in complex, high-impact sectors, understanding the essentials of CSRD vs NFRD is key to ensuring accurate and compliant sustainability reporting.

What is the Non-Financial Reporting Directive (NFRD)?

In 2018, the EU implemented NFRD, creating the first standardised framework for sustainability reporting across the region. However, unlike its successor, NFRD primarily focused on establishing basic disclosure requirements without imposing rigorous standardisation.

Under NFRD, large public-interest companies with over 500 employees were required to disclose information on:

• Environmental matters: Disclosures about environmental impact, including energy use, carbon emissions, waste management and resource efficiency.
• Social and employee issues: Information on social policies, employee rights, working conditions, diversity and inclusion efforts.
• Human rights: Measures implemented to prevent human rights abuses throughout operations and supply chains.
• Anti-corruption and bribery: Policies and actions to prevent corruption and unethical business practises
• Board diversity: Information on diversity policies for management and boards, including age, gender and educational or professional backgrounds

However, the NFRD framework had several limitations:

• Limited scope: It applied to around 11,600 companies in the EU.
• Inconsistency: Companies had significant flexibility, resulting in non-comparable and sometimes superficial disclosures.
• Lack of standardisation: No clear metrics or structured formats were mandated.

These limitations mandated the need for a more robust reporting standard. This evolution from NFRD to CSRD highlights the critical distinctions explored in CSRD vs NFRD comparisons.

Introduction of the Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD), adopted in December 2022, significantly expands and strengthens the EU’s sustainability reporting requirements. When examining CSRD vs NFRD, it becomes clear that CSRD brings a step-change in both scope and rigor. CSRD builds on its predecessor NFRD and brings tougher rules that will transform how companies report their sustainability efforts. Though currently undergoing further reviews and consultations, CSRD is intended to have far reaches beyond NFRD’s scope.

Key Objectives of CSRD:

• Enhance transparency, accountability and comparability of sustainability data
• Provide stakeholders with standardised, reliable and audited sustainability information
• Align with international frameworks like Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI) and the EU Taxonomy

What Companies are Subject to CSRD?

Public Interest Entities (PIE): These entities are still required to prepare their CSRD reports in 2025, PIE means:

• Listed Companies
• Credit Institutions
• Insurance Undertakings
• Any other entities designated as PIEs by member states

Large Enterprises (exceeding two of the three followings): Originally scheduled to begin reporting in 2026 for the 2025 financial year, delayed now to 2028.

• Balance sheet total: EUR 25,000,000
• Net turnover: EUR 50,000,000
• No of employees: 250

SMEs (do not exceeding two of the followings): delayed from 2027 to 2029

• Balance sheet total: EUR 25,000,000
• Net turnover: EUR 50,000,000
• No of employees: 250
  
  

Differences Between CSRD and NFRD

This side-by-side view of CSRD vs NFRD provides a practical summary for companies transitioning between the two frameworks.

While NFRD let companies choose their reporting frameworks, CSRD requires them to follow the European Sustainability Reporting Standards (ESRS). ESRS creates a clear framework that tells companies exactly what to report about their environmental, social and governance practices. Companies must now look at sustainability from two angles; they need to show how sustainability challenges affect their business and how their work affects society and the environment.

How to Prepare for CSRD Reporting Requirements

Preparing for CSRD implementation requires a strategic approach that addresses the directive's enhanced requirements. First and foremost, businesses need to set up strong procedures that go beyond the NFRD's streamlined reporting style.

Conducting a Double Materiality Assessment (DMA)

The double materiality review is the most important part of following the CSRD because it tells you which sustainability issues need to be reported. This process involves:

• Impact materiality: How company activities impact people and the planet.
• Financial materiality: How ESG issues affect the company’s financial position.

This integrated view is particularly important for complex sectors like construction and heavy industry, where environmental impacts and climate risks are often intertwined with operational performance.

Upgrading internal reporting systems

Simultaneously, organisations must enhance their data management capabilities:

• Identify data owners across departments for each required data point.
• Integrate and harmonise information from various IT systems (ERP, CRM, HR).
• Implement specialised software or upgrade existing systems to handle sustainability data.
• Establish clear audit trails and ensure data traceability for verification purposes.

Companies should focus on creating robust data libraries that enable efficient compilation from multiple sources whilst maintaining data accuracy and consistency.

Engaging auditors and sustainability consultants

A core part of CSRD is third-party verification from external auditors. In this situation, early engagement with assurance providers offers significant benefits:

• Identify potential issues well before mandatory audit deadlines.
• Understand auditor expectations regarding documentation and evidence.
• Gain insights into how auditors interpret CSRD requirements.
• Allow time for remediation of process weaknesses or data gaps.

By working collaboratively with assurance providers and sustainability compliance consultants throughout the reporting journey, companies can ensure more reliable reporting and reduce compliance risks.

The Bottom Line

The transition from NFRD to CSRD represents a defining moment for corporate sustainability reporting in the European Union. This progress shows EU's commitment to standardise ESG disclosures and embed sustainability into business operations, mandating companies that were used to NFRD's flexible approach to adapt to CSRD's broader scope. As the regulatory landscape evolves, CSRD vs NFRD will remain a key point of reference for understanding corporate sustainability obligations.