COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting
Date: 2021-04-21
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: activity report, administrative formalities, audit, auditing, closing of accounts, corporate social responsibility, disclosure of information, environmental impact, financial market, publication of accounts

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   EUROPEAN COMMISSION  Brussels, 21.4.2021  SWD(2021) 151 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Directive of the European Parliament and of the Council   amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting      {COM(2021) 189 final} - {SEC(2021) 164 final} - {SWD(2021) 150 final}  
 
 
Impact assessment on Proposal for a Revision of the Non-Financial Reporting Directive  

Executive Summary Sheet 

A. Need for action 

Why? What is the problem being addressed?  
The Non-Financial Reporting Directive (NFRD) requires certain large companies to report  on social, employee 
and  environmental  matters,  human  rights,  bribery  and  corruption.  Currently,  the  information  reported  by 
companies does not meet users’ needs (investors, civil society and others). Some companies from whom users 
need  information  do  not  report.  Even  when  companies  do  report,  the  information  is  usually  not  sufficiently 
relevant, comparable, reliable or easy to access and use. User demand for non-financial information is expected 
to  increase  significantly  so  these  problems  will  intensify.  The  lack  of  adequate  non-financial  information  for 
investors  and  civil  society  creates  investment  risks,  inhibits  financial  flows  to  activities  that  address  the 
sustainability  crisis,  and  creates  an  accountability  gap  between  companies  and  society.  Preparers  (reporting 
companies)  incur  unnecessary  costs  due  to  uncertainty  about  what  to  report  and  stakeholders’  demands  for 
information in addition to what companies report publicly. The flexibility and lack of specificity in the NFRD is one 
reason for this. In addition, there are many overlapping reporting standards and frameworks, and consequently 
no consensus on what companies should report.  

What is this initiative expected to achieve?  
This  initiative  aims  to  ensure  that  companies  from  whom  users  need  non-financial  information  report  such 
information, and that reported information is relevant, comparable, reliable, and easy to access and use. It also 
aims to reduce unnecessary costs for preparers. By enabling investors to better evaluate the sustainability risks 
and impacts of investments, it will mobilise private finance in support of the European Green Deal. It contributes 
to  the  completion  of  the  Capital  Markets  Union  by  enabling  investors  to  access  comparable  non-financial 
information from investee companies across the EU. It will also reinforce the social contract between companies 
and society by making companies more accountable for their impact on society and the environment.  

What is the value added of action at EU level?  
Only EU action can ensure the comparability of reported non-financial information across the single market, and 
the coherence of reporting requirements between the NFRD and other sustainable finance legislation (including 
the  Sustainable  Finance  Disclosure  Regulation  and  the  Taxonomy  Regulation).  Common  rules  across  the  EU 
are  necessary  to  reduce  the  risks  of  different  reporting  requirements  in  different  Member  States,  which  would 
generate additional costs for companies operating across borders and undermine the single market. In addition, 
EU intervention can give the EU greater weight in global policy developments in non-financial reporting.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
option or not? Why?  
The impact assessment focused on these three issues: (1) standardisation, specifically, whether to develop EU 
non-financial  reporting  standards  and  whether  to  require  companies  to  use  them;  (2)  assurance,  specifically, 
whether reported non-financial information should be assured and if so, at what level; and (3) scope, specifically, 
which categories of company should be subject to the reporting requirements. The preferred policy option is: (1) 
require all companies  within the scope of the NFRD to report  in  accordance  with EU standards; (2) require all 
such companies to seek limited assurance for reported non-financial information, with a review clause to explore 
the need to move to reasonable assurance (a higher, more demanding level of assurance) in the medium term; 
and  (3)  extend  the  scope  of  the  NFRD  to  all  large  limited  liability  companies  and  most  listed  companies.  The 
principal trade-off is between strong reporting and assurance requirements with a broad scope, highly effective 
in  meeting  users’  needs  but  more  expensive  for  preparers;  and  less  stringent  reporting  and  assurance 
requirements and a narrower scope, less effective in meeting users’  needs but less expensive for preparers in 
the short term. The preferred option would achieve the objectives of the initiative at the lowest possible cost. 

Who supports which option?  
Users (investors, civil society and others) generally support stricter reporting and assurance requirements and a 
broader scope, while preparers generally support less strict requirements and a narrower scope. In spite of these 
differences, there is widespread support for a requirement to use EU non-financial reporting standards, including 
from  a  significant  number  of  preparers.  Financial  institutions,  who  are  both  users  and  preparers,  are  more  in 
favour  of  stricter  reporting  and  assurance  requirements  and  a  broader  scope  than  most  non-financial  sector 
companies.  

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C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise the main ones)?                                        
Users  will  benefit  from  better  access  to  comparable,  relevant  and  reliable  non-financial  information  from  more 
companies. This will reduce the risks of investing in the financial system, increase financial flows to companies 
with  positive  social  and  environmental  impacts,  and  make  companies  more  accountable.  The  proposed  option 
would  ensure  that  approximately  49  000  companies  report  such  information  (75%  of  the  turnover  of  all  limited 
liability  companies),  compared  to  the  current  11  600  companies  (47%  of  the  turnover  of  all  limited  liability 
companies).  All  large  and  most  listed  companies  would  be  required  to  apply  non-financial  reporting  standards 
and  seek  assurance  for  reported  information.  By  comparison,  only  an  estimated  20%  of  large  companies 
currently  apply  standards  and  only  30%  seek  some  kind  of  assurance.  The  proposed  option  will  have  indirect 
positive impacts on fundamental rights, the environment and society, given that stricter reporting requirements 
can  influence  corporate  behaviour  for  the  better.  For  example,  about  45%  of  companies  currently  within  the 
scope  of  the  NFRD  adopted  some  new  due  diligence  processes  on  environmental  or  human  rights  matters 
because of the existing NFRD requirements. 

What are the costs of the preferred option (if any, otherwise the main ones)?                                        
The total estimated costs of the preferred option for preparers are EUR 1 200 million in one-off costs and EUR   
3 600 million in annual recurring costs. If the EU takes no action, costs for preparers are expected to increase 
greatly anyway, due to an increase in uncoordinated information demands from users, the ongoing absence of 
consensus on what information companies should report in order to meet users’ needs, and persistent difficulties 
in  obtaining  the  non-financial  information  preparers  need  for  reporting  purposes  from  suppliers,  clients  and 
investee companies. The unavailability of sufficiently detailed data makes it impossible to calculate the costs for 
preparers in the absence of new rules. However, it is estimated that  the use of standards could lead to annual 
costs savings of EUR 24 200-41 700 per company (around EUR 280-490 million per year for the current NFRD 
population  and  EUR  1  200-2  000  million  per  year  for the  preferred  option),  if  standards  eliminate  the  need  for 
additional information requests. The preferred option does not have any significant negative impacts on society, 
the environment or fundamental rights.  

How will businesses, SMEs and micro-companies be affected?  

Affected companies will face an overall increase in costs (see previous section). However, the preferred option 
should  also  improve  company  resilience,  given  that  better  reporting  raises  companies’  awareness  of 
sustainability-related  risks  and  improves  risk  management.  It  should  also  lead  to  advantages  for  more 
sustainable  companies,  since  sustainability  front-runners  will  be  more  easily  identifiable.  The  reporting 
requirements  would  not  apply  to  SMEs,  except  listed  SMEs.  However,  simplified  reporting  standards  will  be 
developed for SMEs to use on a voluntary basis. These should enable SMEs to meet information demands from 
large  company  clients  and  banks,  and  will  facilitate  their  contribution  to  and  participation  in  the  transition  to  a 
sustainable economy. 

Will there be significant impacts on national budgets and administrations?  
Implementation costs will be an estimated EUR 35,5 million, plus a further EUR 5 million in annual costs, for the 
development  of  digital  ad  hoc  processes  and  maintenance  of  digital  registers,  resulting  from  requirements  to 
digitally  tag  non-financial  information  as  part  of  this  initiative.  Member  States  may  also  incur  some  additional 
costs from gearing enforcement priorities towards non-financial reporting.  

Will there be other significant impacts?   
Under  the  preferred  option,  EU  companies  risk  incurring  higher  reporting  costs  than  non-EU  companies,  with 
negative  impacts  on  their  international  competitiveness.  However,  some  global  companies  are  likely  to  decide 
voluntarily  to  comply  with  the  mandatory  EU  standards,  and  other  jurisdictions  are  already  introducing 
the 
requirements  or  policy 
competitiveness  of  EU  companies  is  likely  to  be  enhanced  in  the  longer  term  if  EU  standards  prompt  global 
alignment and influence possible future global standards.  

field  of  sustainability-related  disclosures.  Furthermore, 

initiatives 

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D. Follow up 

When will the policy be reviewed?   
Evaluation  will  take  place  when  sufficient  evidence  can  be  collected  about  the  impacts  of  the  initiative  (i.e.  at 
least  3  years  of  data),  taking  into  account  the  time  needed  for  its  possible  transposition  and  application,  and 
data collection. 

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