COMMISSION STAFF WORKING DOCUMENT 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.4.2021  SWD(2021) 150 final  COMMISSION STAFF WORKING DOCUMENT  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) 151 final}  
 
 
Table of contents 

1. 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ..................................... 1 

1.1 How does this initiative contribute to the political priorities of the 

Commission and the EU? .................................................................................. 1 
1.2 What is the legal and policy context? .................................................................... 2 
1.2.1 The Non-Financial Reporting Directive ........................................................ 2 

1.2.2 Other relevant EU legislation and policy ...................................................... 4 

2.  PROBLEM DEFINITION .......................................................................................... 6 

2.1 What are the problems? ......................................................................................... 8 
2.1.1 Problems and consequences from a user perspective .................................... 8 

2.1.2 Problems and consequences from a preparer perspective ........................... 10 

2.1.3 Overall consequences .................................................................................. 10 

2.2 What are the problem drivers? ............................................................................ 10 
2.2.1 Market failures............................................................................................. 10 

2.2.2 Regulatory failure ........................................................................................ 11 

2.3 How will the problems evolve? ........................................................................... 14 

3.  WHY SHOULD THE EU ACT? .............................................................................. 14 

3.1 Legal basis ........................................................................................................... 14 
3.2 Subsidiarity: Necessity of EU action ................................................................... 14 
3.3 Subsidiarity: Added value of EU action .............................................................. 15 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ..................................................... 15 

4.1 General objectives ............................................................................................... 15 
4.2 Specific objectives ............................................................................................... 16 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? .......................................... 18 

5.1 What is the baseline from which options are assessed? ...................................... 18 
5.2 Description of the policy options ........................................................................ 20 
5.2.1 Standardisation options ............................................................................... 22 

5.2.2 Assurance options ........................................................................................ 24 

5.3.3 Scope options............................................................................................... 25 

5.3 Options discarded at an early stage ..................................................................... 26 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ................................. 26 

6.1  Impacts of standardisation options ..................................................................... 27 

6.1.1 Analysis of impacts of Option 1: Develop EU non-financial reporting 
standards for mandatory use by companies under scope (and simplified SME 
standards for voluntary use) ................................................................................. 27 

6.1.2 Analysis of impacts of Option 2. Develop EU non-financial reporting 
standards for voluntary use ................................................................................... 33 

6.1.3 Comparison of standardisation options ....................................................... 35 

 
 
 
6.2  Impacts of Assurance options ............................................................................. 37 
6.2.1 Analysis of impacts of Option 1: Require reasonable assurance ................ 37 

6.2.2 Analysis of impacts of Option 2: Require limited assurance ...................... 39 

6.2.3 Comparison of assurance options ................................................................ 40 

6.3 Impacts considering different scope options ....................................................... 42 
6.3.1 Analysis of impacts of Package 0 ................................................................ 43 

6.3.2 Analysis of impacts of Package 1 ................................................................ 44 

6.3.3 Analysis of impacts of Package 2 ................................................................ 45 

6.3.4 Analysis of impacts of Package 3 ................................................................ 46 

6.3.5 Analysis of impacts of Package 4 ................................................................ 48 

6.3.6 Comparison of Packages ............................................................................. 49 

7.  PREFERRED OPTION ............................................................................................. 52 

7.1 REFIT (simplification and improved efficiency) ................................................ 55 

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND 

EVALUATED? ......................................................................................................... 56 

ANNEX 1: PROCEDURAL INFORMATION ................................................................ 58 

1. 
2. 
3. 
4. 

Lead DG, Decide Planning/CWP references ................................................... 58 
Organisation and timing .................................................................................. 58 
Consultation of the RSB .................................................................................. 59 
Evidence, sources and quality ......................................................................... 59 

ANNEX 2: STAKEHOLDER CONSULTATION ........................................................... 62 

ANNEX 3: WHO IS AFFECTED AND HOW? ............................................................... 73 

1. 
2. 

Practical implications of the initiative ............................................................. 73 
Summary of costs and benefits ........................................................................ 73 

ANNEX 4: SME TEST ..................................................................................................... 82 

ANNEX 5: SUMMARY REPORT OF SME PANEL ...................................................... 86 

1. 
2. 
3. 

Introduction ..................................................................................................... 86 
Demographics of the respondents ................................................................... 86 
Current ESG practices and requirements ........................................................ 90 
3.1 Practices on ESG data collection .................................................................... 90 

3.2 Publication and disclosure practices ............................................................... 92 

3.3 Requests of ESG information from stakeholders ........................................... 94 

3.4 Time invested on ESG data processes ............................................................ 99 

4. 

SMEs preference on development of a non-financial reporting 
standard for SMEs ......................................................................................... 101 
5.  Methodology of Size Assessment ................................................................. 102 

ANNEX 6: IMPLICATIONS OF THE COVID-19 PANDEMIC .................................. 103 

 
 
 
ANNEX 7: DESCRIPTION OF THE NON-FINANCIAL REPORTING 

DIRECTIVE ............................................................................................................ 105 

ANNEX 8: EXAMPLES OF NON-FINANCIAL INFORMATION GIVEN IN 

THE COMMISSION’S 2017 GUIDELINES ......................................................... 111 

ANNEX 9: OVERVIEW OF TRANSPOSITION OF THE NON-FINANCIAL 

REPORTING DIRECTIVE BY MEMBER STATES ............................................ 117 

ANNEX 10: RELEVANT EU LEGISLATION AND POLICY INITIATIVES ............ 123 

ANNEX 11: CAPITAL MARKETS UNION HIGH-LEVEL FORUM 

PROPOSAL FOR EUROPEAN SINGLE ACCESS POINT. ................................ 148 

ANNEX 12: PROBLEM DEFINITION ......................................................................... 156 

Problems and consequences from the perspective of users of non-

1. 
financial information ........................................................................................ 156 

2. 
Problems and consequences from the perspective of preparers (reporting 
companies) ......................................................................................................... 171 

ANNEX 13: DESCRIPTION OF PRINCIPAL PRIVATE INTERNATIONAL 

NON-FINANCIAL REPORTING FRAMEWORKS AND STANDARDS .......... 176 

ANNEX 14: NON-FINANCIAL REPORTING REQUIREMENTS IN OTHER 

JURISDICTIONS .................................................................................................... 189 

ANNEX 15. LEGAL BASIS ........................................................................................... 194 

ANNEX 16: ASSESSMENT OF PROPOSED POLICY OPTIONS FOR OTHER 

VARIABLES ........................................................................................................... 195 

1. Digitalisation ....................................................................................................... 195 
1.1 Baseline ........................................................................................................ 195 

1.2 Proposed change: Develop EU digital taxonomy and require companies to tag 
reports ................................................................................................................. 195 

1.3 Impacts of the proposed change: Develop EU digital taxonomy and require 
companies to tag reports ..................................................................................... 196 

1.4 Proposed changes compared to baseline ...................................................... 198 

2. Sanctioning regime and enforcement .................................................................. 198 
2.1 Baseline ........................................................................................................ 198 

2.2 Proposed changes: Clarify and strengthen supervisory regime of non-financial 
reporting ............................................................................................................. 199 

2.3 Impacts of the proposed changes: Clarify and strengthen supervisory regime 
of non-financial reporting ................................................................................... 199 

2.4 Proposed changes compared to baseline ...................................................... 200 

3. Reporting on intangibles ..................................................................................... 200 
3.1 Baseline ........................................................................................................ 200 

3.2 Proposed change: Require reporting on intangibles ..................................... 201 

2.3 Impacts of the proposed change: Require reporting on intangibles ............. 201 

2.4 Proposed changes compared to baseline ...................................................... 201 

 
 
 
4. Where to publish non-financial information?...................................................... 202 
4.1 Baseline ........................................................................................................ 202 

4.2 Proposed changes: Do not allow reporting in separate report ...................... 202 

4.3 Impacts of the proposed changes: Where to publish non-financial information
 ............................................................................................................................ 202 

4.4 Proposed changes compared to baseline ...................................................... 204 

5. Materiality concept in non-financial reporting .................................................... 204 
5.1 Baseline ........................................................................................................ 204 

5.2 Proposed change: Clarify in law when is information material ................... 204 

5.3 Impacts of the proposed change: Clarify materiality concept ...................... 204 

5.4 Proposed change compared to baseline ........................................................ 205 

6 

Exemption of subsidiaries ............................................................................. 205 
6.1 Baseline ........................................................................................................ 205 

6.2 Proposed changes: Clarify in law the exemption of subsidiaries ................. 206 

6.3 Impacts of the proposed change: Clarify in law the exemption of subsidiaries
 ............................................................................................................................ 206 

6.4 Proposed changes compared to baseline ...................................................... 207 

ANNEX 17: COSTS ANALYSIS ................................................................................... 207 

ANNEX 18: DISCARDED POLICY OPTIONS ............................................................ 224 

 
 
 
Glossary 

Term or acronym 

Meaning or definition 

KPIs 

NFRD 

ESG 

SMEs 

SFDR 

GRI 

CRR 

SASB 

IIRC 

ESAP 

CMU 

ESMA 

TR 

EMAS 

LPD 

TCFD 

Key Performance Indicators 

Non-Financial Reporting Directive 

Environmental, social and governance 

Small and medium-sized enterprises 

Sustainable Finance Disclosure Regulation 

Global Reporting Initiative 

Capital Requirements Regulation 

Sustainability Accounting Standards Board 

International Integrated Reporting Council 

European Single Access Point 

Capital Markets Union 

European Securities and Markets Authority 

Taxonomy Regulation 

Eco-management and Audit Scheme 

Late Payments Directive 

Task Force on Climate-related Financial Disclosures 

 
 
 
 
 
 
 
 
 
1.  INTRODUCTION: POLITICAL AND LEGAL CONTEXT 

This impact assessment concerns a proposed initiative on annual public reporting of non-
financial information by companies. It considers different policy options, taking account 
of the existing legal provisions introduced by the Non-Financial Reporting Directive.1 

1.1  How  does  this  initiative  contribute  to  the  political  priorities  of  the 

Commission and the EU? 

This  initiative  is  part  of  the  Commission’s  2020  Work  Programme  and  is  one  of  the 
actions  proposed  by  the  European  Commission  to  implement  the  European  Green 
Deal.2 The European Green Deal is Europe’s new growth strategy. It aims to transform 
the  Union  into  a  modern,  resource-efficient  and  competitive  economy  with  no  net 
emissions of greenhouse gases by 2050. It will decouple economic growth from resource 
use,  and  ensure  that  all  regions  and  citizens  of  the  EU  participate  in  a  socially  just 
transition to a sustainable economic system.  

Private finance has an important role to play in  meeting the objectives of the European 
Green Deal. This initiative will support sustainable private finance, by helping investors 
identify companies that carry out sustainable activities.3 The Commission will present a 
renewed sustainable finance strategy in the fourth quarter of 2020, building on the 2018 
Sustainable Finance Action Plan.4  

This  initiative  also  supports  the  current  European  Commission’s  objective  of  ensuring 
An  Economy  that  Works  for  People.  It  contributes  to  the  completion  of  the  Capital 
Markets Union, by enabling investors, and other stakeholders, to access comparable non-
financial information from investee companies across the EU. It aims to enable SMEs to 
better contribute to and benefit from the transition to sustainable economy. This impact 
assessment  takes  an  “SME-first”  approach.  A  culture  of  greater  accountability  and 
transparency  from  companies  regarding  their  impacts  on  society  and  the  environment 
could  also  help  to  strengthen  the  social  contract  between  business  and  citizens,  and 
contribute to a greater sense of social fairness.  

1 This impact assessment uses the terms “non-financial information” and “non-financial reporting”, consistent with the 
existing Non-Financial Reporting Directive. Other terms commonly used to refer to the same or similar concepts are 
“sustainability  reporting/information”  and  “environmental,  social and  governance  (ESG)  reporting/information”.  The 
use of “non-financial reporting/information” in this document does not prejudge any decision on the terms that may be 
used in the Commission’s legislative proposal.  
2  Communication  from  the  Commission  on  the  European  Green  Deal,  COM(2019)640  final,  11  December  2019. 
Commission Work Programme 2020: A Union that Strives for More, COM(2020) 37 final, 29 January 2020. Adjusted 
Commission Work Programme 2020) 
3 Investors in its broader sense, includes as well asset managers. 
4 Communication from the Commission - Action Plan: Financing Sustainable Growth COM(2018)097 final This text 
will  be  updated  as  appropriate  after  adoption  of  the  Renewed  Sustainable  Finance  Strategy,  which  is  scheduled  for 
adoption after this draft impact assessment is submitted to the RSB, but before the Commission adopts a proposal on 
the revision of the Non-Financial Reporting Directive. 

1 

 
 
                                                           
In  addition,  this  initiative supports the objective  of  A Europe  Fit for the Digital Age. 
The Commission has stated that the “twin challenge of a green and digital transformation 
has  to  go  hand-in-hand”.5  Non-financial  information  reported  by  companies  should 
become part of the single European data space. This initiative can create opportunities for 
reporting companies, investors, civil society and other stakeholders to radically improve 
the  way  in  which  non-financial  information  is  reported  and  used  through  the  use  of 
digital technologies. 

The Covid-19 pandemic is expected to further accelerate the growth in demand for non-
financial information  from  companies.  At the same time, the economic crisis  generated 
by  the  pandemic  makes  it  ever  more  important  to  avoid  the  imposition  of  unnecessary 
administrative costs on business. Annex 6 summarises the implications of the Covid-19 
pandemic for this initiative.  

This initiative reflects the calls by the Council and the European Parliament to consider 
further action to improve non-financial reporting.  In December 2019, in its conclusions 
on  the  Capital  Markets  Union,  the  Council  stressed  the  importance  of  reliable, 
comparable  and  relevant  information  on  sustainability  risks,  opportunities  and  impacts, 
and called on the Commission to consider the development of a European non-financial 
reporting standard.6  In its  resolution  on sustainable finance in  May 2018,  the European 
Parliament called for the further development of reporting requirements in the framework 
of the Non-Financial Reporting Directive.7 

A wide variety of different organisations and stakeholders have called for consideration 
of  a  new  regulatory  approach  to  non-financial  reporting,  including  the  International 
Monetary  Fund,  central  banks  in  the  Network  for  Greening  the  Financial  System, 
investors, some business associations, civil society organisations and trade unions. 

1.2 What is the legal and policy context? 

1.2.1 The Non-Financial Reporting Directive 

In  2014  the  EU  agreed  the  Non-Financial  Reporting  Directive  (Directive  2014/95/EU), 
which  amended  the  Accounting  Directive  (Directive  2013/34/EU).  The  Non-Financial 
Reporting  Directive  (NFRD)  imposed  new  reporting  requirements  on  certain  large 
companies.  Companies  under  the  scope  of  the  NFRD  had  to  report  according  to  its 
provisions for the first time in 2018, for information covering financial year 2017. This 
section  highlights  some  of  the  main  provisions  of  the  NFRD.  Annex  7  provides  a  full 
description of the NFRD.  

5 Communication from the Commission: Shaping Europe’s Digital Future. 
6 Council Conclusions on the Deepening of the Capital Markets Union  
(5 December 2019)  
7 European Parliament resolution of 29 May 2018 on sustainable finance (2018/2007(INI))  

2 

 
 
                                                           
The Non-Financial Reporting Directive at a glance 

As required by the NFRD, in 2017 the Commission published non-binding guidelines for 
companies  under  the  scope  of  the  Directive.8  In  2019,  the  Commission  published 
additional guidelines, specifically on reporting climate-related information.9 If companies 
use reporting frameworks, then they have to specify which frameworks they have used. 
The NFRD does not, however, require the use of a reporting framework or standard. 

The  NFRD  applies  to  large  public  interest  entities  with  more  than  500  employees.10  In 
practice  this  means  that  it  applies  to  large  EU  companies  with  securities  listed  in  EU 
regulated  markets,  large  banks  (whether  listed  or  not)  and  large  insurance  companies 
(whether  listed  or  not)  –  all  provided  they  have  more  than  500  employees.  The  NFRD 
exempts the subsidiaries of parent companies from the reporting obligation, if the parent 
company  itself  reports  the  necessary  information  on  a  consolidated  basis.  We  estimate 
that  approximately  11  700  companies  are  subject  to  the  reporting  requirements  of  the 
NFRD.11  

The  NFRD  identifies  four  non-financial  ‘matters’:  environment,  social  and  employee 
matters,  human  rights,  and  anti-corruption  and  anti-bribery.  With  regard  to  those  four 
matters,  it  requires  companies  to  disclose  information  about  five  business  concepts: 
business  model, policies (including due diligence processes implemented), the outcome 
of  those  policies,  risks  and  risk  management,  and  key  performance  indicators  (KPIs) 

8  Communication  from  the  Commission  —  Guidelines  on  non-financial  reporting  (methodology  for  reporting  non-
financial information) C/2017/4234 
9 Communication from the Commission  — Guidelines on non-financial reporting: Supplement on reporting  climate-
related information C/2019/4490  
10 It also applies to public interest entities which are parent companies of a large group with more than 500 employees. 
11  This  figure  takes  account  of  how  Member  States  have  transposed  the  Directive.  Not  taking  account  of  national 
transposition, about 2 000 companies are under scope of the NFRD. 

3 

 
 
 
                                                           
relevant  to  the  business.12  Annex  8  provides  illustrative  examples  of  the  kind  of 
information that companies could be expected to disclose under the NFRD. 

Companies  under  the  scope  of  the  NFRD  are  required  to  disclose  information  “to  the 
extent necessary for an understanding of [their] development, performance, position and 
impact  of  [their]  activity.”  The  reference  to  “impact”  represented  a  significant 
innovation:  it  introduced  a  double  materiality  perspective,  whereby  companies  have  to 
report information not only on how non-financial issues affect the company (“outside-in” 
perspective),  but  also  regarding  the  impact  of  the  company  itself  on  society  and  the 
environment (“inside-out” perspective).  

The NFRD requires the auditor to check that the company has provided a non-financial 
statement,  but  does  not  require  the  auditor  to  assure  the  content  of  the  information. 
However,  Member  States  may  require  assurance  on  the  content  of  the  information 
reported and three Member States (Italy, Spain and France) have used this option.  

Annex 9 provides an overview of how Member States have transposed the NFRD.  

1.2.2 Other relevant EU legislation and policy 

The Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, together 
with  the  NFRD,  are  the  central  elements  of  the  sustainability  reporting  regime  that 
underpins the EU’s Sustainable Finance Strategy. 

The Sustainable Finance Disclosure Regulation (SFDR) governs how financial market 
participants  (including  assets  managers  and  financial  advisers)  should  disclose 
sustainability  information  towards  end  investors  and  asset  owners.13  Financial  market 
participants can only meet the requirements of the SFDR if they have access to adequate 
information  from  investee  companies.  Since  the  NFRD  governs  reporting  by  investee 
companies,  there  is  an  obvious  case  for  ensuring  alignment  between  the  disclosure 
requirements of the NFRD and the SFDR.  

The  Taxonomy  Regulation  creates  a  classification  system  of  environmentally 
sustainable  economic  activities  with  the  aim  of  scaling  up  sustainable  investments  and 
combatting  greenwashing  of  ‘sustainable’  financial  products.14  It  requires  companies 
under  the  scope  of  the  NFRD  to  disclose  the  extent  to  which  their  activities  are 
considered  environmentally  sustainable  according  to  the  taxonomy.  Financial  market 
participants  subject  to  the  SFDR  must  disclose  the  extent  to  which  financial  products 
marketed  as  sustainable  are  aligned  with  the  taxonomy.  The  taxonomy  therefore 

12 Due diligence in this context refers to the process by which companies identify, prevent, mitigate and account for 
how they address actual and potential adverse impacts in  their own operations, their supply chain and other business 
relationships (OECD Guidelines for Multinational Enterprises).  
13 Regulation (EU) 2019/2088. Financial market participants have to comply with the SFDR as from 10 March 2021.  
14 Regulation (EU) 2020/852  

4 

 
 
                                                           
represents an important reference point that further strengthens the interactions between 
the SFDR and the NFRD.  

The goal is to create a consistent and coherent flow of sustainability-related information 
through  the  financial  value  chain.  To  achieve  this,  consistency  and  alignment  between 
the future technical standards of the SFDR and any possible standards developed under 
the  NFRD  will  be  especially  important.  Annex  10  describes  in  more  detail  the 
interactions  between  the  NFRD,  the  SFDR  and  the  Taxonomy  Regulation,  including  a 
graphical representation of these interactions.  

This initiative will also be closely coordinated with certain other Commission initiatives, 
including in particular: 

-  European  Single  Access  Point:  as  part  of  the  Action  Plan  on  the  Capital  Markets 
Union,  the  Commission  will  put  forward  a  legislative  proposal  in  2021  to  set  up  a 
European  Single  Access  Point  (ESAP)  –  an  EU-wide  digital  access  platform  to 
companies’ public  financial and non-financial  information.15  It  will facilitate access 
to the non-financial information that companies disclose under the NFRD, provided 
that such information is digitally tagged in the appropriate way.  

-  Sustainable corporate governance: the Commission will propose a new initiative in 
2021  to  embed  sustainability  in  the  corporate  governance  framework  and  foster 
behavioural  change  in  companies  by  addressing  issues  such  as  the  duty  of  care  of 
company  directors,  the  integration  of  sustainability  into  corporate  strategies,  the 
setting  of  science-based  sustainability  targets,  and  due  diligence  for  environmental 
and human rights impacts. To ensure coherence and maximum alignment, the NFRD 
could mandate the disclosures that may be necessary under the proposed sustainable 
corporate governance initiative.  

-  Pay Transparency: the Commission has adopted a proposal aimed at strengthening 
the application of the principle of equal  pay for  equal  work or  work of  equal  value 
between men and women through pay transparency and enforcement mechanisms.16 
This  proposal  includes  requirements  on  certain  companies  to  make  information 
regarding the gender pay gap publicly available. Some of these companies may also 
be  covered  by  the  Non-Financial  Reporting  Directive  (NFRD).  Both  initiatives  will 
be  aligned  so  that  any  public  reporting  on  the  gender  pay  gap  pursuant  to  the  Pay 
Transparency  Directive  by  companies  subject  to  the  NFRD  would  be  taken  into 
account in possible standards for non-financial reporting under the NFRD.  

15  Commission  Communication  “A  Capital  Markets  Union  for  people  and  businesses  –  new  action  plan”,  24 
September 2020, COM(2020) 590 final. 
16   COM (2021)93 

5 

 
 
 
 
 
                                                           
-  Green Claims Initiative: the Commission is considering a new legislative initiative 
to  tackle  false  claims  of  environmental  sustainability.  Under  the  Green  Claims 
Initiative,  companies  that  voluntarily  choose  to  make  green  claims  would  have  to 
substantiate  such  claims  against  a  standard  environmental  impact  methodology. 
Environmental information published in company annual reports, which is regulated 
by the NFRD, does not fall within the definition of “green claims”. Any legislation of 
green claims would therefore not apply to the information in company annual reports. 
Nevertheless,  to  promote  coherence  and  maximum  alignment,  the  revision  of  the 
NFRD could as far as possible refer to the environmental impact methodologies that 
are likely to form the basis of any Commission initiative on green claims. 

-  Environmental  accounting:  the  Commission  is  co-financing  a  new  business  led 
initiative to develop standardised environmental accounting principles within the EU 
and  internationally.  Company-level  environmental  accounting  practices  can  play  an 
important  role in  quantifying companies’  environmental  impacts  and should help  to 
underpin  the  content  of  environmental  information  that  they  disclose  under  the 
NFRD.  

Annex  10  provides  a  more  comprehensive  list  of  relevant  EU  legislation  and  policy 
initiatives, and a more in depth analysis of the interactions. 

2.  PROBLEM DEFINITION 

This  section  summarises  the  identified  problems,  and  the  consequences  and  drivers  of 
those problems. Annex 12 provides a more detailed analysis of the problems.  

In March 2021, the Commission published a Fitness Check on the overall EU framework 
for  public  corporate  reporting  by  companies  (financial  reporting  and  non-financial 
reporting),  together  with  a  report  on  the  NFRD  itself  as  required  by  the  review  clause 
(Article 3) in the Directive.17  

The  deficiencies  in  current  non-financial  reporting  identified  in  this  section  reflect  the 
principal  findings  of  the  Fitness  Check  and  the  review  clause  report.  In  addition,  this 
section  extends  beyond  the  Fitness  Check  and  the  review  clause  report  with  regard  to 
presenting  the  consequences  and  the  drivers  of  those  deficiencies.18Stakeholder 
consultations  have  helped  to  validate  the  problem  definition,  in  particular  open 
consultations organised in 2018 for the Fitness Check and in 2020 for this review of the 
NFRD.  Annex  2  provides  a  summary  of  all  stakeholder  consultations  and  their  results.

17 Publication office please insert reference to Report from the Commission to the European Parliament, the Council 
and the European Economic and Social Committee on the review clauses in Directives 2013/34/EU, 2014/95/EU, and 
2013/50/EU, and accompanying SWD- Fitness Check. 
18 Since the Fitness Check covered the whole public corporate reporting framework, it could not go into such depth on 
some of the specificities of non-financial reporting. 

6 

 
 
 
                                                           
Figure 1 - Integrated overview of drivers, problems and consequences 

7 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.1 What are the problems? 

It is useful to make a distinction between problems for users of non-financial information 
disclosed in company annual reports, and problems for preparers of that information (that 
is to say, reporting companies).  

2.1.1 Problems and consequences from a user perspective 

This  problem  analysis  focusses  on  the  primary  intended  users  of  non-financial 
information disclosed in company annual reports: 

  on the one hand investors, including asset managers, who want to better understand 
the risks and opportunities that non-financial issues pose to their investments, as well 
as to better understand the social and environmental impacts of those investments;  
  and  on  the  other  hand,  non-governmental  organisations,  trade  unions  and  other 
stakeholders,  who  want  to  better  hold  companies  to  account  for  their  social  and 
environmental impacts.19  

Many investors and asset managers purchase non-financial information from third party 
data providers, who collect information from various sources including public corporate 
reports. However, investors remain the end users of this information, and third party data 
providers are therefore not considered primary intended users of this initiative.  

Other stakeholders may also make use of non-financial information disclosed in annual 
reports. Policy makers and environmental agencies may make use of such information, in 
particular  on  an  aggregate  basis,  to  monitor  environmental  and  social  trends,  to 
contribute  to  environmental  accounts,  and  to  inform  public  policy.  Few  individual 
citizens and consumers directly consult company non-financial statements, but more use 
such  information  indirectly,  for  example  when  considering  the  advice  or  opinions  of 
financial advisers or non-governmental organisations. 

The specific problems from the user perspective of non-financial information are:  

a)  Some companies from which users want non-financial information do not report such 

information. 

b)  Many companies that do report non-financial information nevertheless do not report 

all relevant information that users need or want. 
c)  Reported information is not sufficiently comparable.  
d)  Reported information is not sufficiently reliable. 
e)  It is hard for users to find and exploit the information they are looking for even when 

that information is reported.   

19 Such organisations seek to hold companies to account in a number of different ways. They may engage directly with 
individual companies in light of information about specific adverse social and/or environmental impacts. They may run 
campaigns regarding individual companies, or on particular issues or sectors. 

8 

 
 
                                                           
Whether  a  company  reports  against  a  recognised  reporting  standard,  and  whether  the 
reported  non-financial  information  is  assured,  are  useful  proxies  for  assessing  the 
relevance, comparability and reliability of the reported information. They therefore help 
to illustrate the size of the problems from a user perspective. Based on CEPS study, we 
estimate  that  only  around  20%  of  large  limited  liability  companies  in  the  EU 
comprehensively  apply  recognised  reporting  standards,  and  only  around  30%  publish 
non-financial information that has been assured at least to a minimum level.  

It  is  widely  recognised  that  information  on  intangible  assets  is  underreported,  even 
though  such  assets  currently  represent  the  majority  of  investment  carried  out  by  the 
private sector in advanced economies.20 

Amongst other reasons, the lack of digitalisation of the information reported and the lack 
of  clarity  about  which  company  in  a  group  is  required  to  report  non-financial 
information,  lead to problems of searchability and accessibility of the information. 

These  specific  problems  lead  to  the  following  general  problem  from  the  user 
perspective: users do not have access to adequate information about how  non-financial 
issues, and sustainability issues in particular, might impact companies, or about how the 
company itself impacts society and the environment. 

The consequences of the problems from a user perspective depend on which users are 
considered: 

a)  Investors are unable to take sufficient account of sustainability-related and other non-
financial risks and opportunities in their investment decisions. This has the potential 
to create systemic risks that threaten financial stability.21 

b)  Investors are also less able to channel financial resources to companies and economic 
activities that address and do not exacerbate social and environmental problems. 
c)  Non-governmental organisations, trade unions and other stakeholders are less able to 
hold  companies  accountable for their impacts  on society and the  environment. This 
creates an accountability deficit, and may be a contributory factor in the weakening 
of  the  social  contract  between  business  and  citizens,  with  effects  on  the  efficient 
functioning of the social market economy. 

20  See  for  example:  “Investment  in  intangible  assets  in  the  euro  area”  in  ECB  Economic  Bulletin,  Issue  7/2018, 
European  Central  Bank,  2018;  and Productivity  and  secular  stagnation  in  the intangible  economy,  Jonathan  Haskel, 
Stian Westlake, 31 May 2018  
21 This is most obviously the case with regard to climate change: see for example on  “Climate  change and financial 
stability” in Financial Stability Review, European Central Bank, 2019. However it also applies to other non-financial 
issues.  See  for  example  analyses  by  the  Dutch  National  Bank  on  the  exposure  of  the  Dutch  financial  sector  to 
biodiversity risk, water scarcity and risk related to human rights, amongst other issues (Indebted to nature: Exploring 
biodiversity risks for the Dutch financial sector, DNB, 2020 and Values at risk: Sustainability risks and goals in the 
Dutch financial sector, DNB, 2019).  

9 

 
 
                                                           
2.1.2 Problems and consequences from a preparer perspective 

The specific problems from a preparer perspective are: 

a)  Preparers face difficulty and complexity when deciding what information to report. 
b)  Preparers  find  it  difficult  to  get  the  non-financial  information  they  need  from 

suppliers, clients and investee companies to report adequately.   

c)  Preparers  receive  information  requests  from  stakeholders  in  addition  to  the 

information they report to fulfil their legal requirements. 

The general problem from a preparer perspective created by these specific problems 
is  that  preparers  incur  unnecessary  costs  associated  with  the  reporting  of  non-financial 
information. 

2.1.3 Overall consequences 

The overall consequence of these general and specific problems is that the potential of 
the European Single Market to contribute to the objectives of European Green Deal, and 
to the achievement of the UN Sustainable Development Goals, is not fully exploited.  

2.2 What are the problem drivers? 

 The drivers of the identified problems are market and regulatory failures. 

2.2.1 Market failures 

Non-financial  information  from  companies  can  be  considered  a  public  good,  since  one 
user’s “consumption” of the information does not reduce the amount available for others. 
In  addition,  it  is  not  possible  to  charge  for  access  to  publicly  available  non-financial 
information because there is an obvious free-rider problem. This leads to a supply of non-
financial  information  that  is  below  market  demand.  Although  some  companies  would 
publish non-financial information in the absence of an obligation to do so (because they 
find it beneficial, for example in terms of reputation or access to capital), overall, in the 
case  of  an  unregulated  market,  the  supply  of  information  is  unlikely  to  meet  users’ 
demand. 

There  has  been  a  very  significant  increase  in  demand  for  non-financial  information  in 
recent  years,  especially  on  the  part  of  the  investment  community.  This  increase  in 
demand is driven by the changing nature of risks to companies and by growing investor 
awareness of the financial implications of those risks.22 It is also driven by the growth in 

22 An analysis of World Economic Forum reports over recent years shows a dramatic increase in the perception of the 
likelihood and impact of environmental risks.  The 2020 World Economic Forum Global Risk Report shows the top 5 
global  risks  as  estimated  by  the  WEF  from  2007-2020.  In  the  period  2007-13  (which  covers  the  years  up  to  the 
approval of the NFRD by the EU), environmental risks accounted on average for 17% the top 5 risks per year in terms 
of  likelihood  and  just  6%  of  the  top  5  risks  in  terms  of  impact.  For  the  period  2014-2020  (since  the  NFRD  was 
approved),  the  figures  rise  to  54%  and 46%  respectively.  The  figures  for  the  just the  last three  years  2018-2020  are 
higher still: 73% and 60% respectively.  

10 

 
 
                                                           
investment  products  that  explicitly  seek  to  meet  certain  sustainability  standards  or 
achieve certain sustainability objectives.23  

However,  market  forces  on  their  own  have  not  so  far  been  sufficient  to  ensure  that 
companies  report  the  non-financial  information  that  is  needed  to  meet  the  increase  in 
demand. Recognition of this failure lies behind many of the calls for stronger policies on 
non-financial  reporting,  including  regulatory  action,  from  organisations  such  as  central 
banks  and  the  International  Monetary  Fund.24  The  European  Securities  and  Markets 
Authority (ESMA) has recommended stronger non-financial reporting requirements as a 
means of addressing undue short-termism in securities markets.25  

Market  forces  have  catalysed  the  creation  of  a  large  number  of  non-financial  reporting 
standards and frameworks, at international, national and sector level.26 Furthermore, new 
initiatives continue to emerge. The market on its own however has not ensured that many 
companies  fully  apply  any  of  the  existing  standards  and  frameworks.  For  example,  the 
recommendations  of  the  Task  Force  on  Climate-related  Financial  Disclosures  (TCFD) 
are widely respected as authoritative guidance on climate reporting, but the 2020 TCFD 
status report suggests that significant implementation challenges remain.27 

The market on its own has also not so far been able to ensure adequate convergence and 
consolidation  between  the  different  frameworks  and  standards.  There  are  overlaps  and 
inconsistencies between them, including in terms of the non-financial issues they cover, 
and the intended audience of the disclosures they recommend. This is a significant driver 
of  the  reporting  burden  for  preparers,  and  of  the  problems  faced  by  users  in  terms  of 
limited comparability and relevance of reported information.  

2.2.2 Regulatory failure 

The  EU  agreed  the  NFRD  before  a  number  of  landmark  EU  and  global  policy 
developments,  including  the  UN  Sustainable  Development  Goals  (2015),  the  Paris 

23  This  phenomenon  is  often  referred  to  as  “Environmental,  social,  and  governance  investing”,  or  “ESG  investing”.  
There are many different approaches to and definitions of ESG investing, which significantly complicates the task of 
measuring  its  growth  (see  European  Sustainable  and  Responsible  Investment  (SRI)  Study  2018,  EUROSIF). 
Nevertheless, the OECD has concluded that “the growth of assets under management that incorporates some element 
of ESG review and decision-making has grown exponentially over the past decade” (Boffo, R., and R. Patalano (2020), 
ESG Investing: Practices, Progress and Challenges, OECD). According to the OECD, “in the US, the current level of 
ESG  investing  is  now  over  20%  of  all  professionally  managed  assets,  at  over  USD  11  trillion”,  while  in  Europe, 
“industry data related to a broader range of ESG practices suggests the level is over USD 17 trillion.” According to a 
report in the Financial Times, research carried out by PwC has predicted that “ESG funds will experience a more than 
threefold jump in assets by 2025, increasing their share of the European fund sector from 15 per cent to 57 per cent.”  
24 See October 2019 Global Financial Stability Report (GFSR), International Monetary Fund, and  A call for action: 
Climate change as a source of financial risk, Network for Greening the Financial System, April 2019.  
25 Report on Undue Short-term Pressure on Corporations from Financial Markets, ESMA, December 2019 
26 Annex 13 provides an overview of the principal international standards and frameworks, highlighting some of the 
most relevant similarities and differences.  
27 Task Force on Climate-related Financial Disclosures: 2020 Status Report, Task Force on Climate-related Financial 
Disclosures. The report notes that the disclosure of TCFD-aligned information increased by six percentage points, on 
average, between 2017 and 2019. While applauding the progress made, report states that “companies’ disclosure of the 
potential financial impact of climate change on their businesses and strategies remains low.” 

11 

 
 
                                                           
Agreement  on  climate  change  (2016),  the  EU  Sustainable  Finance  Action  Plan  (2018) 
and the European  Green Deal  (2019). These more recent  policy developments reflect  a 
growing  political  and  social  awareness  of  the  intensity  of  the  sustainability  crisis.  For 
most  sectors  of  the  economy,  including  the  financial  sector,  sustainability  has  clearly 
moved from the margins to the mainstream in a relatively short period of time. Overall, 
the  political  choices  that  shaped  the  NFRD  in  2014,  while  valid  at  the  time  they  were 
made, may not be appropriate in the current circumstances.  

The following characteristics of the NFRD are drivers of the specific problems identified 
in section 2.1: 

  Scope:  The  NFRD  only  ensures  that  large  listed  companies,  large  banks  and  large 
insurance companies disclose non-financial information, and only if they have more 
than 500 employees. This does not include some companies from whom users need 
non-financial information. 

  Flexibility  and  lack  of  granularity  of  reporting  requirements:  The  reporting 
requirements in the NFRD are high level and principles based. The NFRD does not 
specify in any significant detail the information that companies should disclose, and 
does  not  require  companies  to  use  a  non-financial  reporting  standard.  The 
accompanying  guidelines  are  not  binding,  and,  with  the  exception  of  the  climate 
reporting  guidelines,  do  not  provide  detailed  guidance  to  companies.  Companies 
therefore have considerable discretion in deciding what information to report and in 
the  application  of  the  materiality  principle.  Together,  these  characteristics  of  the 
NFRD help to explain why there are problems with the comparability of information, 
and why many companies do not disclose all information that users think is relevant. 
The inadequate  reporting of intangible assets  is  at  least  partly  explained by the fact 
that  the  Accounting  Directive,  even  as  amended  by  the  NFRD,  does  not  explicitly 
require companies to report on intangibles. 

  Assurance:  The  statutory  auditor  has  to  verify  that  the  non-financial  statement  is 
included in the report, but is not obliged to verify the content of the statement or the 
internal processes behind it. This limits the reliability of reported information.  

  Location  of  reported  information:  The  NFRD  allows  Member  States  to  allow 
companies to report non-financial information in a separate report rather than in the 
management  report.  This  helps  to  explain  why  many  companies  do  not  adequately 
address  the  connectivity  between  financial  and  non-financial  information  in  their 
reports.  Publication  of  non-financial  information  in  a  separate  report  also  makes 
information harder to find and impacts negatively on its perceived reliability. 

  Enforcement:  the  provisions  of  the  NFRD  are  difficult  to  enforce.  This  is  mainly 
because  the  disclosure  requirements  are  high  level,  principles-based  and  flexible. 
Additionally,  the  non-financial  statement  falls  outside  the  scope  of  supervision  of 
some  national  competent  authorities  due  to  the  lack  of  coordination  between  the 

12 

 
 
provisions of the NFRD and the Transparency Directive.28 The difficulty of enforcing 
the NFRD contributes to many of the problems experienced by users, in particular the 
limited  comparability  and  reliability  of  reported  information  and  the  fact  that  much 
information considered relevant by users is not reported. 

A  comparison  with  EU  rules  for  financial  reporting  helps  to  illustrate  how  certain 
characteristics of the NFRD are drivers of the specific problems identified in section 2.1. 
Overall,  and  in  spite  of  certain  specific  problems,  the  Fitness  Check  on  corporate 
reporting found that the EU framework for financial reporting broadly meets its intended 
objectives and ensures that users’ needs are adequately met. 

Most  significantly,  the  EU  framework  for  financial  reporting  requires  companies  to 
report  according  to  clear  rules  set  out  in  the  Accounting  Directive,  and  in  practice 
Member  States  require  compliance  with  national  accounting  standards.  In  addition,  EU 
companies  listed  on  the  EU  financial  markets  are  required  by  the  International 
Accounting  Standards  Regulation  to  prepare  their  consolidated  financial  statements  in 
accordance with International Financial Reporting Standards (IFRS). The mandatory use 
of  common  financial  reporting  standards  is  a  major  explanation  for  why  users  face  far 
fewer problems regarding the relevance and comparability of financial information than 
is  the  case  for  non-financial  information.  Mandatory  common  standards  mean  that 
companies  have  much  less  discretion  about  what  financial  information  to  report 
compared to the very considerable discretion that they have in the case of non-financial 
information. In the view of the European Securities and Markets Authority (ESMA), “the 
effectiveness  of  the  applicable  framework  and  the  comparability  of  the  resulting 
disclosures  would  have  been  greater  had  the  [NFRD]  set  up  or  indicated  a  specific 
framework and accepted a single set of standards to report this type of information.”29  

In addition, the EU framework for financial reporting covers all companies from which 
users  need  financial  information,  with  no  apparent  gaps,  and  it  imposes  audit 
requirements  for  financial  information  that  provide  a  significantly  higher  level  of 
reliability  than  is  the  case  for  non-financial  information.  Finally,  supervision  and 
enforcement  of  non-financial  information  lags  behind  what  is  done  in  the  case  of 
financial  information,  and  this  is  partly  the  result  of  differences  in  the  respective 
regulatory frameworks.  ESMA believes that “the optionality that characterises the non-
financial  disclosure  requirements  (e.g.  in  relation  to  the  applicable  frameworks,  the 
location  and  timing  of  publication  of  the  NFS  and  the  assurance)  does  not  yet  allow  a 
satisfactory  convergence  of  disclosure  practices  thus  undermining  the  consistency  of 
supervisory approaches which is urgent to achieve in this area.” 

28  The  Transparency  Directive  lacks  an  explicit  reference  to  the  non-financial  statement  in  its  mandate  to  national 
competent authorities to supervise reporting by companies (Articles 7, 24(4)h, 24(4b), 28, 28a, 28b, 28c and 29 of the 
Transparency Directive). 
29 Enforcement and Regulatory Activities of European Accounting Enforcers in 2018, ESMA 

13 

 
 
                                                           
2.3 How will the problems evolve?  

Some  analyses  find  that  the  quality  of  non-financial  reporting  is  improving.30  Others 
acknowledge  that  the  quality  of  reporting  is  improving  but  conclude  that  these 
improvements  are  nevertheless  insufficient  to  meet  users’  needs.31  Still  other  analyses 
find little evidence of improvement, and even some negative trends.32 At the same time, 
most  observers  predict  that  the  information  needs  of  users,  in  particular  investors,  will 
continue to grow significantly.33 The Covid-19 pandemic is likely to accelerate this trend 
(see annex 6). Overall, we conclude that the gap between the information needs of users 
and the non-financial information reported by companies will continue to grow. 

There  is  little  evidence  to  suggest  that  the  complexity  and  burden  experienced  by 
preparers  will  diminish.  Indeed  responses  to  the  public  consultation  indicate  that  for 
many preparers these problems are intensifying. 

Section 5.1 (the baseline scenario) provides a more detailed description of the expected 
evolution in the case of no new policy initiative by the European Union.  

3.  WHY SHOULD THE EU ACT? 

3.1 Legal basis 

In this  Impact  Assessment  we consider two Articles of the TFEU as legal  basis for the 
proposed initiative. Firstly, Article 50 TFEU, the traditional legal basis for company law 
legislation, and in addition, Article 114 TFEU, lex generalis that applies as well with the 
objective of  establishing or ensuring the functioning of the internal  market.  See further 
details in annex 15. 

3.2 Subsidiarity: Necessity of EU action 

The  disclosure  of  non-financial  information  is  already  regulated  at  EU  level  by  the 
Accounting  Directive  (as  amended  by  the  NFRD).  Transparency  rules  are  necessary  to 
ensure  investor  protection  and  financial  stability  across  the  EU,  while  allowing  civil 
society  organisations  and  other  stakeholders  hold  companies  accountable  for  their 
impacts  on  the  environment  and  society.  Additionally,  common  rules  on  non-financial 
reporting  ensure  a  level  playing  field  among  companies  established  in  the  different 

30  For  example:  In  Balance  2019  -  Survey  of  value  creation  and  follow-up  to  the  Non-Financial  Information 
(Disclosure) Decree, Dutch Authority for the Financial Markets (AFM), December 2019. 
31 For example: Social and environmental value creation, Association of Chartered Certified Accountants, 2019; and 
October 2019 Global Financial Stability Report (GFSR), International Monetary Fund 
32 For example: 2019 Research Report An analysis of the sustainability reports of 1000 companies pursuant to the EU 
Non-Financial  Reporting  Directive,  Alliance  for  Corporate  Transparency  2020;  and  Corporate  Climate  Crisis 
Awareness Study 2019, Piotr Bernacki, Michal Stalmach, Foundation for Reporting Standards, Polish Association of 
Listed Companies (SEG), Bureau Veritas Poland. 
33  For  example:  Stakeholder  Perceptions  of  Non-Financial  Reporting,  UK  Department  for  Business,  Energy  and 
Industrial Strategy, 2019  

14 

 
 
 
                                                           
Member  States.  If  non-financial  reporting  requirements  are  significantly  different  in 
different  Member  States,  this  would  create  additional  costs  and  complexity  for 
companies operating across borders and therefore undermine the Single Market. Member 
States  acting  alone  are  not  able  to  ensure  the  consistency  of  non-financial  reporting 
requirements across the EU.  

Member States acting alone are also not able to ensure the comparability of the reported 
non-financial  information  across  the  Single  Market.  The  comparability  of  reported 
information enables potential investors and other users of non-financial information such 
as civil society organisations to better compare companies across national borders.  It is 
therefore  important  on  the  one  hand  for  the  free  movement  of  capital  and  the  Capital 
Markets Union, especially in light of the growing relevance of non-financial information 
for investment decisions, and on the other hand to enable civil society organisations and 
other stakeholders to compare impacts of companies in different EU Member States and 
better hold them accountable. 

Finally,  only  EU  intervention  can  ensure  that  companies  disclose  the  information  that 
investors need to comply with their own disclosure obligations under the SFDR. 

3.3 Subsidiarity: Added value of EU action 

As  attention  to  non-financial  reporting  grows  in  jurisdictions  around  the  world,  it 
becomes  ever  more  important  for  the  EU  to  engage  with  its  partners  on  the  basis  of  a 
coherent  and  comprehensive  European  approach.  Compared  to  individual  action  by 
Member  States,  EU  intervention  can  ensure  a  strong  European  voice  in  policy 
developments  at  the  global  level  regarding non-financial reporting. This  could  translate 
into  a  competitive  advantage  for  EU  companies  with  respect  to  non-EU  companies,  as 
investors’  interest  in  non-financial  information  increases.  In  addition,  EU  intervention 
can ensure that  companies in  all Member States  report relevant,  reliable  and accessible 
non-financial information needed by European investors and civil society organisations. 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? 

4.1 General objectives 

The general objective is – by improving EU non-financial reporting at the least possible 
cost – to better exploit the potential of the European Single Market to contribute to the 
transition  towards  a  fully  sustainable  and  inclusive  economic  and  financial  system  in 
accordance with the European Green Deal and UN Sustainable Development Goals. This 
will be achieved by: 

a)  helping  to  reduce  systemic  risks  to  the  economy  resulting  from  the  fact  that  many 
investment decisions currently do not take adequate account of sustainability-related 
issues; 

15 

 
 
b)  improving the allocation of financial resources, so that more financial resources flow 
to companies and activities that address social and environmental problems and fewer 
resources flow to companies and activities that exacerbate such problems; 

c)  making  companies  more  accountable  for  their  impacts  on  society  and  the 
environment,  thereby  strengthening  the  social  contract  between  companies  and 
citizens. 

4.2 Specific objectives 

The specific objectives can be distinguished between objectives for users of non-financial 
information, and objectives for preparers (reporting companies).  

For  users,  the  specific  objectives  are  to  ensure  that  there  is  adequate  publicly  available 
information  about  the  risks  and  opportunities  that  non-financial  issues  present  for 
companies,  and  about  the  impacts  of  companies  themselves  on  society  and  the 
environment. In order to achieve these objectives: 

a)  companies  from  which  users  need  non-financial  information  should  report  such 

information; 

b)  companies should report all information that users consider to be relevant; 
c)  reported information should be comparable; 
d)  reported information should be reliable; and 
e)  reported information should be easy for users to find and exploit.  

These  objectives  imply  changing  the  status  of  non-financial  information,  so  that  over 
time  it  is  more  comparable  to  the  status  that  the  EU  framework  currently  gives  to 
financial information.  

For  preparers,  the  specific  objective  is  to  reduce  unnecessary  administrative  costs 
associated with non-financial reporting, in particular by: 

a)  bringing  greater  clarity  and  certainty  about  the  non-financial  information  and  the 

methodologies behind the information they are expected to report;  

b)  making  it  easier  for  preparers  to  get  the  non-financial  information  they  need  for 
reporting  purposes  from  their  own  business  partners  (suppliers,  clients  and  investee 
companies);  

c)  reducing the burden created by demands for non-financial information  that  come in 

addition to the non-financial information included in company reports.  

There  may  be  trade-offs  between  reducing  burden  for  reporting  companies  on  the  one 
hand, and meeting the information needs of users on the other hand. At the same time, 
the  wider  costs  of  not  meeting  users’  information  needs  –  for  example  in  terms  of  not 
contributing  to  the  objectives  of  the  European  Green  Deal  –  will  also  need  to  be 
considered. 

16 

 
 
Figure 2 - Integrated overview of specific and general objectives 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? 

5.1 What is the baseline from which options are assessed? 

Under  the  baseline,  the  EU  would  not  develop  any  new  regulatory  or  non-regulatory  action 
specific to  reporting of  non-financial information. The existing provisions of the NFRD would 
continue to apply, together with the general and the climate-specific non-binding guidelines.  

We predict that the baseline scenario is highly dynamic, with a very significant increase in the 
intensity  of  problems  for  users  and  preparers.  The  principal  characteristics  of  the  baseline 
scenario are: 

  A very significant increase in the information needs of users. Some of this increase is the 
logical  consequence  of  previously  agreed  EU  legislation,  notably  the  SFDR  and  the 
Taxonomy  Regulation,  and  some  would  have  happened  in  any  case,  due  to  fast-changing 
citizen  awareness,  consumer  preferences  and  market  practices,  driven  by  the  sustainability 
imperative. The Covid-19 pandemic will further accelerate the increase in users’ information 
needs  (see  annex  6).  Users  will  need  and  expect  more  and  better  information  from  an 
increasing number of companies, especially large companies but  also  a growing proportion 
of SMEs.  

  A growing gap between the information that users want and need, and the information 
that companies report. In the absence of widespread consensus and clear rules about what 
companies  should  report,  any  improvements  in  non-financial  reporting  will  remain 
insufficient  to  meet  the  increasing  needs  of  users.  Specifically,  in  the  absence  of 
requirements to report in a more standardised manner, and to assure the reported information, 
the  gap  between  users’  needs  for  relevant,  reliable  and  comparable  information  and  the 
relevance,  reliability  and  comparability  of  reported  information,  are  expected  to  grow. 
Additionally  many  companies  from  which  users  want  information  would  not  report,  as  the 
personal scope of the current requirements would remain the same.  

  Lack  of  coherence  with  other  EU  sustainability  disclosure  regulations,  which  will 
undermine  the  EU’s  sustainable  finance  objectives.  Once  disclosure  requirements  of  the 
SFDR  and  Taxonomy  Regulation  become  applicable,  there  will  be  a  growing  situation  of 
incoherence if investee companies do not report the specific information that entities subject 
to  the  SFDR  and  the  Taxonomy  Regulation  need  in  order  to  meet  their  own  reporting 
requirements.  This  in  turn  would  seriously  undermine  the  achievement  of  the  EU’s 
sustainable finance objectives.  

18 

 
 
 
 
 
 
 
  An increase uncoordinated in information requests to preparers. In an attempt to address 
the  information  gap,  more  users  will  directly  contact  companies  to  ask  for  the  necessary 
information.  Data  providers  will  further  develop  their  own  proprietary  questionnaires  and 
data-collecting methodologies, which will involve more uncoordinated requests to companies 
for specific information.  

  Ongoing  expectations  on  companies  to  use  a  variety  of  different  frameworks  and 
standards.  The  proliferation  of  different  private  and  public-private  reporting  frameworks 
and  standards  will  continue  and  may  even  intensify  as  the  value  placed  on  non-financial 
information continues to grow. Different users and regulators will pressure companies to use 
different  frameworks  and  standards.34  The  International  Financial  Reporting  Standards 
Foundation  (IFRS  Foundation)  is  developing  plans  for  the  creation  of  a  Sustainability 
Standards  Board,  which  could  be  created  by  the  end  of  2021.  The  intention  of  the  IFRS 
Foundation is, for the time being, to address climate reporting only, and to do so only from a 
financial materiality perspective (“outside-in” risks to the company). If the IFRS Foundation 
initiative is successful, it could clarify and simplify reporting expectations on companies, but 
only with  regard to  climate reporting from a financial materiality perspective. For all other 
sustainability issues, and for reporting on company impacts, the problems created by the co-
existence of multiple different standards and frameworks would remain.  

  Significant increases in costs and burden for preparers and for users. Users will have to 
dedicate more resources to finding and collecting the additional information that  they need. 
Preparers  will  face  higher  costs  due  to  the  increase  in  uncoordinated  information  demands 
from  users,  due  to  the  ongoing  absence  of  consensus  about  what  information  they  should 
report in order to meet users’ needs, and due to  persistent difficulties in  obtaining the non-
financial  information  they  need  for  reporting  purposes  from  suppliers,  clients  and  investee 
companies. 

  An  increase  in  the  application  of  information  technology  and  artificial  intelligence  to 
the  field  of  non-financial  information,  but  without  resolving  underlying  problems. 
Current trends in the use of innovative information technology and artificial intelligence will 
intensify,  will  provide  new  opportunities  for  accessing  and  exploiting  non-financial 

34  CEPS  study  shows  that  the  majority  of  the  surveyed  companies  subject  to  the  NFRD  report  against  multiple  standards  and 
frameworks at least to a certain extent, and that the more standards or frameworks used, the higher the reporting costs companies 
present. For example, the Global Reporting Initiative is the single most commonly used reporting framework by companies under 
the scope of the NFRD, and companies in Spain and Belgium are required to use it to a certain extent. Many investors and some 
regulators, including the European Commission, recommend that companies report climate-related information in line with the 
recommendations  of  the  Task  Force  on  Climate-related  Financial  Disclosures.  Meanwhile  Blackrock,  the  world’s  largest  asset 
manager, has announced that it expects companies to report according to the standards of the Sustainability Accounting Standards 
Board. 

19 

 
 
 
 
 
                                                           
information,  and  may  offset  some  of  the  predicted  increases  in  cost  and  burden.  However, 
such  developments  on  their  own  will  not  resolve  the  problems  faced  by  users  if  the 
underlying information is not relevant, comparable and reliable.   

  Growing  likelihood  that  Member  States  take  national  initiatives  that  undermine  the 
Single  Market.  Policy-makers  at  national  level  are  increasingly  convinced  of  the  need  to 
address existing problems regarding non-financial reporting. If the EU does not act, there is a 
high probability that individual Member States will introduce national rules or standards that 
undermine the right of establishment and the free movement of capital across the EU.35 

5.2 Description of the policy options 

In  order  to  focus  the  impact  assessment  on  a  limited  number  of  key  variables  and  improve  its 
readability,  this  section  presents  different  policy  options  for  three  main  variables:  the 
standardisation  of  reported  information,  assurance  requirements,  and  scope  (i.e.  which 
companies  should  report).  These  are  the  most  important  variables  in  terms  of  addressing  the 
identified problems and they are also the principal determinants of costs.  

Annex  16  examines  policy  options  for  a  number  of  other  variables:  digitalisation,  sanctioning 
regime and enforcement, reporting on intangibles, location of reported information, clarification 
of  materiality  concept,  and  clarification  of  exemption  to  subsidiaries.  These  are  additional 
variables  that  the  Commission  will  need  to  consider  when  formulating  its  proposal  for  this 
initiative,  but  they  are  less  important  in  terms  of  addressing  the  identified  problems  and 
determining costs, and are therefore presented in an annex in order not to overburden the reader. 

35 Carrots & Sticks report provides an analysis of the latest trends in reporting provisions, and shows an increasing number of 
reporting provisions in recent years. 

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
Table 1. Overview of which principal variables for policy options address which specific 
objectives 

Companies from which users need information do report 

Companies report all relevant information 

Reported information is comparable 

Reported information is reliable 

Reported information is easy to find and exploit 

Companies have clarity about what to report 

s
e
v
i
t
c
e
j
b
o
c
i
f
i
c
e
p
S

Companies have better info from suppliers, clients & investees 

Reduced burden from additional demands for information 

Policy options 
Standardisation  Assurance 

Scope 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

Table 2: Overview of policy options 

Standardisation 

Option 1 
Mandatory EU standards 

Option 2 
Voluntary EU standards 

Assurance 

Option 1 
Requirement for reasonable 
assurance 

Scope 

Option 1 
All large PIEs (remove 500 employee threshold) 

Option 2 
Requirement for limited assurance 

Option 2: Option 1 plus: 
  Large non-listed companies 
  Large non-EU companies listed in the EU 

Option 3: Options 1 and 2 plus 
  Listed SMEs 

Option 4: options 1, 2 and 3 plus 
  Non-listed medium sized companies 

21 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.2.1 Standardisation options 

i)  Option  1.  Develop  EU  non-financial  reporting  standards  for  mandatory  use 
by companies under scope (and simplified SME standards for voluntary use)  

According  to  this  approach,  the  EU  would  support  the  development  of  EU  non-financial 
reporting standards, and mandate their use by companies under the scope of the NFRD.36 

These  standards  would  specify  all  information  necessary  to  allow  companies  to  meet  the  legal 
requirements of the NFRD, and would provide guidance on how to present this information. This 
means that for all sustainability matters and areas addressed in the legal provisions of the NFRD, 
the standards would specify disclosures, including indicators, that cover how non-financial issues 
affect  the  company’s  financial  performance  (‘outside-in’  perspective),  and  how  the  company 
impacts society and the environment (‘inside-out’ perspective). For most quantitative indicators, 
the standards would also specify the methodology to be used.37 

The  standards  would  cover  appropriate  forward-looking  information,  as  well  as  information 
about past performance. They would specify which information companies need to report on the 
supply chains, taking into account their international dimension and the specificities of different 
geographies  where  relevant.  Such  standards  would  be  significantly  more  comprehensive  and 
more  detailed  than  the  existing  guidelines  on  non-financial  reporting  published  by  the 
Commission. 

These standards would take into account the information needs of investors and specialised civil 
society organisations. They would also take account of the needs of other potential users, such as 
policy-makers and statistical agencies.  

Additionally,  these  standards  would  take  into  account  the  information  needs  of  the  financial 
sector that result from their obligation to comply with the SFDR and the Taxonomy Regulation. 
The EU standards would be consistent with EU non-financial reporting laws, and would specify 
disclosures that allow entities subject to those laws meet their legal obligations. 

technical  development  of  such  standards.  EFRAG  published  both 

36 In June 2020 Executive Vice-President Dombrovskis issued a mandate to the European Financial Reporting Advisory Group 
(EFRAG)  to  carry  out  preparatory  work  for  the  possible  development  of  European  non-financial  reporting  standards.  He  also 
mandated  the President  of  EFRAG  to  make  proposals  for  possible  changes  to  EFRAG’s  governance  if  it  were  asked  to  move 
ahead  with 
in  March  2021 
the 
(https://www.efrag.org/Lab2 and 
https://www.efrag.org/Assets/Download?assetUrl=%2fsites%2fwebpublishing%2fSiteAssets%2fJean-
Paul%2520Gauz%c3%a8s%2520-%2520Ad%2520Personam%2520Mandate%2520-%2520Final%2520Report%2520-%252005-
03-2021.pdf). The description of standards in this section is consistent with the recommendations from EFRAG.   
37  Most  existing  reporting  standards  include indicators.  When  they  do,  they  usually  also  include  guidance  for  calculating  such 
indicators  (e.g.  GRI  305  emissions).  EU  standards  could  use  a  range  of  approaches  for  this,  from  simple  cross-referencing  to 
credible and well-recognised methodologies described in normative documents produced by other organisations, to developing 
new methodologies for certain indicators where necessary.  

reports 

22 

 
 
                                                           
These EU non-financial reporting standards would build on the most widely accepted elements 
of  the  existing  private  standards  and  frameworks.  It  would  ensure  as  much  continuity  and 
consistency  as  possible  with  the  private  standards  and  frameworks  that  some  companies 
currently  use.  In  addition,  EU  non-financial  reporting  standards  would  build  on  the 
Commission’s guidelines on reporting non-financial related information as necessary.  

The  standards  would  comprise  a  number  of  different  normative  documents  built  on  a  modular 
structure.  For  example,  different  standards  might  address  general  disclosure  requirements 
applicable to all enterprises (e.g. description of the business model, risk management system, or 
due diligence)  and thematic disclosure requirements  (e.g. on particular environmental or social 
matters).  Other  standards  might  cover  certain  economic  sectors,  justified  by  the  sustainability-
related impacts and dependencies specific to those sectors.  

Consistent with the “think small first” approach, the standard-setter would develop a simplified 
standard for voluntary use by SMEs who are not under the scope of the NFRD. The simplified 
nature of this standard would reflect the fact that SMEs often do not have the technical expertise 
nor  resources  necessary  to  prepare  reports  in  accordance  with  state-of-the-art,  sophisticated 
standards.  

The  standards  would  consider  the  particularities  of  consolidated  reporting;  they  would  ensure 
that information about subsidiaries is appropriately included in consolidated reporting in order to 
meet users’ needs. The standards setter would explore the best ways to disaggregate subsidiaries’ 
information, to ensure useful, efficient reporting.  

An adequate degree of political and democratic oversight of the content of the standards and a 
coordinated approach between the different EU bodies in charge of developing the different level 
2 measures of other Sustainable Finance legislation would be ensured. 

Organisations that have advanced the cause of sustainability/non-financial reporting, such as the 
Global Reporting Initiative (GRI), the IFRS Foundation (and/or the possible future sustainability 
standards  board  created  under  its  auspices),  the  Sustainability  Accounting  Standards  Board 
(SASB) and the TCFD, would be invited to work closely with the future EU standards setter. EU 
standards  would  build  on  the  content  of  existing  and  future  international  standards  and 
frameworks where appropriate. The standard-setting process would be inclusive and carried out 
by  experts.  All  relevant  stakeholders  would  be  involved,  including  preparers  (reporting 
companies,  including  SMEs)  and  users  (the  investment  community,  and  specialists  in  civil 
society and trade unions) of non-financial information.  

EU  non-financial  reporting  standards  should  ensure  connectivity  between  financial  and  non-
financial  information,  as  increasingly  demanded  by  investors.  Synergies  between  financial  and 
non-financial reporting are essential to ensure that investors can form an integrated view of the 

23 

 
 
financial  and  sustainability-related  risks  and  impacts  of  investee  companies.  The  strategic 
importance of these synergies is growing rapidly, as the interactions between sustainability and 
company value become ever more evident.  

Under this option, EU non-financial reporting standards could be adopted by means of delegated 
regulations,  based  on  an  empowerment  that  would  be  granted  to  the  Commission  in  the 
Accounting Directive. This would permit the direct applicability of the standards, i.e. no need to 
wait  for  transposition  of  amendments  to  the  Directive  by  Member  States  before  adopting  the 
delegated act, and no delay in the date of entry into application. The revision of the NFRD could 
specify the conditions that need to be met in order for the Commission to adopt EU non-financial 
reporting standards in level 2 legislation. These conditions could include the principal elements 
of the standards as described in this section.    

ii) Option 2. Develop EU non-financial reporting standards for voluntary use  

The  EU  would  develop  EU  non-financial  reporting  standards  described  under  option  1,  but 
would not mandate their use.  

No action will be directly required by businesses, who would be free to use this standard if they 
find it useful.  

5.2.2 Assurance options 

Most experts agree that  an independent  assurance services  provider  can  only  adequately  check 
compliance  of  the  reported  information  if  companies  report  against  non-financial  reporting 
standards. The feasibility of the assurance options is therefore closely linked to the policy choice 
made  for  standardisation.  44%  of  respondents  to  the  open  public  consultation,  and  40%  of 
preparers, believe mandatory  reporting  against standards is  prerequisite to  require assurance of 
non-financial information.38 

i) Option 1: Require reasonable assurance  

The  auditor  would  be  required  to  perform  a  reasonable  assurance  engagement  on  the  non-
financial reporting. The conclusion of reasonable assurance is usually provided in a positive form 
of expression and states an opinion on the measurement of the subject matter against previously 
defined  criteria.  The  work  effort  in  this  type  of  engagement  is  significantly  higher  than  in  a 
limited assurance engagement. It entails extensive procedures including consideration of internal 

38  In  an  assurance  engagement  the  practitioner  aims  to  obtain  sufficient  appropriate  evidence  in  order  to  explain  a  conclusion 
designed to enhance the degree of confidence to the intended users (‘Buyer’s guide to assurance on non-financial information’, 
the Audit and Assurance Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) and the WBCSD). 
This means that the auditor would obtain sufficient evidence to reduce the risk of material misstatements to an acceptably low 
level in the given circumstances. 

24 

 
 
                                                           
controls  of  the  reporting  company  and  substantive  testing.  EU  law  imposes  a  reasonable 
assurance requirement for the audit of financial statements.  

ii) Option 2: Require limited assurance  

The auditor would be required to perform a limited assurance  engagement on the non-financial 
reporting.  The  work  in  providing  limited  assurance  engagements  is  less  than  for  reasonable 
assurance (see option 1). The auditor performs fewer tests, providing a lower level of assurance. 
The  conclusion  of  limited  assurance  is  usually  provided  in  a  negative  form  of  expression  by 
stating that no matter has been identified by the practitioner to conclude that the subject matter is 
materially misstated.  

5.3.3 Scope options 

The scope options are presented cumulatively, so each option builds on the previous one.39 The 
order in which the options are presented follows a logical progression, starting with companies 
that users are most in favour of including under scope (mainly larger companies) and gradually 
expanding the scope towards smaller companies. This approach allows us to analyse clearly the 
impacts of adding different categories of company to the scope, while keeping the presentation 
as clear and as simple as possible. 

i) Option  1: Broaden scope to all other large  public interest entities  (PIEs) i.e. 
removal of 500 employee threshold 

The personal scope would be broadened to all other large PIEs, i.e. deleting the 500 employee 
size threshold of the current legal provisions. This means that the size threshold delimiting the 
personal scope of this obligation would correspond to the definition of ‘large undertaking’ of the 
Accounting  Directive.40  In  other  words,  all  large  PIEs  as  defined  in  the  Accounting  Directive 
would be required to comply with the requirements.41  

ii) Option 2: Further broaden scope to all other large limited liability companies 

In addition to the changes in scope indicated under Option 1, the current non-financial disclosure 
requirements would be extended to large companies that are not PIEs: non-listed EU companies 

39  In  analysing  the  policy  options  with  regard  to  scope  it  is  assumed  that  every  time  that  we  refer  to  scope  extensions  to 
companies of a certain size, the same extension applies to parent companies of groups of the corresponding size, who are required 
to report at group level. 
40 Large undertakings are those that  meet two out of three criteria: (a) balance  sheet total: EUR 20 000 000; (b) net turnover: 
EUR 40 000 000; (c) average number of employees during the financial year: 250. 
41 Financial institutions play a key role in the transition towards a fully sustainable and inclusive economic and financial system 
as  they  can  have  significant  positive  and  negative  impacts  via  their  lending,  investment  and  underwriting  activities.  All  scope 
options include banks and insurance companies beyond those with limited liability, such as cooperatives or mutual undertakings, 
provided they meet the relevant size criteria.  

25 

 
 
                                                           
(including  large  EU  companies  with  securities  only  listed  outside  EU  regulated  markets)  and 
non-EU companies with securities listed in the EU regulated markets. 

iii) Option 3: Further broaden scope to SMEs with listed securities  

In  addition  to  the  changes  in  scope  indicated  under  Option  1  and  2,  the  current  non-financial 
disclosure  requirements  would  be  extended  to  (1)  EU  SMEs  with  securities  listed  in  EU 
regulated  markets  and  (2)  non-EU  SMEs  with  securities  listed  in  EU  regulated  markets, 
excluding micro-undertakings as defined in the Accounting Directive.42 

iv) Option 4: Further broaden scope to non-listed medium sized companies 

In addition to the changes in scope indicated under Options 1, 2 and 3, the current non-financial 
disclosure requirements would be extended to non-listed EU medium-sized companies as defined 
in the Accounting Directive.  

5.3 Options discarded at an early stage 

The  following  options  have  been  considered  but  discarded  at  an  early  stage:  (1)  European 
Transparency Benchmark; (2) Additional non-binding guidelines issued by the Commission; (3) 
Endorsement  of  an  international  standard;  and  (4)  Expanding  the  scope  to  include  all  SMEs. 
Annex 18 describes each of these options and the reasons for discarding them at an early stage. 

6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? 

We have adopted a two-step approach to assessing the impacts of the policy options. In the first 
step, we individually analyse the impacts of the policy options for standardisation (section 6.1) 
and assurance (6.2), and identify a preferred option for each of these two variables. In the second 
step we analyse the impacts of the policy options for scope (section 6.3), assuming the preferred 
policy options for standardisation and assurance. Each scope option is therefore a package that 
includes the preferred options on standardisation and assurance. 

We have adopted this methodology because it is not possible to analyse the impacts of expanding 
the scope without knowing the main features of the reporting requirements that companies under 
scope  would  have  to  meet.  This  is  especially  the  case  for  estimating  the  costs  for  reporting 
companies, since assurance and reporting standards are the two principal determinants of costs.  

42  Small  undertakings  are  those  that  do  not  exceed  two  out  of  three  criteria:  (a)  balance  sheet  total:  EUR  4  000  000;  (b)  net 
turnover: EUR 8 000 000; (c) average number of employees during the financial year: 50. Medium-sized undertakings are those 
that are not micro-undertakings  or small undertakings and that do not exceed two out  of three  criteria: (a) balance sheet total: 
EUR 20 000 000; (b) net turnover: EUR 40 000 000; (c) average number of employees during the financial year: 250. 

26 

 
 
 
                                                           
 
The  policy  options  regarding  other  variables  are  individually  analysed  in  annex  16,  as  they 
individually would not significantly influence the outcome of the preferred policy package. The 
preferred policy option for each of those variables is included in Section 7 (Preferred option).  

The analysis of impacts of each option is structured as follows: 

  Firstly, we analyse the effectiveness  of meeting the specific objectives identified in  section 

4.2 regarding the provision of adequate non-financial information for users. 

  Secondly,  we  analyse  the  costs  of  the  option  for  different  stakeholders,  in  particular 
preparers. Since the specific objectives regarding preparers are to reduce unnecessary costs, 
this analysis also covers the effectiveness of meeting the specific objectives from a preparer 
perspective.  A  detailed  analysis  of  the  costs  and  their  calculations  for  each  option  can  be 
found in annex 17. 

  Thirdly, we analyse other potential significant impacts that do not directly correspond to the 

specific objectives identified in section 4.2.  

We address the coherence with other EU policies throughout the whole analysis as appropriate.  

6.1  Impacts of standardisation options  

6.1.1 Analysis of impacts of Option 1: Develop EU non-financial reporting standards 
for mandatory use by companies under scope (and simplified SME standards 
for voluntary use)  

Effectiveness in meeting specific objectives 

Mandatory requirements on all companies under scope to use common EU reporting standards 
would contribute to meeting the specific objectives in the following ways: 

  Relevance: All companies under scope would report the information that users find relevant, 
as defined in the common standards through a consensual approach involving representatives 
of  all  relevant  stakeholder  groups.  In  particular,  this  option  can  significantly  enhance  the 
coherence of EU sustainability reporting requirements:  the common standards would ensure 
that  all  companies  under  the  scope  of  the  NFRD  report  information  that  financial  market 
participants  and  other  entities  need  to  meet  the  reporting  requirements  established  in  the 
SFDR  and  the  Taxonomy  Regulation.  79%  of  financial  sector  respondents  to  the  public 
consultation  said  that  there  was  a  need  to  better  streamline  the  different  reporting 
requirements.  

  Comparability:  Reported  information  would  be  comparable  between  all  companies  under 
scope of NFRD. Respondents  to  the public consultation highlighted comparability as  being 
particularly important: 84% of users agreed that the limited comparability of information is a 
problem. 

27 

 
 
  Reliability: The use of standards would indirectly improve the reliability of information since 
it  is  easier  to  give  effective  assurance  if  information  is  reported  against  a  standard.43  In 
addition,  mandatory  standards  would  ensure 
transparency  and  robustness  of 
methodologies  behind  the  disclosed  information,  enabling  greater  control  and  scrutiny  by 
users themselves.  

the 

  Usability:  Common  standards  should  contribute  to  a  more  standardised  presentation  of 
information,  which  should  mean  that  users  experience  fewer  difficulties  in  finding  the 
information  they  are  looking  for.  Standards  are  pre-requisite  for  the  digital  tagging  of 
information, so this option would also facilitate the digitalisation of reported information.44 

Overall,  a  requirement  on  companies  to  use  mandatory  EU  standards  would  make  a  major 
contribution to the achievement of the specific objectives. It would represent a significant step in 
terms  of  making the status  of non-financial information  more comparable to  the status  that the 
EU framework currently gives to financial information. 

There is a strong consensus amongst users and other stakeholder groups, such as policy-makers 
and  supervisors,  that  the  mandatory  use  of  common  standards  is  necessary  to  address  the 
identified problems. 82% of respondents to the public consultation (including 80% of preparers) 
believed that requiring companies to use common standards would help to address the problems 
of  relevance,  comparability  and  reliability  to  a  reasonable  or  to  a  very  great  extent.  The 
percentage  of  social  and  environmental  organisations  believing  that  mandatory  common 
standards would help to address the identified problems to a reasonable or to a very great extent 
was especially high (89%).45  

Some business associations and individual companies oppose this option. Firstly, they argue that 
a  common  set  of  standards  cannot  meet  the  needs  of  a  variety  of  different  users  who  demand 
different kinds of information. However, the information needs of users are converging. This is 
most  evident  in  the  case  of  information  about  adverse  impacts  of  companies,  where  the 
information needs of investors, civil society, trade unions, and also policy-makers and statistical 
agencies, are increasingly similar. The standardisation process itself should further contribute to 

43 In response to the public consultation, 47% of users said that a requirement for assurance would be dependent on companies 
using standards, whereas 29% said this was not the case.  
44  In  response  to  the  public  consultation,  65%  of  respondents  to  the  consultation  agree  tagging  of  information  would  only  be 
possible when done against reporting standards. 
45  For  organisations  wishing  to  hold  companies  to  account  for  their  social  and  environmental  impacts,  mandatory  common 
standards  would  have  a  number  of  major  benefits.  For  example,  it  would  enable  them  to  better  compare  companies,  in  the 
knowledge that companies would be required to disclose all relevant information in a comparable way. It may also enable them 
to identify companies that they believe are performing poorly with regard to the avoidance and mitigation of adverse social and 
environmental impacts.  

28 

 
 
 
 
 
                                                           
such  convergence.  This  option  would  in  any  case  not  prevent  companies  from  publishing 
additional communication material for specific audiences if they see value in doing so.  

Secondly, some business associations and individual companies argue that a mandatory reporting 
standard would not be sufficiently flexible to allow them to report the information that they think 
is relevant. However, even if one objective of requiring the use of common standards is indeed to 
reduce  the  discretion  of  companies  in  deciding  what  to  report,  common  standards  would  be 
based on the principle of materiality and would guide companies on how to apply that principle. 
It would therefore ensure all relevant information is reported but would not require companies to 
report information that is not relevant to their particular circumstances.46  

Costs analysis 

Costs  for  preparers.  The  annual  incremental  costs  of  reporting  against  EU  non-financial  as  a 
consequence of this new requirement would be approximately EUR 210 million.47 Additionally, 
one-off  incremental  costs  would  amount  to  EUR  29  million.  These  costs  are  not  very  high 
because  around  50%  of  companies  under  the  NFRD  are  already  reporting  against  comparable 
detailed standards.  

On  average,  the  estimated  annual  costs  of  reporting  against  EU  standards  for  an  individual 
company  would  be  approximately  EUR  106 000.48  This  estimation  is  based  on  the  current 
reporting practices assessed in CEPS study (see annex 17). At the same time, reporting costs for 
companies are expected to decrease in the medium term due to the following three factors: 

- 

If  more  adequate  information  was  publicly  available,  the  number  of  requests  for  additional 
information  should decrease.49  As a result, costs associated with  meeting  multiple different 
users’ demands  would be reduced in  the medium  term.50  In  addition,  if EU standards were 

46  In  this  respect,  mandatory  common  standards  for  non-financial  information  would  be  the  same  as  mandatory  common 
standards for financial information. 
47 Companies brought into the scope of the NFRD due to national transposition are included in these calculations. We assume 
that  as  a  minimum,  Member  States  would  retain  the  current  scope  definitions  in  national  law,  and  would  require  the  use  of 
standards by all companies covered. 
48 This figure amounts to EUR 63 000 for the additional companies brought under the scope of the NFRD by member states, due 
to their smaller size (see annex 17). The cost analysis undertaken has confirmed the wide dispersion of reporting costs: according 
to the survey carried out by CEPS, costs reported by companies under the scope of the NFRD who report against standards in a 
detailed manner ranged between ranged between 437 EUR and 800 000 EUR with a median of 61 000 EUR, and an interquartile 
range (difference between the first and third quartile) of 25 000 EUR and 138 000 EUR. 
49  The  study  carried  out  by  SustainAbility  indicates  that  companies  who  spend  more  time  in  reporting  (which  suggests  better 
reporting in principle), spend less time filling in questionnaires. 
50 Cost savings could amount to EUR 24 200 - 41 700 per company per year, and around EUR 280 - 490 million per year for the 
current  NFRD  population  (including  national  transposition),  if  standards  were  to  completely  eliminate  the  need  for  additional 
information  requests  to  preparers.  These  calculations  are  based  on  the  replies  to  the  survey  carried  out  by  SustainAbility.  See 
annex 17 for a detailed cost analysis. 

29 

 
 
 
 
                                                           
applied  by  companies  in  the  world’s  largest  market  (as  a  minimum  by  those  subject  to  the 
NFRD),  there  would  be  less  incentive  or  need  for  users  to  ask  for  additional  information 
according to other standards or formats.51  

-  Companies  would  have  greater  clarity  and  certainty  about  what  information  to  report, 
reducing any inefficient investment in time or resources in trying to understand how best to 
comply with EU legislation.52  

-  Companies  would  face  reduced  costs  from  trying  to  get  the  necessary  information  from 
suppliers and clients, to the extent that those suppliers and clients are also required to use EU 
standards.  Likewise,  companies  operating  across  different  Member  States  would  see  a 
reduction  in  the  overall  costs  of  reporting  of  the  group,  given  that  requirements  would  be 
aligned throughout the EU. 

Costs  for  users.  If  many  of  the  largest  EU  companies  reported  against  EU  standards,  more 
relevant and comparable information would be publicly available for users. Costs associated with 
trying  to  find  adequate  information  would  be  reduced.  Specifically,  investors  would  rely  on 
rating  agencies  and  data  providers  to  a  lesser  extent,  if  more  standardised  information  was 
publicly available, and would trust more the underlying source of the information.53 59% of users 
who replied to the open public consultation face difficulties finding the reported information.  

Costs for the EU. The EU would incur certain costs for developing the EU reporting standards.54 
These  costs  would  be  limited  if  the  work  was  done  in  partnership  with  organisations  active  in 
non-financial reporting. Additionally, mechanisms could be set up to draw upon private sources 
of finance, while ensuring proper governance structures, limiting the impact on the EU budget.55  

As  a  result  of  these  reporting  requirements,  ESMA’s  enforcement  priorities  would  further 
expand  towards  non-financial  reporting  and  it  might  dedicate  additional  resources  to  ensure 
supervisory convergence in the area of non-financial reporting. 

Costs  for  national  authorities.  Costs  of  enforcement  activities  by  national  authorities  could 
slightly increase due to the resources needed to check compliance against a more detailed set of 

51  CEPS  study  shows  that  the  majority  of  the  surveyed  companies  subject  to  the  NFRD  report  against  multiple  standards  and 
frameworks at least to a certain extent and incur higher costs the more standards and frameworks they follow (see figure 5.26 of 
CEPS study). 
52  CEPS  study  shows  that  companies  that  find  it  more  difficult  to  decide  which  information  should  be  included  in  the  non-
financial statement usually incur greater administrative and incremental costs. 
53 Today, investors rely on many data providers, as they want to be able to compare information obtained from different sources. 
Smaller investors (e.g. smaller asset managers) do not have the resources to be subscribed to third party data providers, and can 
only rely on data available, which is not comparable. Also, some ESG rating agencies use a significant amount of data from third 
parties (36% of the interviewees in SustainAbility study said that they use over 50% of the data from a third party).  
54  The  annual budget  of  the  GRI, who  develops  comprehensive  set  of  non-financial  reporting  standards  in  a  multi-stakeholder 
approach comparable to the EU standards described in section 5.2.1, is EUR 9 million. 
55 The Commission is already using this approach for the preparatory work for the possible future development of EU reporting 
standards mandated to the European Financial Reporting Advisory Group (EFRAG). 

30 

 
 
                                                           
requirements.56 At the same time, national authorities would gain clarity about what information 
companies should report according to the NFRD, which could translate into costs savings. 

Other economic, environmental, social and fundamental rights impacts 

  Company  impacts  on  the  environment,  society  and  fundamental  rights.  Companies  that  are 
required to report against standards will have to identify and report on their most significant 
non-financial  risks,  dependencies  and  impacts,  and  explain  how  they  manage  them.  This 
discipline will have an indirect beneficial effect on the environment, society and fundamental 
rights, to the extent that it affects company decisions and the way companies behave. These 
impacts would be biggest in the case of companies that have not previously used standards, 
which is approximately 50% of companies under the scope of the NFRD. There is, however, 
mixed  evidence  about  the  extent  to  which  reporting  requirements  on  their  own  will  induce 
companies to mitigate and avoid their negative impacts, especially in comparison to policies 
and regulations that effectively price negative externalities.57   

  Company  resilience.  To  the  extent  that  reporting  against  a  standard  raises  company 
awareness of sustainability-related risks and improves the way in which risks are managed, 
this  option  should  help  to  make  companies  more  resilient.  It  would,  for  example,  enhance 
company  awareness  of  dependencies  on  natural  capital.  This  impact  will  be  biggest  for 
companies  under  scope  that  have  not  previously  used  reporting  standards  or  have  not  fully 
applied them.58  

  Better policy on the environment, society and fundamental rights. Availability of better non-
financial  information  for  policy-making,  can  inform  policy  actions  that  lead  to  positive 
environmental,  social  and  fundamental  rights  impacts  (e.g.  environmental  agencies  and 
national environmental accounts).  

  Competitive advantage for more sustainable companies. Equal transparency requirements on 
companies  reporting  according  to  the  NFRD  would  allow  front  runners  in  terms  of 
performance  regarding  sustainability  issues  to  be  more  easily  identifiable.  This  could  give 
them a competitive advantage, for example in terms of reputation, or to attract capital in the 
context  of the Sustainable Finance  agenda. This  option also  sets  a more level  playing field 
between companies under the scope of the NFRD, compared to the current situation in which 

56 See annex 16.2 Sanctioning regime and enforcement. 
57  CEPS  study  found  some  evidence  of  limited  changes  in  company  policies  that  could  be  partly  attributed  to  the  current 
requirements of the NFRD. Close to 45% of all surveyed companies by CEPS have implemented new due diligence processes on 
environmental  or  human  rights  matters  (at  least  to  some  extent)  as  a  consequence  of  the  reporting  obligations.  The  study  also 
pointed out that it is very difficult to disaggregate the effect of the NFRD from other factors that may drive changes in company 
policies and behaviour.  
58 Two-thirds of companies surveyed by CEPS indicated that the obligation to publish a non-financial statement has contributed 
to changes in internal practices and procedures, including a greater integration of non-financial risks. 

31 

 
 
                                                           
 

companies that report the best quality and most relevant information incur higher reporting 
costs than other companies.  
International  competitiveness  of  EU  companies.  Under  this  option  there  is  a  risk  that  EU 
companies  incur  higher  reporting  costs  than  non-EU  companies.  However,  given  the 
increasing  interest  of  global  investors  and  other  stakeholders  in  sustainability-related 
information, some global companies are likely to decide voluntarily to align some elements 
of their non-financial reporting with the mandatory EU standards, and other jurisdictions are 
already  introducing  requirements  or  policy  initiatives  in  the  field  of  sustainability-related 
disclosures  (see  annex  14).59  Furthermore,  the  competitive  situation  of  EU  companies  is 
likely to be enhanced in the longer term if EU standards shape global alignment and possible 
future  global  standards.  By  taking  a  leading  role  in  this  respect  the  EU  and  its  companies 
could benefit from first-mover advantage. 

  Risk  of  international  fragmentation.  In  response  to  the  public  consultation,  many 
respondents,  including  European  Supervisory  Authorities,  the  European  Central  Bank  and 
some  Member  States  stated  that  the  ultimate  goal  should  be  global  non-financial  reporting 
standards.  There  could  be  a  risk  that  the  development  of  EU  standards  leads  to  global 
fragmentation. However, this risk can be mitigated by ensuring that EU standards incorporate 
and  build  upon  existing  international  standards  and  frameworks.  In  addition,  the  EU  can 
foster  discussions  on  global  coherence  through  the  International  Platform  on  Sustainable 
Finance.  Annex  18  explains  the  reasons  for  not  requiring  EU  companies  to  use  an 
international standard.  

  Knock-on effects on SMEs: Making the use of standards mandatory for companies under the 
scope of the NFRD would increase the number of companies that seek detailed information 
from  their  suppliers  or  clients,  which  would  include  SMEs.  While  this  phenomenon  is  to 
some extent an inevitable part of the transition to a sustainable economic system, it can also 
create administrative burden for SMEs. On the other hand, SMEs that do not provide certain 
non-financial  information  may  suffer  negative  consequences  in  terms  of  access  to  finance 
and  to  commercial  opportunities.  The  availability  of  simplified  standards  for  voluntary  use 
by SMEs, which is an integral part of this option, would aim to provide an effective solution 
and facilitate SMEs’ participation in the transition to a sustainable economy.60  

  Single  Market.  Risks  to  the  Single  Market  from  Member  States  endorsing  different  non-
financial  reporting  standards  would  be  significantly  reduced,  and  probably  removed 
altogether. 

59 According to the Global Reporting Initiative, 82% of the world's largest 250 corporations, make use of the GRI's Standards to 
report sustainability information. Such companies are likely to take a strong interest in the content of mandatory EU reporting 
standards, even if they are not obliged to use them.  
60  74%  of  respondents  to  the open  public  consultation  indicated  that  simplified  standards  would  be  useful  for  SMEs,  and  that 
figure  rises  to  88%  for  respondents  who  are  or  who  represent  SMEs.  The  same  percentage  of  SMEs  and  respondents  (66%) 
believe that a simplified standard would limit the burden for SMEs arising from information requests. 

32 

 
 
                                                           
  The  quality  of  ESG  ratings.  Improving  the  quality  and  comparability  of  published 
information  could  improve  the  reliability  and  quality  of  ESG  ratings.  It  would  improve 
clarity about the underlying data used for different methodologies by different third parties. 

6.1.2 Analysis of impacts of Option 2. Develop EU non-financial reporting standards 

for voluntary use  

The impacts described in this section are highly dependent on the extent to which companies use 
the EU standards on a voluntary basis. Companies may continue to use different standards or no 
standard at all.  

Effectiveness in meeting specific objectives 

This option would address problems regarding relevance, comparability, reliability and usability 
amongst those companies that decide to fully apply the standards. A plausible scenario would be 
as follows: 

  Companies under the scope of the NFRD that currently use standards (approximately 50%) 
would be likely to use the new EU standards. However, as is the case with current standards, 
only a small minority of these companies would fully apply the standards, while most would 
use the EU standards selectively, possibly in conjunction with other standards.  

  Companies under the scope of the NFRD that do not currently use standards (50%) would be 
less  likely  to  use  the  EU  standards  immediately,  but  a  significant  proportion  may 
nevertheless begin to do so in the medium to long term, especially if pressured to do so by 
supervisors, investors and other stakeholders. However, most of these companies will apply 
the EU standards selectively, and some companies under scope will use no standards at all.  

In  such  a  scenario,  this  option  would  make  a  moderate  contribution  to  achieving  the  specific 
objectives but could not ensure that any of the objectives are fully met. The principal limitations 
would  be  that  a)  not  all  companies  under  scope  would  use  the  standards,  even  if  the  number 
increases over time, and b) only a minority of companies using the standards would apply them 
fully, while most would use them selectively. 

Costs analysis 

Costs  for  preparers.  The  reporting  requirements  would  remain  the  same  and  therefore 
incremental costs of reporting due to EU intervention would be zero. Reporting companies that 
voluntarily decide to report against EU standards might incur higher costs. Nevertheless, because 
of  the  voluntary  character  of  the  standards,  companies  would  only  use  the  standards  if  they 
consider the benefits of doing so are higher than the costs. 

33 

 
 
This  option  could  result  in  some  of  the  medium-term  costs  savings  identified  for  option  1 
(reduction  in  demands  to  companies  for  additional  information,  greater  clarity  about  what  to 
report, and better information from suppliers and clients). However, any such benefits are highly 
dependent on the degree of uptake of the voluntary standards. 

On  the  other  hand,  there  would  be  a  risk  that  voluntary  EU  standards  would  be  perceived  as 
another standard to add to the list of voluntary (private) standards already in existence. It would 
therefore  run  a  significant  risk  of  adding  to  the  confusion,  and  adding  to  the  administrative 
burden and costs for companies. 

Costs  for  users.  The  reduction  in  costs  for  users  associated  with  trying  to  find  adequate 
information  would  not  be  as  significant  as  according  to  Option  1,  as  it  would  depend  on  the 
degree of uptake of the EU standards by reporting companies. 

Costs  for  the  EU.  Costs  for  the  EU  would  be  the  same  as  the  ones  presented  under  Option  1 
(section 6.1.1).  

Other economic, environmental, social and fundamental rights impacts 

 

International  competitiveness  of  EU  companies.  Because  the  use  of  standards  is  voluntary, 
this  option  would  create  a  low  risk  of  competitive  disadvantage  for  European  companies 
compared  to  non-EU  companies  that  are  not  subject  to  similar  reporting  requirements. 
European  companies  could  take  account  of  the  reporting  done  by  their  international 
competitors when deciding whether and to what extent to use the EU standards. On the other 
hand, the EU would be in a less strong position in any global negotiations on alignment of 
standards, and the EU and its companies would not benefit fully from first-mover advantage.  
  Risk  of  international  fragmentation.  The  risk  of  international  fragmentation  exists  for  this 
option as it does for the mandatory standards option, and it can be mitigated in the same way.  
  Single Market. The risks to the Single Market from Member States endorsing different non-
financial reporting standards would probably be reduced, since if a Member State wanted to 
endorse  a  standard  it  would  probably,  but  not  inevitably,  choose  the  new  EU  standards. 
However, this option also creates a new risk: the very existence of high quality EU standards 
may  tempt  some  Member  States  to  make  the  EU  standards  mandatory  at  national  level, 
thereby introducing new barriers to the Single Market so long as other Member States do not 
do the same. 

As for the mandatory standards option, this option could also have impacts regarding a) company 
resilience b) better public policy on the environment, society and fundamental rights, c) company 
impacts on the environment, society and fundamental rights, d) knock-on effects for SMEs, and 

34 

 
 
 
d) the quality and consistency of ESG ratings. However, these impacts will only materialise to 
the extent that companies use or fully apply the standards on a voluntary basis.  

6.1.3 Comparison of standardisation options 

The  analysis  of  options  is  summarised  in  tables  3  and  4.  The  scores  for  effectiveness  directly 
reflect the analysis carried out in previous sections 6.1.1-6.1.2, whereas efficiency considers the 
costs  associated  with  each  option  in  relation  to  its  effectiveness  and  other  positive  impacts 
(benefits).  Compared  to  the  baseline  scenario,  Option  1  would  increase  the  amount  of 
comparable,  reliable  and  relevant  information  available  from  companies,  very  significantly 
contributing  to  several  of  the  objectives  of  this  initiative  (most  effective).  Option  2  is  less 
effective  as  it  cannot  guarantee  that  companies  would  publish  information  according  to 
standards, and therefore cannot significantly contribute to the identified objectives. Costs under 
Option 2, mainly costs for the EU as preparers would not be required to report against standards, 
would not be justifiable given the limited and uncertain effectiveness of this option. This option 
does not significantly reduce the risk of increasing unnecessary costs on preparers in the medium 
term and other negative impacts identified in the baseline scenario.  

Although  Option  1  presents  the  highest  costs,  it achieves  the  best  efficiency,  as  it  presents  the 
greatest  benefits  in  terms  of  effectiveness  and  other  positive  impacts  and  would  reduce 
unnecessary costs for preparers in the medium term. Additionally, significant improvement in the 
usability  of  reported  information  is  only  granted  by  Option  1;  only  if  the  use  of  reporting 
standards is mandatory, the amount of information reported that users consider not to be relevant 
would  be  significantly  reduced.  The  availability  of  simplified  standards  would  help  SMEs  to 
address the increase in uncoordinated demands for information that SMEs will face as a result of 
general market developments and as a result of the SFDR and the Taxonomy Regulation. 

With  regard  to  coherence,  although  Option  2  contributes  to  enhance  coherence  with  other  EU 
policy objectives, Option 1 is the only one that guarantees this consistency. 

Table 3 - Comparison of standardisation options 

Effectiveness 
Costs for preparers 
Efficiency61 
Other economic, environmental, 
social and FR impacts 
Coherence 

Option 1 
( Mandatory Standards) 
+++ 
- 
++ 

Option 2 
( Voluntary Standards) 
+ 
0 
+ 

++ 

++ 

+ 

+ 

61 Efficiency looks at the costs associated with each option in relation to its effectiveness and other positive impacts. It reflects 
the net effect of the positive impacts and the costs associated to the policy option. For example, positive economic impacts can 
contribute to a better efficiency rating of the policy option. 

35 

 
 
 
 
 
 
 
 
                                                           
 
Table 4 - Comparison of standardisation options in terms of impacts on different stakeholders 

Investors 

Civil society organisations 

EU and national 
authorities  

Society at large 

Reporting companies 

SMEs 

National supervisors 

Option 2 
( Voluntary Standards) 

+ 
• impacts described for option 1, 
but only to the extent that 
companies voluntarily decide to 
report according to standards 

0 

• availability of a reference 
standard to comply with the 
NFRD 
• but possible confusion about an 
additional standard alongside the 
rest 

+ 

• the availability of simplified 
standards for voluntary use by 
SMEs would help them address 
info demands, to the extent that 
counterparts do not ask for 
different information 

+ 
• supervision facilitated by a clear 
set of information 

Option 1 
( Mandatory Standards) 
++ 

• improved usability of reported 
information (complete, relevant and 
comparable) 
•informed decision making process 
•costs savings from trying to find 
relevant information 
•benefit from coherence between EU 
sustainability reporting requirements 

++ 
• enabled to hold companies accountable 
for their impacts 
• costs savings from trying to find 
relevant information 
+ 
• improvement of policy making thanks 
to the availability of information 

+ 

• behavioural changes of reporting 
companies 
• increase of investment flows to more 
sustainable companies 
+/- 

• increase of admin burden due to 
detailed reporting requirements 
• clarity about which information to 
disclose 
• reduction in number of ad hoc demands 
of information received 
• better access to information from 
suppliers and clients, to the extent that 
they are also required to use EU 
standards 

+/- 
• knock on effects from the requirement,  
mitigated by the availability of simplified 
standards for voluntary use 

+ 
• supervision facilitated by a clear set of 
information required to be disclosed 
• however, enforcement priorities further 
geared towards non-financial reporting, 
might need additional resources to ensure 
supervisory convergence 

36 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.2  Impacts of Assurance options 

6.2.1 Analysis of impacts of Option 1: Require reasonable assurance 

Effectiveness in meeting specific objectives 

This option would very significantly contribute to achieving the specific objective regarding the 
reliability  of  reported  non-financial  information.  It  would  mean  that  non-financial  information 
and financial information are assured to the same level. This option can also contribute, although 
to a lesser extent, to the specific objectives regarding the comparability and relevance of reported 
information.  

However, the effectiveness of this option is currently limited by certain aspects: 

  Reporting practices are not yet well developed in most companies, with relatively weak 
internal control systems for non-financial reporting that suggest that reasonable assurance 
would not be immediately appropriate or possible at this stage. 

  The relative immaturity of the assurance market for non-financial information, especially 
if compared to the assurance market for financial information. There is some doubt about 
the  ability  of  the  assurance  market  to  immediately  meet  the  demand  for  reasonable 
assurance, especially if the EU were to decide to bring a significant number of additional 
companies under the scope of the reporting requirements (see section 6.3).  

  The absence of a commonly agreed assurance standard for the assurance of non-financial 
information.  A  majority  of  both  users  (75%)  and  preparers  (71%)  responding  to  the 
public consultation believed that such a standard would be necessary. 

There is  consensus  amongst most respondents to the open public consultation that assurance is 
needed  for  non-financial  information,  with  the  exception  of  some  preparers  who  consider  that 
companies  should  be  left  to  choose  whether  they  will  assure  or  not  their  reported  information. 
Overall,  respondents  were  evenly  divided  as  to  whether  the  EU  should  require  limited  or 
reasonable assurance, if it were to introduce stronger audit requirements. Although 51% of users 
favoured  a  reasonable  assurance  requirement  (compared  to  31%  who  preferred  limited),  only 
35% of preparers agreed with this approach. Many respondents noted that the maturity of non-
financial reporting is far from the maturity of financial reporting and that a reasonable assurance 
requirement  would  only  be  a  valuable  and  reliable  option  over  time,  when  reporting  and 
assurance practices have further evolved. 

37 

 
 
 
 
 
Costs analysis 

Costs for preparers. The estimated total annual incremental costs for companies in scope of the 
NFRD  resulting  from  the  requirement  to  perform  a  reasonable  assurance  engagement  on  non-
financial  reporting  would  be  approximately  EUR  280  million.  These  incremental  costs  do  not 
include costs from companies already doing reasonable assurance on non-financial information, 
and considers a lower increase in costs for companies already doing limited assurance than for 
those  that  would  be  required  to  start  from  scratch.  For  companies  in  Spain,  Italy  and  France, 
where assurance is mandatory, limited assurance is the common practice. This cost estimate also 
assumes companies currently doing limited or reasonable assurance would continue doing so. 

The  estimated  average  annual  costs  of  performing  reasonable  assurance  for  an  individual 
company subject to the NFRD go from EUR 96 000 for companies not reporting against detailed 
standards  to  EUR  125 000 for  companies  reporting  against  detailed  standards.62  The  cost  of 
assurance,  especially  reasonable  assurance,  was  a  common  point  raised  by  many  categories  of 
respondents to the public consultation, being a major concern for preparers. 

Other economic, environmental, social and fundamental rights impacts 

- 

-  Resilience  of  companies.  A  reasonable  assurance  requirement  would  translate  into  more 
rigorous reporting processes within the company, as auditors would  help companies identify 
any flaws in their internal controls, methodologies for data collection and reporting or in the 
identification of material risks and impacts. 

-  Single Market. A requirement for reasonable assurance, the highest level of assurance, would 
avoid obstacles to the Single Market resulting from different levels of assurance requirements 
in different Member States. 

-  Connectivity  and  consistency  between  financial  and  sustainability  information.  Auditors  are 
already  required  to  audit  financial  statements,  to  ensure  their  consistency  with  the 
management report and to check compliance of the management report with applicable legal 
requirements. A large number of respondents to the public consultation believe that auditors 
are  best  placed  to  provide  assurance  on  non-financial  information,  while  a  smaller  number 
stated  that  this  should  not  necessarily  be  the  case.  This  policy  option  allows  to  ensure  the 
connectivity and consistency between financial and sustainability reporting, as the third party 
that  verifies  sustainability  information  would  also  have  an  understanding  of  the  financial 
performance of the company. 

-  Risk  of  concentration  of  the  audit  market.  This  requirement  would  contribute  to  a  certain 

extent to maintain the current situation of concentration in the audit market.  

62 The general approach of cost estimation was to apply a stratified approach, i.e. attempting to estimate costs that reflects the size 
of  the  preparer  .  Accordingly,  the  estimated  average  costs  of  performing  reasonable  assurance  for  companies  brought  into  the 
scope of the NFRD due to national transposition go from EUR 32 000 for companies not reporting against detailed standards to 
EUR 57 000 for companies reporting against detailed standards. See Annex 17for further details. 

38 

 
 
 
 
 
                                                           
-  Assurance of non-financial information would facilitate supervision of non-financial reporting 

by national competent authorities.63 

6.2.2 Analysis of impacts of Option 2: Require limited assurance 

Effectiveness in meeting specific objectives 

This  option  would  contribute  to  achieving  the  specific  objective  regarding  the  reliability  of 
reported  non-financial  information.  Currently,  the  non-financial  statement  is  explicitly  exempt 
from the requirement to have an auditor’s opinion on the information in the management report. 
Therefore,  making  limited  assurance  of  non-financial  information  mandatory  would  be  a 
significant  step  to  improve  the  reliability  of  reported  information.  It  would  also  contribute, 
although to a lesser extent, to the specific objectives regarding the comparability and relevance 
of reported information. However, the effectiveness of this option in the case of all three of these 
specific  objectives  (reliability,  relevance  and  comparability)  is  restricted  by  the  nature  of  the 
assurance  requirement,  as  limited  assurance  ensures  the  reliability  of  information  to  a  lesser 
extent than does reasonable assurance.  

52%  of  preparers  favoured  a  limited  assurance  requirement  (compared  to  35%  who  preferred 
reasonable), but only 31% of users agreed with this approach. 

Costs analysis 

Costs for preparers. The total estimated annual incremental costs for companies in scope of the 
NFRD  resulting  from  the  requirement  to  perform  a  limited  assurance  engagement  on  non-
financial reporting would be around EUR 80 million.64 These incremental costs do not consider 
costs from companies already assuring non-financial information. This is the case for companies 
in  Spain,  Italy  and  France,  where  assurance  is  mandatory,  and  for  companies  that  voluntarily 
verify non-financial reporting in other member states. This cost estimate also assumes companies 
currently doing limited or reasonable assurance would continue doing so.  

The estimated average annual costs of performing limited assurance for an individual company 
subject to the NFRD go from EUR 56 000 for companies not reporting against detailed standards 
to EUR 75 000 for companies reporting against detailed standards.65  

63 See annex 16. According to the proposed policy option regarding sanctioning regime and enforcement, the role of NCA with 
regard to non-financial information would be clarified in law. 
64 Companies brought into the scope of the NFRD provisions due to national transposition are included in these calculations. 
65 The general approach of cost estimation was to apply a stratified approach, i.e. attempting to estimate costs that reflects the size 
of the preparer. The estimated average costs of performing limited assurance for companies brought into the scope of the NFRD 
due  to  national  transposition  go  from  EUR 21  000  for  companies  not  reporting  against  detailed  standards  to  EUR  37 000 for 
companies reporting against detailed standards. See Annex 17 for further details. 

39 

 
 
                                                           
Other economic, environmental, social and fundamental rights impacts 

To  a  lesser  extent  than  the  reasonable  assurance  option,  this  option  could  also  have  impacts 
regarding a) company resilience, b) reduction of risks to the Single Market, c) connectivity and 
consistency  between  financial  and  sustainability  information,  (d)  risk  of  concentration  of  the 
audit market and e) facilitation of supervision. 

6.2.3 Comparison of assurance options 

The  analysis  of  options  is  summarised  in  tables  5  and  6.  The  scores  for  effectiveness  directly 
reflect  the analysis carried out  in  previous sections 6.2.1-6.2.2, whereas  efficiency looks at  the 
costs associated with each option in relation to its effectiveness and other positive impacts.  

In  terms  of  effectiveness,  option  1  contributes  to  a  greater  extent  than  option  2  to  meeting  the 
identified objectives. However, in a context where reporting practices are not very advanced and 
the  assurance  market  of  non-financial  information  is  not  mature  enough,  costs  for  preparers 
would  probably  outweigh  the  benefits  of  this  option  in  the  short  term.  Therefore,  the  most 
efficient  option  with  regard  to  assurance  in  the  short  term  would  be  option  2  (require  limited 
assurance).  

In the absence of a complete set of assurance standards, a significant number respondents to the 
open public consultation, both users and preparers, preferred a gradual approach starting with a 
requirement for limited assurance and then moving to a system with reasonable assurance in the 
longer  term.66  A  review  clause  to  analyse  whether  conditions  have  been  met  for  a  transition 
towards  a  requirement  for  reasonable  assurance  would  accommodate  these  concerns  while 
enabling the initiative to maximise its contribution to the objective of improving the availability 
of reliable information in the medium term. The review would need to assess conditions such as 
how advanced reporting and assurance practices are in the market, and, although not an absolute 
condition  for requiring a reasonable assurance engagement, the availability  or not  of assurance 
standards in the market.  

Therefore,  given  that  option  1  would  be  the  most  coherent  and  efficient  option  in  the  medium 
term, a phase-in approach towards reasonable assurance is the preferred policy option. Requiring 
limited assurance and having a review clause to analyse whether conditions have been met for a 
transition  towards  a  requirement  for  reasonable  assurance  allows  for  a  phase-in  approach  with 
regard to costs for preparers, and for an assessment of the maturity of the industry in the medium 
term, significantly contributing to the specific objectives of the initiative. 

66  Open  public  consultation,  written  contribution  from  the  Committee  of  European  Auditing  Oversight  Bodies  (CEAOB): 
“Reporting and assurance on non-financial information are rather new areas. As such, it would be premature to require reasonable 
assurance  at  the  current  stage  and  until  a  shared  understanding  has  been  developed  by  the  various  stakeholders  as  well  as  an 
appropriate framework”. 

40 

 
 
                                                           
In order to reduce the risk of concentration in the audit market, Member States could decide to 
allow  other  third  party  assurance  services  providers  to  provide  the  opinion  on  sustainability 
reporting. 

 Table 5 - Comparison of assurance options67 

Effectiveness 
Costs for preparers 
Efficiency68 
Other economic, environmental, 
social and FR impacts 
Coherence 

Option 1 
(Reasonable assurance ) 
+++ 
-- 
+ 

Option 2 
(Limited assurance ) 
++ 
- 
+ 

+ 

+ 

+ 

+ 

Table 6 - Comparison of assurance options in terms of impacts on different stakeholders 

Investors 

Civil society 
organisations 

EU and national 
authorities  

Reporting 
companies 

Option 1 
(Reasonable assurance ) 
++ 

• information available would be 
considered significantly more 
reliable and useful. 
++ 

• information available would be 
considered significantly more 
reliable and useful. 
++ 
• significant improvement of policy 
making thanks to the availability of 
reliable information 

+/- 
• would incur significant additional 
costs  
• companies would significantly 
improve their reporting processes 
• reduction in number of ad hoc 
demands of information received 

Option 2 
( Limited assurance ) 

+ 

• information available would be 
considered more reliable and useful. 

+ 

• information available would be 
considered more reliable and useful. 

+ 

• improvement of policy making 
thanks to the availability of reliable 
information 

+/- 

• would incur additional costs 
•  but some offsetting benefits as 
companies would improve their 
reporting processes 

National 
supervisors 

• additional ‘line of defence’ in the 
supervision of non-financial 
reporting by national authorities 

• additional ‘line of defence’ in the 
supervision of non-financial reporting 
by national authorities 

+ 

+ 

67 The + and the – signs reflect positive and negative implications stemming from different factors in each case. Even if aspects 
of both policy options are rated with the same sign, the reasons behind the rating might be different. When comparing the policy 
options we explain how all the ratings interacting together contribute to the selection of the preferred option. 
68Efficiency looks at the costs associated with each option in relation to its effectiveness and other positive impacts. It reflects the 
net  effect  of  the  positive  impacts  and  the  costs  associated  to  the  policy  option.  For  example,  positive  economic  impacts  can 
contribute to a better efficiency rating of the policy option. 

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
 
6.3 Impacts considering different scope options  

In this section we analyse the impacts of the expansion of the scope of the NFRD to additional 
categories of company, assuming the preferred options for standardisation (mandatory use of EU 
standards  for  companies  under  the  scope  of  the  NFRD)  and  assurance  (limited  assurance 
requirement  with  review clause to  possible reasonable assurance  requirement at  a later date).69 
As explained at the start of section 6, we have adopted this approach because it is not possible to 
analyse  the  impacts  of  expanding  the  scope,  in  particular  the  costs,  without  knowing  the  main 
features of the reporting requirements that companies would have to meet.  

Each  scope  option  analysed  in  this  section  is  therefore  a  package  that  includes  the  preferred 
options  on  standardisation  and  assurance.  We  could  theoretically  have  analysed  other  possible 
packages  that  combine  different  scope  options  with  non-preferred  policy  options  on 
standardisation and assurance. In particular, in an effort to balance benefits and costs, we could 
have analysed packages that expand the scope but do not require the use of EU standards and/or 
do not require any assurance. We have discarded such packages because we concluded that the 
identified  problems  can  only  be  effectively  addressed  if  reporting  companies  are  required  to 
report against standards and to seek at least a minimal level of assurance. We concluded that it 
would  not  be  realistic  to  require  more  companies  to  report  without  ensuring  they  report 
comparable and reliable  information,  and therefore we have not  analysed packages  that  reflect 
such a scenario. 

For  the  sake  of  clarity  and  to  avoid  repetition,  this  section  does  not  include  an  analysis  of  the 
effectiveness  and  impacts  of  the  preferred  options  for  standardisation  and  assurance.  Their 
contribution  to  the  objectives  of  this initiative,  and  all  their  impacts  (positive/negative),  would 
apply to all additional companies brought into scope, and therefore would be overall greater the 
more  the  scope  is  broadened.  The  assessment  of  the  costs  for  preparers  of  the  different  scope 
options takes into consideration the preferred options for standardisation and assurance. 

All  companies  under  the  scope  of  the  (revised)  NFRD  will  be  required  according  to  the 
Taxonomy Regulation to calculate and disclose the extent to which their activities substantially 
contribute to one of the EU environmental objectives as defined by the taxonomy. The Services 
of  the  European  Commission  are  preparing  a  staff  working  document  that  will  contain  proper 
cost estimates of the Delegated Act that will specify this disclosure requirement in more detail 
(to  be  adopted  by  mid-2021).  Annex  3  includes  a  preliminary,  illustrative  estimation  of  the 
magnitude of these costs for preparers. 

69 The general approach of cost estimation was to apply a stratified approach, i.e. attempting to estimate reporting and assurance 
costs that reflects the size of the preparer. See Annex 17 for further details. 

42 

 
 
 
 
 
                                                           
Table 7. Overview of packages 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Option 1 
Mandatory EU standards 

Option 1 
Mandatory EU standards 

Option 2 
Requirement for limited 
assurance 
Option 2 
Requirement for limited 
assurance 

Baseline 
No change 

Option 1 
+ Other large PIEs 

Package 0 

Package 1 

Package 2 

Option 1 
Mandatory EU standards 

Option 2 
Requirement for limited 
assurance 

Option 2 
+ Other large PIEs 
+ Other large categories 

Package 3 

Option 1 
Mandatory EU standards 

Option 2 
Requirement for limited 
assurance 

Package 4 

Option 1 
Mandatory EU standards 

Option 2 
Requirement for limited 
assurance 

Option 3 
+ Other large PIEs 
+ Other large categories 
+ Listed SMEs 

Option 4 
+ Other large PIEs 
+ Other large categories 
+ Listed SMEs 
+ Non-listed medium sized 
companies 

6.3.1 Analysis of impacts of Package 0 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Package 0 

Option 1 
Mandatory EU standards 

Option 1 
Requirement for limited 
assurance 

Baseline  
No change 

This  package  would  require  all  companies  currently  under  the  scope  of  the  NFRD  to  report 
against EU standards and to seek limited assurance.70 It would have a major impact on improving 
the relevance, comparability and reliability of reported information, consistent with the analysis 
in sections 6.1 and 6.2, but only for companies currently under the scope of the NFRD. It would 
not  help  to  address  the  problem  that  some  companies  from  whom  users  want  non-financial 
information do not report such information. 

70  Taking  into  account how  Member  States  have  transposed  the  Directive,  approximately  11  700  companies  are  subject  to the 
reporting requirements of the NFRD. Not taking account of national transposition, about 2 000 companies are under scope of the 
NFRD. 

43 

 
 
 
 
                                                           
 
 
Compared  to  the  baseline  scenario,  the  estimated  annual  incremental  recurring  costs  of  this 
package  for  companies  would  be  approximately  EUR  400  million.71  This  results  from 
considering the annual incremental costs of reporting according to EU standards (approx. EUR 
210  millions)  and  requiring  limited  assurance  (approx.  EUR  190  millions).72  Additionally, 
companies would incur approximately EUR 30 million incremental one-off costs. 

6.3.2 Analysis of impacts of Package 1 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Package 1 

Option 1 
Mandatory EU standards 

Option 2 
Requirement for limited 
assurance 

Option 1 
+ Other large PIEs 

Effectiveness in meeting specific objectives 

This  package  contributes  to  meeting  users’  needs  for  information  from  all  other  large  PIEs  in 
addition  to  the  ones  already  in  scope.  These  additional  companies  are  listed  companies,  banks 
and  insurance  companies  with  under  500  employees  that  qualify  as  ‘large’  according  to  the 
criteria of the Accounting Directive.73  

There  are  1  150  such  companies,  of  which  only  about  20%  currently  report  non-financial 
information on a voluntary basis.  

The  co-legislators  decided  to  treat  these  PIEs  differently  from  other  larger  PIEs  when  they 
agreed  the  NFRD  in  2014,  principally  in  order  to  mitigate  the  overall  cost  implications. 
However,  in  view  of  the  growth  of  users’  needs  for  non-financial  information  since  2014,  the 
inclusion  of  these  companies  under  scope  would  now  make  a  significant  contribution  to  the 
effectiveness  of  the  initiative.  A  large  majority  of  users  responding  to  the  public  consultation 
(70%) were in favour of including all large PIEs under scope. 

These  companies  are  already  defined  in  EU  law  as  public  interest  entities,  and  there  is  by 
definition  a  public  interest  in  ensuring  that  they  disclose  non-financial  information.  The 
additional  listed  companies  that  would  come  under  scope  account  for  13%  of  all  EU  listed 
companies.  This  package  is  therefore  important  in  terms  of  meeting  the  information  needs  of 

71  This  figure  does  not  include  costs  from  reporting  against  standards  from  companies  that  were  already  doing  so,  nor  does  it 
include costs from performing limited assurance from companies that were already doing so. 
72 This figure is greater than the costs of limited assurance presented in section 6.2.3 (EUR 80 million) because according to this 
package companies would be required to report against standards and assurance costs are higher when companies report against 
standards. 
73 Undertakings that meet two out of three criteria: (a) balance sheet total: EUR 20 000 000; (b) net turnover: EUR 40 000 000; 
(c) average number of employees during the financial year: 250. 

44 

 
 
 
                                                           
 
financial market participants: it enables them to better understand the risks and opportunities of 
potential investments, and to meet their own disclosure requirements under the SFDR. 

Costs for preparers 

This  package  would  add  EUR  100  million  in  annual  incremental  recurring  costs  compared  to 
package 0. It would also add EUR 20 million incremental one-off costs compared to the previous 
package.  

6.3.3 Analysis of impacts of Package 2 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Package 2 

Option 1 
Mandatory EU standards 

Option 1 
Requirement for limited 
assurance 

Option 2 
+ Other large PIEs 
+ Other large categories 

Effectiveness in meeting specific objectives 

This package includes a broader range of companies under the scope of the NFRD compared to 
the extension in scope described in package 1, and therefore contributes to meeting users’ needs 
for information to a greater extent. Specifically, this package would add the following categories 
of companies: 

-  Large  non-listed  EU  companies  (including  large  EU  companies  with  securities  only 
listed  outside  EU  regulated  markets).  The  expansion  of  scope  to  large-non  listed 
companies  is  driven  mainly  by  concern  for  the  impacts  and  accountability  of  such 
companies, including through their supply chains. Civil society organisations are strong 
supporters of bringing large non-listed companies under the scope of the NFRD. Whether 
or not a company has listed securities is not a determinant of its social and environmental 
impacts. All large companies should in this respect be subject the same requirements to 
report publicly about their impacts.  

-  Large  non-EU  companies  with  securities  listed  in  EU  regulated  markets.  The 
expansion  of  scope  to  large  companies  not  established  in  the  EU  but  listed  in  EU 
regulated markets is driven by two main concerns. Firstly, financial market participants 
need  information  from  such  companies  to  understand  the  risks  and  impacts  of  their 
investments, and to meet their own disclosure requirements under the SFDR. Secondly, it 
would  create  a  more  level  playing  field  between  EU  and  non-EU  listed  companies,  in 
terms of administrative burden and accountability for social and environmental impacts. 

45 

 
 
 
 
 
 
 
 
In  response  to  the  public  consultation,  the  overwhelming  majority  of  users  supported  the 
expansion of scope to both these categories of company.  

This package would add an additional 35 300 companies to the scope compared to the previous 
package.74  Of  these  companies,  about  24%  currently  report  non-financial  information  on  a 
voluntary basis, and only about 14% report against recognised standards. 

The additional companies added under this package represent 27% of the total turnover of all EU 
limited  liability  companies.  This  package  therefore  significantly  increases  the  proportion  of 
private  economic  activity  that  would  be  subject  to  non-financial  reporting  requirements,  so 
making a major contribution to improving the accountability of companies for their impacts.  

Costs for preparers 

This policy option would add EUR 2,9 billion in annual incremental costs compared to package 
1.  It  would  also  add  EUR  600  million  incremental  one-off  costs  compared  to  the  previous 
package. 

6.3.4 Analysis of impacts of Package 3 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Package 3 

Option 1 
Mandatory EU standards 

Option 1 
Requirement for limited 
assurance 

Option 3 
+ Other large PIEs 
+ Other large categories 
+ Listed SMEs 

Effectiveness in meeting specific objectives 

According to this package the scope of the NFRD would be further broadened to include SMEs 
listed in EU regulated markets in addition to the categories of companies defined in Package 2.  

Information from listed companies is especially important in terms of meeting investors’ needs, 
especially given the new requirements on financial market participants coming from the SFDR. 
There  is  a  risk  that  if  SMEs  do  not  report  the  information  needed  by  investors  subject  to  SF 
legislation,  they  will  be  excluded  from  investments  regulated  by  these  SF  legislation.  This 
package therefore enables SMEs participation in the transition  to  a sustainable economy in  the 
context of other EU Sustainable Finance legislation (SF legislation). 

74 Close to 100 of them are large non-EU companies. 

46 

 
 
 
 
 
 
                                                           
 
Investors in principle need equal information from all listed companies.75 Therefore, listed SMEs 
would be required to report against the full set of EU standards and to perform limited assurance 
of their reports, ensuring consistency between financial and non-financial reporting requirements 
and bringing greater coherence to the corporate reporting legal framework.  

Listed SMEs comprise 26% of all listed companies in the EU.  Their inclusion under the scope 
would  therefore  be  highly  effective  in  terms  of  meeting  investors’  needs.  This  package  would 
ensure that companies that represent  almost  100% of the total  EU market  capitalisation, report 
relevant,  comparable  and  reliable  non-financial  information.  A  significant  majority  of  users 
responding to the public consultation (74%) favoured extending the scope to listed SMEs. SMEs 
themselves were divided as to whether they should be brought into the scope or not. 

This package would add an additional 1 050 companies to the scope compared to the previous 
option.  Of  these  companies,  only  5%  are  estimated  to  be  already  reporting  non-financial 
information.   

Costs for preparers 

This package would add EUR 40 million in annual incremental costs compared to package 2. It 
would also add EUR 10 million incremental one-off costs compared to the previous package. 

There  could  be  a  risk  that  these  costs  would  discourage  SMEs  from  listing,  which  would  be 
contrary  to  the  objectives  of  the  Capital  Markets  Union.  However,  the  costs  of  non-financial 
reporting are very low compared to the overall costs of listing for SMEs. A requirement to report 
non-financial  information  is  therefore  not  likely  to  make  the  difference  between  an  SME 
deciding to  list  or not.76 Additionally, issuers more concerned about  costs of listing than about 
broadening  their  investor  base,  would  remain  free  to  choose  to  list  on  Multilateral  Trading 
Facilities (MTFs) or SME growth markets. 

Moreover, the costs for listed SMEs of not disclosing non-financial information will be high in 
terms  of probable exclusion  from  investment  portfolios. This  is  especially  true once the SFDR 
comes  into  force,  since  financial  market  participants  may  simply  chose  not  to  invest  in 
companies from whom they cannot easily obtain the non-financial information that they need for 

75 Financial reporting requirements are the same for all listed companies, regardless of their size, given the utmost importance of 
transparency in capital markets. This is the reason why the report does not consider simplified reporting requirements for listed 
SMEs, as it would be an inconsistent approach to EU corporate reporting requirements on listed companies. 
76 Illustratively, if we apply the costs of going and being public indicated in page 12 of The European IPO Report 2020 (6 to 10% 
of the amount raised from an initial offering of less than EUR 50 million) to an estimated average initial offering of SMEs of 
around EUR 15 million (study of the Centre for Strategy and Evaluation Services “A Public-Private Fund to Support the EU IPO 
Market for SMEs”, 2021), the estimated costs for one SME for going and being public would be between EUR 0,9 – 1,5 million, 
compared to approximately EUR 50 000 one-off and recurring costs from reporting against standards and assuring the report (i.e. 
reporting costs only 3,3 – 5,5 % of the costs of going and being public). 

47 

 
 
                                                           
their  own  reporting  purposes.  Even  not  considering  the  impacts  of  the  SFDR,  the  use  of  non-
financial  information  in  investment  decisions  is  becoming  mainstream  to  an  extent  that 
companies not disclosing such information will face increasing challenges in accessing financial 
markets.  If  listed  SMEs  do  not  report  similar  information  to  other  listed  companies,  then  the 
benefits to them of listing will be much reduced.  

Information from listed companies is especially important in terms of meeting investors’ needs, 
especially given the new requirements on financial market participants coming from the SFDR.  

Positive  impacts  such  as  SME  participation  in  the  transition  to  a  sustainable  economy  in  the 
context  of  other  EU  Sustainable  Finance  legislation  (SF  legislation)  feature  as  well  in  the 
assessment  of  the  effectiveness  of  the  options.  There  is  a  risk  that  if  SMEs  do  not  report  the 
information  needed  by  investors  subject  to  SF  legislation,  they  will  be  excluded  from 
investments  regulated  by  these  SF  legislation.  There  is  therefore  a  strong  link  between  the 
inclusion of listed SMEs under the scope of the NFRD and the first question on coherence  

6.3.5 Analysis of impacts of Package 4 

Standards 
(preferred option) 

Assurance 
(preferred option) 

Scope 

Package 4 

Option 1 
Mandatory EU standards 

Option 1 
Requirement for limited 
assurance 

Option 4 
+ Other large PIEs 
+ Other large categories 
+ Listed SMEs 
+ Non-listed medium sized companies 

Effectiveness in meeting specific objectives 

Under this package the non-financial disclosure requirements would be further extended to non-
listed  EU  medium-sized  companies.  A  majority  of  users  who  replied  to  the  open  public 
consultation supported the mandatory use of simplified standards by SMEs. Given the challenges 
that  medium  sized  enterprises  would  face  to  report  against  a  complete  set  of  standards,  this 
option would require reporting against the simplified SME standards described in section 6.1.1. 
A minority of the SMEs that replied to the open public consultation and the SME Panel survey, 
favoured a requirement on SMEs to report against simplified standards. 

This package would add an additional 160 200 companies to the scope compared to the previous 
option.  These  additional  companies  represent  9%  of  the  total  turnover  of  all  limited  liability 
companies.  This  package  would  therefore  represent  a  further  significant  increase  in  the 
proportion  of  private  economic  activity  that  would  be  subject  to  non-financial  reporting 
requirements, contributing to improving the accountability of companies for their impacts. 

48 

 
 
 
 
User  demand  for  non-financial  information  is  currently  lower  for  non-listed  medium-sized 
companies than it is  for  listed companies and for large  companies.  Individually, medium-sized 
enterprises  tend  to  have  less  significant  impacts  on  society  and  the  environment  than  larger 
companies.  

Costs for preparers 

This  policy  option  would  add  EUR  3,6  billion  in  annual  incremental  costs  compared  to  the 
previous option. It would also add EUR 830 million incremental one-off costs compared to the 
previous package. 

Table 8 - Overview table of companies covered in different packages 

6.3.6 Comparison of Packages 

Each  package  contributes  to  a  greater  extent  than  the  previous  one  to  meeting  the  initiative’s 
objectives: the more companies that are included under the scope of the NFRD, the greater the 
number of companies that are guaranteed to report relevant, comparable and reliable information. 
Therefore, package 4 is the most effective of the policy options.  

The overall costs incurred by preparers also increase the more the scope is broadened. Package 0 
presents the lowest costs for preparers, and package 4 the highest costs. Conversely, the costs for 
users in terms of accessing the information that they need are highest in package 0 and lowest in 
package 4. 

49 

Coverage of optionsBaselineOption 1Option 2Option 3Option 4Total number of companies11.65312.81048.08049.139209.344% of total turnover of all EU limited liability companies47%48%75%75%84%% of all market cap88%90%99%100%100%% of all listed companies (equity/bonds)41%53%55%81%81%Compared to baselineAdditional number of companies compared to baseline1.15736.42737.486197.691Increase in % of total turnover of all LLC compared to baseline1%28%28%37%Increase % of total market cap compared to baseline2%11%12%12%Increase in % of all listed companies (equity/bonds)13%14%40%40%Compared to previous packageAdditional number of companies compared to previous package1.15735.2701.059160.205Increase in % of total turnover of all LLC compared to previous package1%27%0%9%Increase % of total market cap compared to previous package2%9%1%0%Increase in % of all listed companies (equity/bonds)13%2%26%0% 
 
 
To find an appropriate trade-off between effectiveness  and costs (i.e. to  find the most efficient 
package) it is necessary to consider from which categories of company users are most in need of 
relevant,  comparable  and  reliable  information.  The  results  of  the  public  consultation  and  the 
SME  panel  clearly  show  that  the  priority  for  users  is  to  receive  information  from  large 
companies  and  from  listed  companies,  and  that  user  demand  for  information  reduces  with  the 
size of the company.  

Packages  0,  1  and  2  do  not  expand  the  scope  to  all  large  and  listed  companies,  which 
significantly  reduces  their  effectiveness  in  addressing  the  identified  problems.  In  terms  of  the 
number  and  importance  of  companies  brought  under  scope,  the  additional  effectiveness  of 
package  1  is  only  marginal  compared  to  package  0.  Package  2  is  significantly  more  effective 
because  it  ensures  that  all  large  companies  are  under  scope,  but  it  does  not  include  all  listed 
companies. Package 3 expands the scope to all large and all listed companies, thereby ensuring 
that the most important categories of company from a user perspective report relevant, reliable 
and  comparable  information.  In  particular,  information  from  listed  companies  is  especially 
important  in  terms  of  meeting  investors’  needs,  especially  given  the  new  requirements  on 
financial market participants coming from the SFDR. Package 4 is more effective still, although 
user  demand  from  non-listed  medium-sized  companies  is  lower  than  it  is  for  large  and  listed 
companies. 

This analysis suggests that the principal choice from the point of view of efficiency is between 
package  3  and  package  4.  The  total  costs  for  preparers  of  package  4  are  more  than  two  times 
higher  than  for  package  3.  Although  package  4  is  more  effective  than  package  3  in  meeting 
users’  needs,  the  increase  is  effectiveness  is  not  proportionate  to  the  increase  in  costs,  mainly 
because  users  do  not  prioritise  information  from  non-listed  medium  sized  companies.  We 
therefore conclude that package 3 represents the best trade-off between effectiveness and costs, 
and is the most efficient package. 

All packages are coherent with different EU initiatives. The availability of a voluntary simplified 
standard for SMEs out of the scope of the NFRD is a proportionate measure coherent with the 
SME  Strategy  that  would  give  SMEs  the  opportunity  to  report  in  a  standardised  manner, 
mitigating any knock on effects as a result of this invite, and to participate in the transition to a 
sustainable  economy.  The  different  packages  contribute  also  to  ensuring  consistency  of  the 
overall  assurance  framework  of  annual  corporate  reporting  and  to  ensuring  consistency  with 
other sustainable finance legislation by considering the disclosure requirements of these laws in 
the standards setting  process.  However, package  3 stands out  as being the most coherent,  as it 
does not impose disproportionate burden on SMEs, coherent with the SME Strategy,77 while still 

77  Issuers  which  choose  to  list  on Multilateral  Trading  Facilities  (MTFs)  or  SME  growth  markets  would  not  be  subject  to  the 
NFRD requirements. 

50 

 
 
                                                           
ensuring that information from a great number of investee companies is  available for investors 
subject  to  other  SF  legislation.  It  enables  the  participation  of  SMEs  in  in  the  transition  to  a 
sustainable  economy  in  the  context  of  other  EU  Sustainable  Finance  legislation  and  it  ensures 
consistency between financial and non-financial reporting requirements, translating into greater 
coherence  of  the  corporate  reporting  legal  framework.78The  analysis  of  all  packages  is 
summarised in tables 9 and 10.  

Effectiveness 
Costs for preparers 
Efficiency80 
Other economic, 
environmental, social 
and FR impacts  
Coherence 

Table 9 - Comparison of packages79 

Package 0 
+ 
- 
+ 
+ 

Package 1 
+ 
- 
+ 
+ 

Package 2 
++ 
-- 
++ 
++ 

Package 3 
++ 
-- 
+++ 
+++ 

Package 4 
+++ 
--- 
- 
++ 

- 

+ 

++ 

+++ 

++ 

 Table 10 - Comparison of packages in terms of impacts on different stakeholders 

Investors 
Civil society 
organisations 
EU and 
national 
authorities 
Reporting 
companies81 
SMEs82 

National 
supervisors 

Package 0 

Package 1 
+ 

Package 2 
++ 

Package 3 
+++ 

Package 4 
++++ 

Impacts presented 
for preferred 
options for 
standardisation 
(section 6.1.1) and 
assurance (6.2.3) 

+ 

+ 

+/- 

+/- 

+/- 

++ 

++ 

+/- 

+/- 

+/- 

+++ 

+++ 

+/- 

+/- 

+/- 

++++ 

++++ 

+/- 

+/- 

+/- 

78 Financial reporting requirements are the same for all listed companies, regardless of their size, given the utmost importance of 
transparency in capital markets. This is the reason why the report does not consider simplified reporting requirements for listed 
SMEs, as it would be an inconsistent approach to EU corporate reporting requirements on listed companies. 
79 The + and the – signs reflect positive and negative implications stemming from different factors in each case. Even if aspects 
of different policy options are rated with the same sign, the reasons behind the rating might be  different. When comparing the 
policy options we explain how all the ratings interacting together contribute to the selection of the preferred option. 
80 Efficiency looks at the costs associated with each option in relation to its effectiveness and other positive impacts. It reflects 
the net effect of the positive impacts and the costs associated to the policy option. For example, positive economic impacts  can 
contribute to a better efficiency rating of the policy option.  
81 Costs would be in all cases partly offset by other factors presented for preferred options for standardisation (section 6.1.1) and 
assurance (6.2.3) 
82 Knock on effects on SMEs will be mitigated by the availability of simplified standards for voluntary use. 

51 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
 
 
 
7.  PREFERRED OPTION 

The  preceding  section  (section  6.3.6)  compares  the  five  packages  considered  in  this  impact 
assessment. It explains why package 3 represents the best overall trade-off between effectiveness 
and  costs,  and  is  the  most  efficient  package  in  the  medium  term.  Package  3  is  therefore  the 
preferred  policy  option  regarding  the  three  principal  variables  and  it  comprises  the  following 
options:  

-  Standardisation:  all  companies  under  the  scope  of  the  NFRD  would  be  required  to  report 
against EU standards. For the standardisation variable the principal trade-off is between the 
high effectiveness and the high costs for preparers under the mandatory standards option, and 
the low effectiveness and low initial costs for preparers under the voluntary standards option. 
The mandatory standards option is the most efficient option because it is the only option that 
would adequately contribute to the objectives of the initiative (effectiveness) and because the 
dynamic  baseline  suggests  that  preparers  would  face  significant  costs  increases  even  under 
the voluntary standards option.  

-  Assurance:  all  companies  under  scope  of  the  NFRD  would  be  obliged  to  seek  limited 
assurance  for  reported  non-financial  information,  while  the  NFRD  would  include  a  review 
clause  to  explore  the  need  to  move  to  reasonable  assurance  in  the  medium  term.  For  the 
assurance variable the principal trade-off is between higher effectiveness and higher costs for 
preparers  under  the  reasonable  assurance  option,  and  lower  effectiveness  and  lower  costs 
under the limited assurance option. The limited assurance option, with a review clause for a 
possible move to reasonable assurance in the future, is the most efficient option because it is 
nevertheless significantly more effective than the baseline in terms of ensuring that reported 
information is reliable, and because it avoids for the time being the higher costs for preparers 
of  reasonable  assurance.  This  is  especially  important  in  the  context  of  the  economic  crisis 
created by the Covid-19 pandemic.  In addition,  there  are concerns  about  whether  reporting 
and  assurance  practices  would  be  sufficiently  mature  to  meet  the  demand  for  reasonable 
assurance in the short term.  

-  Scope:  all large EU limited liability companies,  and all companies with  securities listed on 
EU  regulated  markets,  would  be  brought  under  the  scope  of  the  NFRD  (approximately 
additional  37  500  companies).  For  the  scope  variable,  the  principal  trade-off  is  between  a 
wide  scope  that  brings  higher  effectiveness  but  also  higher  costs  for  companies,  and  a 
narrower scope that is less effective but also brings lower costs. As described in section 6.3.6 

52 

 
 
 
 
 
the most efficient option is  the  extension of the  scope to  all large  companies and to SMEs 
listed on EU regulated markets, but not to all medium-sized companies.83  

Trade-offs and preferred options for the three main variables 

The preferred option is  proportionate and does not go beyond what is necessary to  achieve the 
objectives. In particular, it would only impose new reporting obligations on the companies from 
whom  users  most  need  information,  and  imposes  no  new  obligations  on  the  great  majority  of 
SMEs. At the same time, a simplified voluntary reporting standard for SMEs will better enable 
SMEs  to  participate  in  and  contribute  to  the  transition  to  a  sustainable  economy.  In  addition, 
there  is  a  gradual  approach  to  the  introduction  of  assurance  requirements,  beginning  with  a 
limited assurance requirement and a provision for moving to reasonable assurance at a later date. 

The preferred option is adapted to the new circumstances created by the Covid-19 pandemic. It 
meets  the information  needs of users,  which are expected to  intensify further as a result of the 
pandemic,  while  also  paying  very  close  attention  to  costs  for  preparers  in  the  context  of  the 
current economic crisis. Companies subject to any new reporting requirements under the revised 
NFRD  would  not  have  to  dedicate  resources  to  meeting  those  requirements  until  2022  at  the 
earliest.  

With the regard to the other variables, presented and analysed in annex 16, the preferred option 
would also include: 

-  Digitalisation: companies in scope of the NFRD would be required to tag their reports to 

allow for machine readability of non-financial information.  

-  Sanctioning  regime  and  enforcement:  for  listed  companies,  the  remit  of  the  powers  of 
supervisory authorities with regard to non-financial reporting would be clarified in law.  
Equivalent sanctions between listed and non-listed companies would also be specified.   

83 The application of the new requirements to SMEs listed on EU regulated markets could potentially be phased in. Issuers which 
choose to list on Multilateral Trading Facilities (MTFs) or SME growth markets would not be subject to the NFRD requirements. 

53 

 
 
 
 
 
                                                           
- 

Intangibles: in addition to the non-financial matters identified in the NFRD, reporting on 
intangibles would be required. 

-  Where  to  report:  all  required  non-financial  information  should  be  disclosed  in  the 

company’s management report.  

-  Materiality: the legal requirements would specify in more detail when companies should 

consider non-financial information material (double materiality). 

-  Exemption  for  certain  subsidiary  companies:  Subsidiaries  exempted  from  the  reporting 
obligations  according  to  the  NFRD  would  be  required  to  publish  the  consolidated 
management report of their parent company containing sustainability information, and to 
refer  to  it  in  their  individual  management  report.  EU  standards  would  ensure  that 
information about subsidiaries is included in consolidated reporting appropriately to meet 
users’ needs. 

The preferred option adequately meets the objectives identified in section 4.2, both for users and 
for preparers of non-financial information. It will improve EU non-financial reporting at the least 
possible  cost  and  meet  the  general  objective  of  better  exploiting  the  potential  of  the  European 
Single Market to contribute to the transition towards a fully sustainable and inclusive economic 
and  financial  system  in  accordance  with  the  European  Green  Deal  and  UN  Sustainable 
Development Goals. The preferred option will: reduce systemic risks to the economy created by 
investments that take insufficient account of non-financial risks; enable higher financial flows to 
companies and economic activities that address and do not exacerbate social and environmental 
challenges;  and  strengthen  the  social  contract  between  companies  and  citizens  by  making 
companies more accountable for their impacts on society and the environment. For preparers, it 
will  minimise  unnecessary  costs  associated  with  non-financial  reporting.  It  will  ensure  a  high 
degree  of  coherence  between  sustainable  finance  reporting  requirements  by  aligning  the 
requirements of the NFRD with those of the SFDR and the Taxonomy Regulation. 

These  preferred  changes  would  require  the  proposal  of  a  Directive  amending  the  Accounting 
Directive (as amended by the NFRD), the Transparency Directive,84 and the Audit Directive to 
address the specific changes proposed for the variables of standardisation, assurance and scope. 
Specifically,  greater coherence between all  reporting requirements in  the  Accounting Directive 
would  be  ensured.  Additionally,  based  on  an  empowerment  granted  to  the  Commission  in  the 
Accounting  Directive,  the  Commission  would  adopt  EU  non-financial  reporting  standards  by 
means of delegated regulations. This would permit the direct applicability of the standards, i.e. 
no need to wait for transposition of the level 1 by Member States in order to adopt the delegated 
act,  and  no  delay  of  the  date  of  entry  into  application.  Possibly,  this  policy  option  would  also 
require  amendments  to  the  Delegated  Regulation  2019/815  supplementing  the  Transparency 

84 The Transparency Directive is based in Articles 50 and 114 TFEU, and therefore the amending directive  would be based in 
Articles 50 and 114 TFEU. 

54 

 
 
                                                           
Directive with regard to regulatory technical standards on the specification of a single electronic 
format (ESEF Regulation) for the adoption of the accompanying IT taxonomy that would allow 
the digital tagging of reports. 

7.1 REFIT (simplification and improved efficiency) 

Simplification to the existing legislation will be achieved in the sense that EU law will impose 
clearer  reporting  requirements,  according  to  the  preferred  policy  option.  This  will  allow  for 
better  and  more  efficient  reporting  by  companies,  ensuring  that  the  objective  of  the  law  of 
making  adequate  information  publicly  available  for  users  is  met.  Although  costs  for  reporting 
companies  will  increase  as  a  consequence  of  the  detailed  requirements,  it  is  important  to 
emphasise that these costs will increase very substantially even if the EU takes no action. Most 
companies can expect to receive a significant increase in demands for non-financial information 
in the coming years. The preferred policy option should provide an orderly and efficient solution, 
based on building consensus around the essential information that companies should disclose, as 
opposed to an uncoordinated and costly increase in demand for non-financial information, with 
investors  and  other  stakeholders  asking  for  different  information  in  different  formats  across 
different Member States.  

In  addition,  the  proposed  revision  of  the  NFRD  would  reduce  costs  for  users  of  non-financial 
information.  Improvements  in  the  relevance,  comparability,  reliability  and  accessibility  of  the 
reported  information  should  enable  users  to  exploit  non-financial  information  more  efficiently 
and  in  more  powerful  ways.  The  proposed  revision  of  the  NFRD  will  also  lower  compliance 
costs  for  entities  subject  to  the  reporting  requirements  of  the  SFDR  and  the  Taxonomy 
Regulation as well as future Ecolabel for financial products. Without improvements in reporting 
from investee companies, client companies and supplier companies, entities subject to the SFDR 
and  the  Taxonomy  Regulation  will  incur  significantly  higher  costs  to  find  and  aggregate  the 
information they need to meet their own legal requirements.  

Although  costs  will  overall  increase  as  a  result  of  this  initiative,  the  following  table  highlights 
elements of the preferred package which improve its efficiency and/or reduce associated costs. 

55 

 
 
 
 
 
 
 
REFIT Cost Savings – Preferred Option 
Amount 
Description 

Developing and requiring use 
of EU reporting standards 

Requiring limited assurance 
on reported information 

 administrative costs savings for preparers 
due to clarity about what information is 
required to be reported;85 
 reduction of costs for preparers from 
addressing investors ad hoc requests for 
information;86   
 costs savings for users from trying to find 
adequate non-financial information;87 

 clarity about what is the minimum work 
that the third party assurance services 
provider has in fact undertaken avoids 
further costs for users of checking the 
reported information 

Requiring tagging of reports 
according to IT taxonomy  

 costs savings for users from trying to find 
adequate non-financial information;88 

Comments 

Stakeholders who save costs: 
 investors 
 civil society organisations and 
trade unions 
 reporting companies 

Stakeholders who save costs: 
 investors 
 civil society organisations and 
trade unions 

Stakeholders who save costs: 
 investors 
 civil society organisations and 
trade unions 

8.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

To  monitor  progress  towards  meeting  the  specific  objectives,  the  Commission  services  will 
explore the possibility of organising periodic surveys of users and preparers. The surveys would 
gather  data  on  (1)  users’  perceptions  of  the  evolution  of  non-financial  reporting,  in  particular 
with  respect  to  the  specific  objectives  identified  in  section  4  and  whether  those  objectives  are 
being met, and (2) the costs and benefits of non-financial reporting from a preparer perspective. 
Such surveys will be dependent on the availability of financial resources.  

Progress towards meeting the specific objectives can also be monitored through analyses of: 

85  CEPS  study  shows  that  companies  that  find  it  more  difficult  to  decide  which  information  should  be  included  in  the  non-
financial  statement  usually  incur  greater  administrative  and  incremental  costs.  It  also  shows  that  the  majority  of  the  surveyed 
companies subject to the NFRD, report against multiple standards and frameworks at least to a certain extent and incur higher 
costs the more standards and frameworks they follow (see figure 5.26 of CEPS study). 
86 Cost savings could amount to EUR 24 200 - 41 700 per company per year, and around EUR 1 200 – 2 000 million per year for 
the preferred option, if standards were to completely eliminate the need for additional information requests to preparers. These 
calculations are based on the replies to the survey carried out by SustainAbility. See annex 17 for a detailed cost analysis. 
87 59% of users who replied to the open public consultation face difficulties finding this information, which could translate into 
costs. 
88 62% of users who replied to the open public consultation believe that costs of tagging reports would pay off. 

56 

 
 
 
 
 
 
 
 
                                                           
- 

- 

the  ratings  of  company  transparency  on  non-financial  issues  carried  out  by  certain  rating 
agencies  and  data  providers,  in  particular  whether  such  ratings  show  a  positive  trend  over 
time; 
the  extent  to  which  ESG  scores  that  in  principle  measure  the  same  things  vary  between 
different  rating  agencies  and  data  providers,  and  in  particular  whether  they  start  diverging 
less.  Lower  levels  of  divergence  might  be  indicative  of  more  comparable  underlying  data 
being reported by companies.89  

Monitoring progress towards meeting the general objectives is by definition considerably more 
complex, since it is methodologically difficult to distinguish the impacts of the proposed revision 
of  the  NFRD  from  other  possible  causes.  Nevertheless,  the  Commission  services  propose  to 
monitor progress regarding the general objectives by: 

-  Monitoring  trends  in  investments  in  companies  that  carry  out  sustainable  economic 

activities;90  

-  Engaging  with  banking  supervisors  and  other  relevant  stakeholders  to  assess  whether 
systemic  risks  to  the  financial  system  are  being  reduced  as  a  result  of  investors  taking 
better account of sustainability risks. 

It  may  also  be  possible  to  use  the  proposed  surveys  of  users  and  preparers  to  gather  evidence 
about  whether  stakeholders  perceive  that  companies  are  more  accountable  for  their  social  and 
environmental impacts. 

In addition, different stakeholders, including civil society organisations, rating agencies, business 
organisations  and  public  authorities  are  likely  to  publish  reports  that  monitor  developments  in 
corporate non-financial reporting and that will be a useful complement to monitoring carried out 
by the Commission services.  

89 At the same time, divergence may also be explained by difference in methodologies used by rating agencies and data providers, 
and  is  to  some  extent  welcomed  by  investors  interested  in  different  assessments  and  views  (SustainAbility  study).  These 
methodological issues should be resolved before applying this method to monitor the success of the initiative. 
90 This will be done in close cooperation with the Platform on Sustainable Finance, which will monitor trends regarding capital 
flows towards sustainable investments as set out in Article 20 of the Taxonomy Regulation.  

57 

 
 
 
 
 
                                                           
ANNEX 1: PROCEDURAL INFORMATION 

1.  Lead DG, Decide Planning/CWP references 

This  Impact  Assessment  Report  was  prepared  by  Directorate  C  "  Financial  Markets  "  of  the 
Directorate General "Directorate-General for Financial Stability, Financial Services and Capital 
Markets Union" (DG FISMA).  

The Decide Planning reference of the "Initiative on the review of the Non-Financial  Reporting 
Directive" is PLAN/2019/6123.  

This  initiative  is  part  of  the  Commission’s  2020  Work  Programme91  and  is  one  of  the  actions 
proposed by the European Commission to implement the European Green Deal.92 

2.  Organisation and timing 

Several  services of the Commission with  an interest  in  the initiative have been involved in  the 
development of this analysis.  

Three Inter-Service Steering Group (ISSG) meetings, consisting of representatives from various 
Directorates-General of the Commission, were held in 2020.  

The first meeting took place on 21 January 2020, attended by DG ENV, CLIMA, JUST, GROW, 
ECFIN, EMPL, TRADE, ENER, SJ and the Secretariat General (SG).   

The second meeting was held on 23 April 2020. Representatives from DG ENV, CLIMA, JUST, 
GROW, ECFIN, EMPL, DEVCO, TRADE, ENER, AGRI, SJ, JRC and the Secretariat General 
(SG) were present.   

The  third  meeting  was  held  on  23  July  2020  and  was  attended  by  DG  ENV,  CLIMA,  JUST, 
GROW, ECFIN,  EMPL, DEVCO, TRADE, ENER,  AGRI, SJ, JRC, EEAS  and the Secretariat 
General  (SG).  This  was  the  last  meeting  of  the  ISSG  before  the  submission  to  the  Regulatory 
Scrutiny Board on 9 September 2020.   

The meetings were chaired by SG.  

DG  FISMA  has  considered  the  comments  made  by  DGs  in  the  final  version  of  the  IA.  In 
particular, it has simplified the structure of the policy options, reduced the length  of the report 
and clarified the links with other EU legislation and initiatives. The analysis of impacts and the 
preferred option takes account of the views and input of different DGs. 

91  Commission  Work  Programme  2020:  A  Union  that  Strives  for  More,  COM(2020)37  final,  29  January  2020.  Adjusted 
Commission Work Programme 2020. 
92 Communication from the Commission on the European Green Deal, COM(2019)640 final, 11 December 2019. 

58 

 
 
                                                           
3.  Consultation of the RSB 

The  Impact  Assessment  report  was  examined  by  the  Regulatory  Scrutiny  Board  on  7  October, 
2020.  The  Board  gave  a  positive  opinion  with  reservations,  following  which  the  Commission 
addressed the Board’s comments in the final version of the Impact Assessment. 

4.  Evidence, sources and quality 

The impact assessment draws on an extensive amount of desk research, external studies, studies 
carried  out  on  behalf  of  the  Commission,  interviews,  experts’  workshops,  meetings  with 
stakeholders,  open  public  consultations,  staff  working  documents,  opinions  and  advice  by  the 
supervising authorities, academic research papers and other. The material used has been gathered 
since  the  Commission  Services  started  monitoring  the  implementation  of  the  NFRD  in  2018. 
This material includes but is not limited to the following: 

-  External  studies  or  reports:  “Undue  short-term  pressure  on  corporations”,  European 
Securities and Markets Authority (ESMA), December 2019; “2019 Research Report: An 
analysis  of  the  sustainability  reports  of  1000  companies  pursuant  to  the  EU  Non-
Financial Reporting Directive”, Alliance for Corporate Transparency, 2020; “In Balance 
2019  -  Survey  of  value  creation  and  follow-up  to  the  Non-Financial  Information 
(Disclosure)  Decree”,  Dutch  Authority  for  the  Financial  Markets  (AFM),  December 
2019; “Compliance by Belgian listed companies with the requirement to publish a non-
financial  statement”,  Belgian  Financial  Services  and  Markets  Authority,  March  2019; 
“Integration  of  Sustainability  into  Corporate  Governance:  A  survey  of  financial  firms’ 
public  sustainability  information”,  Finansinspektionen  (Swedish  Financial  Supervisor), 
November  2018;  Ensuring  the  relevance  and  reliability  of  non-financial  corporate 
information: an ambition and a competitive advantage for a sustainable Europe, Patrick 
de Cambourg, May 2019. 

-  A  workshop  on  the  application  of  the  materiality  principle  under  the  Non-Financial 
Reporting  Directive  was  held  on  11  November  2019  with  the  participation  of  13 
representatives of preparers, investor, auditors, supervisor and academics.   

-  A workshop on assurance of sustainability information was held on December 2019 with 
the  participation  of  15  representatives  of  preparers,  auditors  and  accountants,  national 
governments and policy makers, assurance standard setters and oversight bodies.  

-  A virtual exchange with preparers of non-financial information (companies and business 
organisations  from  different  sectors)  to  discuss  the  issues  of  costs  of  non-financial 
reporting for preparers. The meeting was held on11 May 2020.  

59 

 
 
 
 
 
-  A virtual meeting to discuss the revision of the Non-Financial Reporting Directive with 
civil  society  organisations  took  place  on  12  May  2020.  More  than  20  organisations 
including  standard-setters,  human  rights  and  justice,  disability  people,  environment  and 
corporate transparency organisations have the opportunity to express their views. 

-  A  virtual  meeting  with  8  representatives  of  trade  unions  to  discuss  the  revision  of  the 
NFRD and to hear their views and concerns. The meeting was held on 15 May 2020. 

-  A targeted survey to SMEs, managed by the European Enterprise Network (EEN), which 
was open to receive responses from 3rd March 2020 through 27th May 2020. The SME 
Panel  Consultation  comprised  thirteen  questions  that  aimed  to  provide  a  good 
understanding  of  the  current  views  and  experiences  of  SMEs  around  non-financial 
information  processes  and  requirements.  The  survey  provide  348  responses  of  micro 
companies (58% of total), small companies (27%), and medium companies (15%) across 
the EU and the United Kingdom.  

-  Two (virtual) meetings with Member State representatives in the Accounting Regulatory 
Committee,  to  gather  the  views  of  regulators  at  national  level  on  the  revision  of  the 
NFRD. 

-  A meeting with SMEs representatives in the context of the COSME Programme. 

-  An  Open  online  public  consultation.  The  consultation  document  was  published  on  20 
February  2020;  due  to  the  corona  virus  pandemic,  the  deadline  for  responses  was 
extended  by  one  month,  to  11  June  2020.  A  total  588  organisations  and  persons 
responded  to  the  consultation.  Individual  companies  were  the  biggest  single  group  of 
respondents  (32%),  followed  by  business  associations  (20%)  and  non-governmental 
organisations  (14%).  The  remainder  represented  citizens  (8%),  public  authorities  (7%), 
academic  and  research  institutions  (6%)  and  trade  unions  (3%).  The  consultation 
consisted of 45 questions divided into 8 thematic sections including quality and scope on 
non-financial  information,  standardisation,  application  of  the  principle  of  materiality, 
assurance,  digitalisation,  structure  and  location  of  non-financial  information,  personal 
scope and simplification of administrative burdens. A  Feedback Statement providing an 
overview  of  the  contributions  to  this  public  consultation  was  published  on  the 
Commission’s website. We do not have identified any campaigns or similar action with 
major impact on statistical results on the open public consultation.  

60 

 
 
 
 
 
 
 
 
 
-  A study commissioned by DG FISMA on the implementation of the NFRD (consortium 
led by Economisti Associati), presents data from companies regarding current reporting 
practices under the NFRD, including the costs of such reporting and associated assurance 
of reports, and the impacts of the new requirements on company behaviour.  

-  A study commissioned by DG FISMA on sustainability ratings and research (consortium 
led by SustainAbility Institute, ERM) provides information about the trends and business 
models  in  the  market  for  sustainability  rating  agencies  and  data  providers,  including 
information  about  the  extent  to  which  public  disclosures  are  a  source  of  data  in  the 
market  of  sustainability  rating  agencies  and  data  providers  and  about  the  process  of 
compilation  and  assessment  of  non-financial  information  by  third  party  data  and  ESG 
rating providers.93 

-  An open online public consultation on corporate reporting. Previous consultation activity 
carried out by the European Commission in 2018. DG FISMA organised an open online 
public  consultation  on  corporate  reporting  whose  results  enabled  the  Commission  to 
gather  data  and  views  on  the  problems  that  need  to  be  addressed  with  regard  to  non-
financial reporting.  

-  A targeted online consultation on climate-related reporting, organised before the issuance 
in  June  2019  of  new  guidelines  for  companies  on  how  to  report  climate-related 
information.  The  results  of  this  survey  are  an  important  complement  to  the  sources  of 
information for this initiative.  

-  Target survey on due diligence requirements through the supply-chain organised in 2019 

by consultants contracted by DG JUST. 

The material used to inform this impact assessment comes from reputable and well-recognised 
sources that act as benchmarks and reference points for the topic. Findings were cross-checked 
with results in different publications in order to avoid biases caused by outliers in the data or 
vested interests by authors.  

93 https://op.europa.eu/en/publication-detail/-/publication/d7d85036-509c-11eb-b59f-01aa75ed71a1/language-en/format-PDF/source-183474104 

61 

 
 
 
 
 
 
 
 
                                                           
ANNEX 2: STAKEHOLDER CONSULTATION  

I. Introduction 

As  highlighted  in  the  Consultation  strategy,  the  objective  of  the  consultation  activities  is  to 
gather data and stakeholder views for the review of the Non-Financial Reporting Directive.  

Specifically, the consultation aims to:  

-  Firstly,  gather  the  views  of  preparers,  users,  and  other  important  stakeholders  on 
different  policy  options,  including  the  scope  for  cost  reduction  and  simplification 
measures.  

-  Secondly, gather data that can be used to better assess the costs and benefits of different 

policy options.  

-  Thirdly,  gather  additional  knowledge  about  certain  specific  issues,  such  as:  the 
application of the materiality principle in non-financial reporting; the assurance of non-
financial  information;  the  particular  situation  of  SMEs;  and  the  digitalisation  of  non-
financial information. 

This  consultation  strategy  built  on  previous  consultation  activities  carried  out  by  the  European 
Commission.  In  2018  DG  FISMA  organised  an  open  online  public  consultation  on  corporate 
reporting whose results enabled the Commission to gather data and views on the problems that 
need to be addressed with regard to non-financial reporting.  

Moreover,  the  results  of  two  others  surveys  are  an  important  complement  to  the  current 
consultation  strategy.  On  the  one  hand,  a  targeted  online  consultation  on  climate-related 
reporting organised before the issuance in June 2019 of new guidelines for companies on how to 
report  climate-related  information.  On  the  other  hand,  a  target  survey  on  due  diligence 
requirements  through  the  supply-chain  organised  in  2019  by  consultants  contracted  by  DG 
JUST. 

Finally,  DG  FISMA  published  an  open  online  public  consultation  on  a  Renewed  Sustainable 
Finance Strategy on 8 April with a deadline for stakeholder responses by 15 July. Their results 
are being analysed and will be also considered.  

II. Stakeholder groups covered by the consultation activities 

According  with  the  consultation  strategy,  the  primary  stakeholders  concerned  by  the  Non-
Financial Reporting Directive can be divided as follows: 

  The preparers of non-financial information, i.e. the companies that already publish non-
financial information or that may do so in the future. SMEs are also relevant stakeholders 

62 

 
 
independently of whether they are subject to non-financial disclosure requirements at EU 
level.  This  is  because  companies  that  fall  under  the  scope  of  the  NFRD  may  request 
additional non-financial information from their suppliers and clients, including SMEs. 

  The  direct  users  of  non-financial  information  published  by  companies  comprise  two 
major groups: i) financial sector institutions and investors, who require such information 
to  assess the related financial risks and opportunities, and ii) civil  society organisations 
and trade unions, who require such information to monitor the social and environmental 
performance of companies and hold them accountable for their impacts. Few individual 
citizens and consumers directly consult company non-financial statements, but more use 
such  information  indirectly,  for  example  when  considering  the  advice  or  opinions  of 
financial advisers or non-governmental organisations. 

Most  financial  sector  companies  such  as  banks  and  insurance  companies  are  likely  to  be  both 
preparers and users of non-financial information.  

Other  important  stakeholder  groups  concerned  by  the  Non-Financial  Reporting  Directive  are 
national  regulators  and  supervisory  authorities,  assurance  providers,  sustainability  rating 
agencies and research and data providers, reporting frameworks and standard-setters, academics, 
and researchers, and policy makers. 

All  relevant  stakeholders, particularly key stakeholders  — preparers and  users of non-financial 
information — provided relevant input for the revision of the Directive, particularly on proposals 
for improving existing rules. 

III. Consultation activities and other information sources 

The services of the European Commission have used a wide range of methodologies to build this 
consultation  strategy,  including  open  public  consultation,  surveys,  workshops,  meetings  and 
interviews. In particular, DG FISMA employed the following activities: 

  The  Inception  Impact  Assessment  for  the  revision  of  the  Non-Financial  Reporting 
Directive was published on 30 January with a deadline for stakeholder comments by 27 
February.  The  Commission  received  78  responses  to  the  inception  impact  assessment. 
The biggest number of responses came from non-financial sector companies and business 
associations,  representing  about  43%  of  responses.  Financial  sector  companies  and 
associations  (including  insurance)  represented  about  16%  of  responses,  and  non-
governmental organisations and trade unions 14%.  

  Open  online  public  consultation:  The  consultation  document  was  published  on  20 
February  2020;  due  to  the  corona  virus  pandemic,  the  deadline  for  responses  was 

63 

 
 
 
 
extended  by  one  month,  to  11  June  2020.  A  total  588  organisations  and  persons 
responded  to  the  consultation.  Individual  companies  were  the  biggest  single  group  of 
respondents  (32%),  followed  by  business  associations  (20%)  and  non-governmental 
organisations  (14%).  The  remainder  represented  citizens  (8%),  public  authorities  (7%), 
academic  and  research  institutions  (6%)  and  trade  unions  (3%).  The  consultation 
consisted of 45 questions divided into 8 thematic sections including quality and scope on 
non-financial  information,  standardisation,  application  of  the  principle  of  materiality, 
assurance,  digitalisation,  structure  and  location  of  non-financial  information,  personal 
scope and simplification of administrative burdens. A  Feedback Statement providing an 
overview  of  the  contributions  to  this  public  consultation  was  published  on  the 
Commission’s website. We do not have identified any campaigns or similar action with 
major impact on statistical results on the open public consultation.  

  Consultants  contracted  by  the  Commission  (CEPS)  conducted  a  targeted  survey 
addressed  to  all  companies  currently  under  the  scope  of  the  Non-Financial  Reporting 
Directive.  The  survey  collected  data  from  companies  regarding  current  reporting 
practices under the NFRD, including the costs of such reporting and associated assurance 
of  reports,  and  the  impacts  of  the  new  requirements  on  company  behaviour.  Follow-up 
interviews with different stakeholder groups were carried out to confirm the conclusions 
obtained.   

  Consultants contracted by the Commission (consortium led by SustainAbility) conducted 
an  online  survey  and  interviews  with  the  219  respondents  from  14  Member  States 
regarding ESG ratings.  The main stakeholder groups included asset managers and asset 
owners,  benchmark  administrators,  ESG  rating  agencies  and  data  providers  and 
companies.  Users  of  ESG  data  were  asked  about  sources  and  quality  of  corporate  non-
financial information. Companies were asked about their opinions regarding the process 
of compilation and assessment of non-financial information by third party data and ESG 
rating providers. 

  The  European  Commission  deployed  a  targeted  survey  to  SMEs,  managed  by  the 
European  Enterprise  Network  (EEN),  which  was  open  to  receive  responses  from  3rd 
March  2020  through  27th  May  2020.  The  SME  Panel  Consultation  comprised  thirteen 
questions  that  aimed  to  provide  a  good  understanding  of  the  current  views  and 
experiences of SMEs around non-financial information processes and requirements. The 
survey  provide  348  responses  of  micro  companies  (58%  of  total),  small  companies 
(27%), and medium companies (15%) across the EU and the United Kingdom.  

64 

 
 
 
 
 
 
  The services of the Commission organised stakeholder workshops and meetings to gather 
views,  knowledge  and  data  on  specific  issues,  and  to  gather  the  views  of  different 
stakeholder  groups  in  more  detail.  These  activities  have  provided  an  opportunity  to  go 
into  greater  depth  on  particular  points  and  to  exchange  and  compare  viewpoints  in  a 
dynamic setting. 

1)  A  workshop  on  the  application  of  the  materiality  principle  under  the  Non-
Financial  Reporting  Directive  was  held  on  11  November  2019  with  the 
participation of 13 representatives of preparers, investor, auditors, supervisor and 
academics.   

2)  A workshop on assurance of sustainability information  was held  on December 
2019  with  the  participation  of  15  representatives  of  preparers,  auditors  and 
accountants, national  governments and policy makers, assurance standard setters 
and oversight bodies.  

3)  A  virtual  exchange  with  preparers  of  non-financial  information  (companies 
and business organisations from different sectors) to discuss the issues of costs of 
non-financial reporting for preparers. The meeting was held on 11 May 2020.  
4)  A  virtual  meeting  to  discuss  the  revision  of  the  Non-Financial  Reporting 
Directive  with  civil  society  organisations  took  place  on  12  May  2020.  More 
than  20  organisations  including  standard-setters,  human  rights  and  justice, 
disability people, environment and corporate transparency organisations have the 
opportunity to express their views. 

5)  A virtual meeting with 8 representatives of trade unions to discuss the revision 
of the NFRD and to hear their views and concerns. The meeting was held on 15 
May 2020. 

Two  virtual  meetings  took  place  on  24  April  and  23  June  2020  with  Member  State 
representatives in the Accounting Regulatory Committee and the Audit Regulatory Committee, 
to gather the views of regulators at national level on the revision of the NFRD. 

A virtual meeting with the Member States Expert Group on Sustainable Finance was held on 13 
May 2020 to gather views and concerns of their members on the revision of the NFRD. 

A meeting with SMEs representatives was held in the context of the COSME Programme on 5 
February 2020. 

IV. Impact of the Covid-19 pandemic on stakeholder consultation 

The  Covid-19  pandemic  probably  reduced  the  number  of  stakeholders  directly  responding  to 
online surveys. The number of respondents to the online public consultation (just under 600) was 

65 

 
 
 
somewhat lower than predicted. At the request of a number of stakeholders, the services of the 
Commission  extended  the  consultation  period  from  3  months  to  4  months,  in  an  attempt  to 
compensate for the effects of the pandemic. 

The  number  of  SMEs  responding  to  the  SME  Panel  survey  (348)  was  significantly  lower  than 
predicted. In some Member States, the members of the European Enterprise Network decided not 
to  promote  the  survey  to  SMEs  because  of  the  pandemic.  The  duration  of  the  survey  was 
extended by one month to enable more SMEs to respond. 

Other consultations activities were not significantly impacted by the pandemic. In the case of the 
meetings  with  preparers,  with  civil  society  organisations,  with  trade  unions  and  with  Member 
States, the virtual format of the meetings may have enabled more people to participate. 

V. The results of stakeholder consultations 

The  first  section  of  this  chapter  analyses  the  results  by  stakeholder  group  and  highlights  their 
views on the potential changes to the NFRD, especially scope, assurance, and the obligation to 
use a standard. The second section is structured according to some of the key issues that emerged 
from the consultations. 

Section 1: Analysis of results per stakeholder group 

A.  Preparers of non-financial information 

Standards.  Many  preparers  consider  that  development  of  common  non-financial  reporting 
standards  would  help  them  to  know  exactly  what  they  should  report  and  to  better  meet  users’ 
expectations,  reducing  any  inefficient  investment  in  time  or  resources  in  trying  to  understand 
how best to comply with the EU law. 

However, some preparers consider that as companies report different information to a wide range 
of  different  stakeholders,  it  is  unrealistic  to  expect  that  one  standard  can  meet  all  stakeholder 
demands.  Some  companies  and  business  associations  have  pointed  out  that  they  should  have 
flexibility  to  report  on  the  sustainability  information  considered  material/relevant,  taking  into 
account their specificities. This is emphasised more in some Member States, such as Germany, 
than others.  

Reporting  companies  also  complain  about  the  burden  of  having  to  respond  to  additional 
information requests from sustainability rating agencies and data providers, even if they publish 
a non-financial statement in compliance with the NFRD. In this respect, some preparers pointed 
out  that  standards  would  increase  the  information  publicly  available  in  the  market  and  they 
would reduce these additional information requests.  

66 

 
 
Consultant activities such as open public consultation and CEPS study shows that the majority of 
reporting companies use multiple standards and frameworks at least to a certain extent incurring 
higher  costs  the  more  standards  and  frameworks  they  follow.  Most  preparers  stressed  that  the 
design  of  any  possible  common  European  non-financial  reporting  standards  should  build  on 
existing standards and frameworks, such as the GRI, SASB and the TCFD.  

Multinational  companies  stated  that  different  reporting  formats,  content  requirements  and 
deadlines imposed by individual Member States  create an  additional burden. They stressed the 
need to promote the establishment of international (global) non-financial disclosure standards. If 
this would not be possible, they think that the EU should cooperate with other major jurisdictions 
and non-EU investors to make sure that possible EU standards are widely recognised. 

Assurance.  Many  preparers  agreed  that  assurance  is  needed  to  improve  the  reliability  of  non-
financial information.  However, many preparers  also  consider that companies should be left  to 
choose whether or not they will assure their reported non-financial information. 

Most  preparers  raised  concerns  over  the  cost  of  assurance.  According  to  them,  the  costs  of 
assurance  should  be  representative  and  reflect  the  substance  of  what  is  being  assured  in  the 
reports.  

On the other hand, there is currently a lack of expertise and experience in the assurance of non-
financial information. Some preparers consider that the immaturity of the assurance market for 
non-financial  information  could  increase  their  costs.  For  this  reason,  most  preparers  generally 
prefer a limited level of assurance.  

Some  preparers  stressed  the  need  of  consistent  assurance  requirements  for  non-financial 
information across the Member States and across companies. This would allow a level playing 
field within the EU.  

Scope.  Many  preparers  raised  concerns  about  administrative  costs  of  reporting  non-financial 
information. Regarding the scope of the NFRD, they consider  that the guiding principle to add 
additional categories of company should be to focus on those companies from whom users most 
need non-financial information.  

According  to  business  associations  and  companies,  the  very  challenging  economic  situation 
caused  by  the  pandemic  COVID-19  means  it  would  be  even  more  necessary  to  ensure  the 
proportionality of reporting requirements and avoid excessive administrative burden, especially 
in the case of SMEs. 

Preparers  from  financial  sector  need  to  have  access  to  the  data  from  their  counterparties  to 
manage ESG risks and to understand the impact of their lending and investment decision on ESG 
aspects. In this respect, they argue that SMEs should be considered in a proportionate way and 

67 

 
 
the  NFRD  should  define  clear  proportionality  criteria  to  delimit  to  which  SMEs  the  reporting 
obligations apply. 

Concerning listed SMEs, some argued that they should not be subject to the obligatory reporting 
at all, as it may discourage SMEs from listing and push listed ones from the regulated markets 
due  to  additional  burden  and  costs.  Others  argued  that  all  listed  SMEs  or  at  least  listed  SMEs 
from the high-risk sectors should be required to report non-financial information.  

The SME panel consultation provided a good understanding of the current views and experiences 
of SMEs around non-financial information  processes and requirements.  Regarding the possible 
development  of a non-financial  reporting standard for SMEs,  most SMEs or organisations that 
represent SMEs believe that having a simplified standard or reporting format would help, while 
most of them think that such standards should be voluntary.  

Some  preparers  stressed  the  need  to  ensure  sufficient  time  for  collection  and  analyses  of  data 
from the supply chain companies as well as subsidiaries, and argued for a difference between the 
deadline for financial and non-financial reports. 

B.  Users of non-financial information 

Standards. The majority  of users  believe that  a common reporting standard would be useful to 
address the challenges regarding comparability, reliability and relevance of information.  

They  also  stated  that  the  revision  of  the  NFRD  must  consider  sector  specific  standards  and 
strategic  KPIs.  Most  users  responding  to  the  open  public  consultation  agreed  that  the  non-
financial  reporting  standard  should  include  sector-specific  elements.  They  also  proposed  that 
companies should set targets and forward based objectives on specific strategies (e.g. EU Green 
Deal, Sustainable Development Goals) for users to see an evolution against such objectives and 
help improve the comparability process. 

Some  civil  society  representatives  commented  that  because  companies  have  a  lot  of  flexibility 
when reporting non-financial information, the current reporting practice is to be of “picking and 
choosing” what to disclose.  For this reason, they favour a more prescriptive standard that would 
help to reduce the reporting gap. They also mentioned the need for better mechanisms to ensure 
completeness of non-financial information. 

Most users stressed that a wide range of stakeholders should be involved in the standard setting 
process. For example, trade unions considered that their expertise on working conditions is key 
for the drafting of NFI standards and they should be included in their setting process. 

Assurance.  According  to  users,  both  investors  and  civil  society,  assurance  would  increase  the 
level  of  confidence  of  the  stakeholders  in  the  disclosures  of  an  entity.  Most  users  are  more  in 

68 

 
 
favour  of  reasonable  assurance  to  allow  for  reliability  of  the  reported  information.  However, 
considering the lack of maturity of the non-financial information framework some of them would 
support a limited assurance requirement in the short term.  

Some  civil  society  organisations  pointed  out  that  an  assurance  requirement  would  improve  the 
resilience  of  companies,  as  auditors  would  help  them  to  identify  any  flaws  in  their  internal 
controls, methodologies for data collection and reporting or in the identification of risks. 

Scope. Most  users,  including  both  investors  and  civil  organisations,  believed  that  the  revision 
should  broaden  its  scope  of  the  NFRD  to  include  all  large  companies  whether  listed  or  non-
listed.  According  to  many  investors,  a  broad  scope  is  important  in  terms  of  meeting  the 
information needs of financial market participants: it enables them to better understand the risks 
and opportunities of potential investments, and to meet their own disclosure requirements under 
the  SFDR.  Civil  society  organisations  are  strong  supporters  of  bringing  large  non-listed 
companies  under  the  scope  of  the  NFRD.  They  point  out  that  whether  or  not  a  company  has 
listed securities is not a determinant of its social and environmental impacts. All large companies 
should in this respect be subject the same requirements to report publicly about their impacts. 

Trade  union  representatives  shared  the  importance  of  companies  disclosing  information  about 
their  supply  chains  and  subcontracting  chains  in  Europe  and  beyond,  whenever  labour  and 
human rights are at risk. Similarly, it is relevant for trade union and civil society representatives 
to  have  non-financial  information  presented  on  a  country-by-country  basis  so  they  may  assess 
which companies (and where) engage with sustainable practices. 

A significant majority of users responding to the public consultation favoured extending also the 
scope to listed SMEs. 

Section 2: Key issues that emerged from the consultation 

Cost versus benefits, especially in light of the Covid-19 pandemic.  

Many  companies  and  business  association  raised  concerns  on  the  administrative  costs  of 
preparing  non-financial  information.  Moreover,  some  of  them  stressed  that  companies  are 
currently  focusing  their  efforts  on  dealing  with  the  deep  crisis  cause  by  the  COVID-19.  Then, 
any initiatives, which would disproportionally increase the administrative burdens and costs for 
companies, especially for SMEs, should be avoided. 

Many  users,  both  investors  and  civil  society  organisations,  argue  that  we  need  to  compare  the 
costs of a revised NFRD with the future costs that companies would incur anyway if the EU does 
not  act.  They  argue  that  theirs  needs  for  non-financial  information  are  likely  to  grow 
significantly  in  the  coming  years,  so  that  companies  will  in  any  case  face  increasing  costs  for 
collecting and reporting this kind of information even if the EU does not revise the NFRD.   

69 

 
 
According  to  many  stakeholders,  the  COVID-19  pandemic  has  underlined  the  importance  of 
transparent  reporting  of  the  non-financial  risks  facing  entities,  including  the  resilience  of  their 
business  models  and  global  supply  and value  chains,  and the interconnected role that financial 
and non-financial information play in achieving that goal. 

Coherence  of  disclosure  requirements.  Most  stakeholders,  especially  from  the  financial  sector, 
stressed that EU legislation regarding reporting and disclosure should be coordinated, avoiding 
gaps and overlaps. They argued that the revised  NFRD should be aligned with  the Sustainable 
Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation.  

In  this  respect,  some  financial  sector  companies  stressed  the  need  to  ensure  that  investee 
companies  report  the  necessary  information  for  financial  sector  companies  to  be  able  to  meet 
their  own  future  reporting  obligations  under  the  Sustainable  Finance  Disclosure  Regulation 
(SFDR) and the Taxonomy regulation.  

According  to  some  financial  sector  representatives,  there  is  a  timing  mismatch  between  the 
application  deadlines  for  the  legislative  measures,  such  as  the  SFDR  and  the  Taxonomy 
Regulations  and  the  foreseeable  timing  of  the  first  non-financial  reporting  cycle  under  the 
revised NFRD. 

Many stakeholders such as academics, credit rating agencies and business associations consider 
that common definitions of the environmental matters based on the six objectives set out in the 
Taxonomy Regulation would be helpful to streamline definitions and ensure, at least regarding 
these matters, the coherence between the NFRD and the SFDR. 

Digitalization.  Many  stakeholders  believe  that  developing  non-financial  information  standards 
and making non-financial information machine-readable and easily accessible via an EU central 
access  point  would  enhance  its  searchability,  readability  and  comparability.  They  underline  in 
any  case  the  difficulty  of  enabling  the  machine-readability  of  information  when  it  is  of 
qualitative  or  narrative  nature.  They  believe  that,  to  be  fully  usable,  machine-readable  non-
financial  information  would  require  prior  standardisation,  i.e.  non-financial  reporting  standards 
and  preferably  sector-specific  KPIs.  Some  stakeholders  flag  the  risk  of  having  digitalisation 
driving the standard setting as this may entail poorer or misleading information. 

A majority of stakeholders support an IT format as a way to enable machine readability, even if 
some see it as an intermediate step. Civil society supports IT formats such as CSV, XML, JSON 
or XSLX. Many others, including business, would rather support tagging techniques, XBRL and 
ESEF being the most cited ones, with taxonomies to be derived from non-financial information 
standards. Public authorities generally eye the extension of the ESEF once it has been evaluated. 
Interoperability  is  a  key  concern.  This  could  be  achieved  with  an  EU  (or  global)  common 

70 

 
 
standard, but several stakeholders, especially academics or citizens, are wary of the fact that this 
might stifle innovation. 

Materiality  assessment  process.  The  open  public  consultation  show  a  strong  support  among 
stakeholders  for  a  requirement  on  companies  to  disclose  their  materiality  assessment  process. 
Moreover,  some  supervisory  authorities  considered  that  the  future  standards  for  non-financial 
information should provide details on how to perform the materiality assessment specifically in 
relation to each of the non-financial matters – environment, social and employee issues, human 
rights, anti-corruption and bribery. 

Location of reported information. There is moderate support for requiring all information to be 
disclosed in the management report.  

Some  stakeholders,  mainly  preparers,  think  that  it  is  convenient  that  both  financial  and  non-
financial information is published in the management report as it provides a better understanding 
of the company´s overall performance and strategy. However, some also argue that it should not 
be required and expect the market to regulate itself. As it is costly and challenging to implement 
this approach for companies not already doing so, some preparers propose they should be able to 
continue choosing how to publish their information over a transition period, with the ambition to 
integrate all reporting in the long term. 

Some  stakeholders  –  mostly  users,  but  also  preparers  –  consider  that  EU  legislation  should 
provide  for  a  harmonized  rule  and  provide  for  the  location  of  non-financial  information  in  the 
management  report.  Some  argue  that  the  non-financial  information  should  be  in  a  specific 
section within the management report to allow easy access to the information and strengthen the 
links  between  non-financial  and  financial  information.  They  argue  that  this  approach  might  be 
justified  by  the  interactions  between  financial  and  non-financial  information  and  the  increased 
importance of non-financial information in the stakeholder’s decision process. 

Conclusion 

Different stakeholder groups expressed general agreement with the problem definition as defined 
in the Inception Impact Assessment, both from a preparer perspective (reporting companies face 
costs, complexity and multiple demands for information) and from  a user perspective (reported 
non-financial  information  does  not  adequately  meet  user  needs).  However,  users  tend  to  have 
stronger views on the severity of the current problems compared to preparers.   

Some of the main ways in which stakeholder views have influenced the impact assessment are as 
follows: 

1. SMEs: With the exception of listed SMEs, the preferred policy exclude SMEs from the scope. 
We consider that a requirement on all SMEs to report non-financial information would have been 

71 

 
 
disproportionate.  However,  stakeholder  consultations  also  stressed  that  it  was  important  to 
support  SMEs  as  active  participants  in  and  contributors  to  the  transition  to  a  sustainable 
economic system, and that the provision of some non-financial information by SMEs is likely to 
be important in that context. Partly for this reason, the preferred option includes the development 
of a voluntary standard for SMEs.   

2.  Alignment  of  sustainability  reporting  obligations:  stakeholders  raised  concerns  about  the 
alignment  of  the  NFRD  reporting  requirements  with  the  SFDR  and  the  taxonomy.  They  also 
stressed  the  importance  of  aligning  EU  reporting  requirements  as  far  as  possible  with  existing 
global  standards  and  frameworks  used  in  the  market.  These  considerations  have  strongly 
influenced the policy options regarding the development of EU non-financial reporting.  

3. Costs versus benefits  in the context of Covid-19: stakeholder consultations revealed that the 
Covid-19 pandemic both increases the need for better non-financial reporting while at the same 
time  making  it  especially  important  to  avoid  unnecessary  burden  and  administrative  costs  for 
preparers. This has influenced the analysis of the trade-offs regarding the costs and benefits of 
different policy options. On the one hand, it reinforces the costs of non-action and the baseline 
scenario,  and  of  the  voluntary  standards  option  that  would  not  adequately  address  identified 
problems.  On  the  other  hand,  it  has  also  influenced  consideration  of  the  costs  for  preparers  of 
different  policy  options:  it  has  influenced  the  relative  assessment  of  possible  requirements  for 
limited assurance or reasonable assurance, and has also influenced the analysis of different scope 
options,  to  ensure  that  the  proposal  focuses  on  those  companies  from  whom  users  most  need 
non-financial information.  

72 

 
 
 
  
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1.  Practical implications of the initiative 

According to the preferred policy option, a more harmonized legal framework for non-financial 
reporting  would  be  established  at  EU  level.  The  adoption  of  delegated  regulations  for  the 
adoption of EU reporting standards would ensure harmonised regimes across Member States and 
comparable  disclosures,  as  provisions  would  be  directly  applicable  to  companies.  Changes  to 
other variables would be done via amendments to different EU directives and would guarantee 
minimum  harmonization  across  the  EU.  These  changes  would  be  limited  and  Member  States 
would  need  to  transpose  them  into  national  legislation.  Reporting  companies  would  need  to 
adjust  their  reporting  practices  to  changes  in  the  resulting  national  frameworks  and  in  the 
delegated regulations adopted.  

This option is broadly supported by relevant stakeholder groups such as investors, supervisors, 
Member  States  and  industry  stakeholders.  Reporting  companies  (preparers)  present  more 
divergent views on the benefits of the initiative. This option fits with the Council’s conclusions 
on  the  CMU  in  December  2019,  where  the  importance  of  reliable,  comparable  and  relevant 
information on sustainability risks, opportunities and impacts was stressed, and the Commission 
was  called  to  consider  the  development  of  a  European  non-financial  reporting  standard;94  and 
with the European Parliament’s resolution on sustainable finance in May 2018, which called for 
the  further  development  of  reporting  requirements  in  the  framework  of  the  Non-Financial 
Reporting Directive.95   

2.  Summary of costs and benefits 

Benefits  and  costs  of  the  preferred  policy  option  for  each  category  of  stakeholders  have  been 
summarised in table 1.  

Main benefits refer to users, who would enjoy access to public reliable, comparable and relevant 
non-financial information presented in a digitalised manner. On the one hand, investors would be 
able  to  take  sufficient  account  of  the  risks  and  opportunities  that  affect  investee  companies 
stemming  from  sustainability  matters,  and  the  social  and  environmental  impacts  of  their 
investments.  On  the  other  hand,  civil  society  organisations  would  be  able  to  hold  companies 
more  accountable  for  their  impacts  on  society  and  the  environment,  thereby  strengthening  the 
social contract between companies and citizens.  

94 Council Conclusions on the Deepening of the Capital Markets Union (5 December 2019)  
95 European Parliament resolution of 29 May 2018 on sustainable finance (2018/2007(INI))  

73 

 
 
                                                           
This will help to improve the allocation of financial resources, so that more financial resources 
flow  to  companies  and  activities  that  address  social  and  environmental  problems  and  fewer 
resources  flow  to  companies  and  activities  that  exacerbate  such  problems;  and  would  reduce 
systemic risks to the economy resulting from the fact that many investment decisions currently 
do  not  take  adequate  account  of  sustainability-related  issues,  especially  environmental  and 
climate matters. 

Additionally, reporting companies will get clarity about the reporting obligations and the kind of 
information they need to report, and standardised public information will reduce the amount of 
ad  hoc  requests  they  receive  from  different  users,  resulting  in  a  reduction  of  the  unnecessary 
costs  in  which  companies  incur  today.  However,  overall  administrative  costs  will  inevitably 
increase  for  preparers,  as  an  increasing  number  of  companies  would  be  required  to  report  in  a 
more  detailed  manner.  Users,  on  the  other  hand,  will  experience  costs  savings,  as  a  result  of 
adequate information being publicly available in a digital manner. 

Table 1– Impacts on different stakeholders of preferred policy option compared to baseline  

Reporting 
companies96 

Investors 

Benefits  

Costs  

↑↑ 

↑↑ 

↑↑ 

↓↓ 

Civil society 
organisations & 
trade unions 
↑↑ 

EU & national 
authorities (e.g. 
env. agencies) 
↑↑ 

↓↓ 

↓ 

Society 
at large 

National 
supervisors 

↑↑ 

↓ 

↑↑ 

↑ 

Tables  2  and  3  present  the  benefits  and  costs  deriving  from  the  specific  actions  that  will  be 
undertaken  in  order  to  implement  the  preferred  option.  Benefits  and  costs  are  described  for 
different categories of stakeholders. In some cases, the benefits of concrete actions could only be 
described in qualitative terms. The contribution of the specific actions to the general objectives 
could  not  be  quantified  as  there  are  methodological  limitations  in  quantifying  the  general 
objectives themselves. Annex 1 presents the main sources used for gathering this evidence. The 
following  tables  will  therefore  mainly  follow  a  descriptive  approach,  specifying  the  concrete 
actions along with their benefits and costs. 

96 The arrows in table 1 do not intend to express a net cost effect on companies of zero. In addition to costs savings resulting from 
increased clarity about the reporting obligations and the reductions of the amount of ad hoc requests received by companies, these 
arrows also reflect other benefits for preparers, such as enhanced company resilience or greater access to capital.  

74 

 
 
 
 
 
 
 
                                                           
Table 2– Overview of benefits: preferred option  

I. Overview of Benefits (total for all provisions) – Preferred Option 

Description 

Amount 

Direct benefits 

Comments 

Developing and requiring 
use of EU reporting 
standards 

Stakeholders who benefit: 
 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors national 
authorities (e.g. environmental 
agencies and national environmental 
accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 
  reporting companies (preparers) 

 public availability of complete, relevant and 
comparable information; 
 improved usability of information (standardised 
presentation); 
 greater control and scrutiny of robustness of 
methodologies behind the disclosures by users; 

 administrative costs savings for preparers due to 
clarity about what information is required to be 
reported;97 
 reduction of costs for preparers from addressing 
investors ad hoc requests for information;98 
 simplified SME standards for voluntary use, enable 
SMEs to participate in the transition to a sustainable 
economy, as it would facilitate SMEs to provide 
information to investors and thus attract capital;99 

Requiring limited assurance 
on reported information 

 public availability of reliable information; 
 ensure all companies under the scope of the NFRD 

Stakeholders who benefit: 
 investors 

97  CEPS  study  shows  that  companies  that  find  it  more  difficult  to  decide  which  information  should  be  included  in  the  non-
financial  statement  usually  incur  greater  administrative  and  incremental  costs.  It  also  shows  that  the  majority  of  the  surveyed 
companies subject to the NFRD, report against multiple standards and frameworks at least to a certain extent and incur higher 
costs the more standards and frameworks they follow (see figure 5.26 of CEPS study). Assuming that as a result of the obligation 
to report against standards, all companies would find “easy” the decision about what information to disclose, the estimated total 
reporting  costs  would  be  reduced  by  around  20%  or  around  EUR  600  million  under  the  preferred  option.  These  estimates 
however must be treated with appropriate caution, as the reporting costs are mostly driven by the nature and complexity of the 
business (i.e. the costs of collecting and analysing information itself may not depend only on the clarity on what to disclose).  See 
Annex 17 for costs analysis.    
98 Cost savings could amount to EUR 24 200 - 41 700 per company per year, and around EUR 1 200 – 2 000 million per year for 
the preferred option, if standards were to completely eliminate the need for additional information requests to preparers. These 
calculations are based on the replies to the survey carried out by  SustainAbility. The same study also indicates that companies 
who spend more time in reporting (which suggests better reporting in principle), spend less time  filling in questionnaires. See 
annex 17 for a detailed cost analysis. 
99 88% of respondents to the open public consultation who are or who represent SMEs indicated that simplified standards would 
be  useful  for  SMEs.  The  same  percentage  of  SMEs  and  respondents  (66%)  believe  that  a  simplified  standard  would  limit  the 
burden for SMEs arising from information requests. The results of the SME panel consultation show most SMEs (68%) would 
welcome the development of a simplified standard for SMEs to be used either in a voluntary (53%) or a mandatory basis (15%). 

75 

 
 
 
                                                           
are reporting appropriately; 
 reduction of expectation gap from users perspective, 
brining clarity and a common level of assurance to all 
information reported; 

Requiring tagging of reports 
according to a digital 
taxonomy  

 better searchability/accessibility to and comparability 
of reported information needed by users; 
  improvement of data analysis, greater speed and 
accuracy of data handling; 
 better decision-making; 
 costs savings for users: fewer difficulties in finding 
the information they are looking for; 
 Availability of digital information from clients, 
suppliers and investee companies; 

Require reporting on 
intangibles 

 greater availability of essential information about a 
company’s value; 
 contribute to explain the gap between the accounting 
book value of many companies and their market 
valuation as indicated by the ECB;100 

Requiring disclosure in 
management report 

 better searchability/accessibility to and comparability 
of reported information needed by users 
 greater coherence with the financial reporting legal 
framework; 
 improvement of availability of relevant information 
linked to other financial information; 
 more comparable information, given it will be easier 
to find (i.e. always in the management report), and it 

 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 
 investors 
 civil society organisations 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 
 investors 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 

 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 reporting companies (in their 

100 “Investment in intangible assets in the euro area” in ECB Economic Bulletin, Issue 7/2018, European Central Bank, 2018 

76 

 
 
 
 
 
                                                           
will be available at the same time by all companies 
reporting according to the NFRD.; 
 costs savings for users from looking for non-financial 
information; 

capacity of users of information: 
from suppliers, clients and investee 
companies) 

Strengthening of supervision 
regime of non-listed 
companies 

 ensure all companies under the scope of the NFRD 
are reporting appropriately; 
 increase trust in reported information; 
 improve quality of reporting; 

Tasking ESMA with 
issuance of guidelines  

 ensure supervisory convergence, ensuring consistent 
information across the single market; 
 costs savings for supervisors due to clarity about how 
to supervise non-financial reporting 

 clarity that reported information is relevant from 
either of both of the materiality perspectives 

Stakeholders who benefit: 
 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 
 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Clarification in law of 
double materiality concept 

Clarification in law of the 
exemption to subsidiaries 

 clarity about what information is required to be 
reported, costs savings for prepares 

Stakeholders who benefit: 
 reporting companies (preparers) 

 clarity about which companies are required to report 
which information; 
 users of information have access to adequate 
information; 
 level playing field between EU companies and non-
EU companies with activities in the EU, which would 
be reporting non-financial information either at 
consolidated level or via subsidiaries 

Stakeholders who benefit: 
 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 

77 

 
 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

 clarity about which companies are required to report 
what information; 

Stakeholders who benefit: 
 reporting companies (preparers) 

Require broader categories 
of companies to report 
according to the NFRD 

 availability of more relevant, comparable reliable, 
timely and accessible information, from a wider range 
of companies; 
 enhanced coherence with reporting obligations under 
other sustainable finance initiatives 

Developing and requiring 
use of EU reporting 
standards 

Indirect benefits 

 improvement of reliability and quality of ESG 
ratings; 
 greater accountability of companies would affect 
company behaviour and have a beneficial effect on the 
environment, society and fundamental rights; 
 better policy-making related to environment, society 
and fundamental rights matters; 
 costs savings for users from trying to find adequate 
non-financial information; 
 enhance coherence of EU sustainability reporting 
requirements, i.e. SFDR and TR; 
 costs savings for supervisors due to increased clarity 
about what information companies should report 

 more awareness and a better management of 
sustainability-related risks would result in more 
resilient companies, ; 
 first-mover advantage for EU companies, in light of 
international developments; 
 The public availability of comparable information 

78 

Stakeholders who benefit: 
 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 

 investors 
 civil society organisations  
 policy makers 
 third party data providers and 
sustainability rating agencies 
 society at large 

Stakeholders who benefit: 
 reporting companies (preparers) 

 
 
 
 
would translate into a competitive advantage for more 
sustainable companies (will be more easily 
identifiable); 

 line of defence that facilitates supervision; 
 costs savings for supervisor; 
 greater coherence with assurance provided for the rest 
of information included the management report; 

Requiring limited assurance 
on reported information 

Requiring disclosure in 
management report 

 more rigorous reporting processes, that allow 
companies better comply with the NFRD provisions 
and identify risks to their business; 

 greater trust in information reported, as it is part of 
annual financial report; 
 raise the profile of non-financial information, 
internally and externally; 

Stakeholders who benefit: 

 investors 
 civil society organisations and 
trade unions 
 policy makers 
 national supervisors 
 national authorities (e.g. 
environmental agencies and national 
environmental accounts) 
 third party data providers and 
sustainability rating agencies 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

Stakeholders who benefit: 
 reporting companies (preparers) 

Stakeholders who benefit: 

 investors 
 civil society organisations 
 policy makers 
 national supervisors 
 reporting companies (in their 
capacity of users of information: 
from suppliers, clients and investee 
companies) 

The following table presents the total costs of the preferred option. Costs for preparers have been 
based mainly on data collected via the survey and interviews carried out by CEPS in their study 
on the NFRD. Costs for the EU and national  administrations build on the cost-benefit analysis 
for  the  Regulatory  Technical  Standard  on  the  European  Single  Electronic  Format.101  See  all 
detailed cost analyses in annex 17. 

101  Feedback  Statement  on  the  Consultation  Paper  on  the  Regulatory  Technical  Standard  on  the  European  Single  Electronic 
Format (ESEF), Annex IV. 

79 

 
 
 
 
 
 
                                                           
Companies in  particular  would also  incur costs as a result of the reporting requirements of the 
Taxonomy  Regulation.  Although  we  do  not  have  final  calculations  of  these  costs  yet,  a 
preliminary,  illustrative  estimation  of  their  magnitude  is  included  in  the  draft  staff  working 
document that will accompany the Delegated act on a climate change mitigation and adaptation 
taxonomy.102 The final calculation of these costs will be presented in the Impact Assessment of 
the Delegated Act that will specify the taxonomy disclose requirement on NFRD companies in 
more detail (to be adopted by mid-2021). 

Table 3– Overview of costs: preferred option 

II. Overview of costs – Preferred option 

EU  

Member States (administrations) 

One-off 

Recurrent 

One-off 

Recurrent 

Reporting companies 
(preparers) 

 (Incremental) 
One-off 

 (Incremental) 
Recurrent 

Total 

EUR 0,5 
million 

EUR 9,1 
million 

EUR 35,5 million 

EUR 5 
million 

EUR 1 200 
million 

EUR 3 600 
million 

EUR 9 million 
(max.) for 
development/ 
maintenance of 
EU standards. 
There are 
different 
possible 
mechanisms to 
limit these costs  

Direct 
costs 

NA 

Admin costs:  
Reporting 
against 
standards   

Indirect 
costs 

NA 

NA 

EUR 700 
million, 
include costs 
of 
familiarising 
with the 
reporting 
obligations 

EUR 2 100 
million yearly 
costs from 
reporting against 
EU standards 

NA 

NA 

NA 

NA 

Marginal costs 
incurred by 
national 
supervisors from 
familiarising with 
new reporting 
obligations 

Enforcement 
priorities 
geared 
towards non-
financial 
reporting 
might 
translate into 
some costs. 

102 Based on these costs estimates, and bearing in mind the very limited data currently available, the additional costs on NFRD 
companies  stemming  from  taxonomy-related  disclosures  according  to  the  preferred  policy  option  of  this  Impact  Assessment 
would amount to: EUR  1 200 – 3 700 million one-off costs and EUR  600 – 1 500 million recurring costs per year. These figures 
are calculated on the assumption that only 60% of the 49 000 companies that  would be subject to the NFRD according to the 
preferred  policy  option  of  this  Impact  Assessment  will  have  taxonomy  eligible  activities.  A  longer  explanation  about  the 
methodology used for this preliminary calculation can be found in the draft Impact Assessment of the Delegated act on a climate 
change mitigation and adaptation taxonomy.  

80 

 
 
 
 
                                                           
Admin costs: 
Tagging 
reports 
against 
digital 
taxonomy103   

Direct 
costs 

EUR 500 000 
for developing 
an IT taxonomy 
against which 
companies 
would tag their 
reports 

EUR 80 000 for 
the annual 
maintenance of 
the IT 
taxonomy 

EUR 35,5 million 
implementation 
costs for the 
development of 
digital ad hoc 
processes  by 
Officially 
Appointed 
Mechanisms 
(listed 
companies) and 
by Business 
Registers (non-
listed companies) 

EUR 5 
million for the 
annual 
maintenance 
and update of 
digital 
registers 

EUR 480 
million for 
implementing 
the IT 
taxonomy in 
the 
company’s 
reporting 
processes 

EUR 80 million 
for the yearly 
tagging of reports 
according to the 
IT taxonomy 

Indirect 
costs 

Compliance 
costs: 
Assurance of 
report  

Direct 
costs 

Indirect 
costs 

NA 

NA 

NA 

NA 

NA 

NA 

NA 

NA 

NA 

NA 

NA 

EUR 1 400 
million annual 
costs of hiring 
assurance 
services 

NA 

NA 

NA 

NA 

NA 

NA 

103 Changes to this variable are assessed in annex 16. 

81 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
See section  
5.3.3 (Scope 
options), 
6.3.4 (Analysis 
of impacts of 
Package 3), and 
7 (Preferred 
option)  

ANNEX 4: SME TEST 

(1) Preliminary assessment of businesses likely to be affected  

Preferred option - package 3: 

Directly  affected:  SMEs  in  the  scope  of  the  revised  NFRD:  Listed  SMEs 
(about 1.000 companies) would be brought under the scope of the NFRD. 
The primary reason for including listed SMEs under scope is that investors 
in  principle  need  equal  information  from  all  listed  companies.  Listed 
SMEs comprise 26% of all listed companies in the EU. 

Indirectly affected: SMEs that are suppliers or clients of companies under 
scope of the NFRD. Making the use of standards mandatory for companies 
under  the  scope  of  the  NFRD,  and  expanding  the  number  of  companies 
under scope (from around 11 700 to more than 49 000), would increase the 
number of companies that seek detailed information from their suppliers or 
clients,  including  SMEs.  This  phenomenon  is  an  inevitable  part  of  the 
transition  to  a  sustainable  economic  system,  and  it  would  occur  to  some 
extent  regardless  of  the  revision  of  NFRD.  In  order  to  benefit  from  and 
contribute  to  the  transition,  more  SMEs  will  in  any  case  have  to  share 
information.  Changing  markets  and  consumer 
more  non-financial 
preferences  mean  that  a  growing  number  of  large  companies  and  brands 
want to know about the social and environmental risks and impacts of their 
supply  chains.  Banks  and  asset  managers  want  better  information  on  the 
risks  and  impacts  of  their  financing  activities.  Sustainable  procurement 
practices  are  becoming  more  prevalent,  in  the  public  and  in  the  private 
sector. In addition, already agreed EU legislation in the field of sustainable 
finance will have an indirect  effect  on SMEs. The Taxonomy Regulation 
requires  companies  under scope of  the NFRD to  disclose their alignment 
with  the  taxonomy  and  they  may  need  information  from  suppliers  and 
clients,  including  SMEs,  to  do  that.  The  Sustainable  Finance  Disclosure 
Regulation  (SFDR)  requires  financial  market  participants  to  disclose 
information  about  the  adverse  impacts  of  their  investments,  and  for  that 
they  will  need  information  from  SMEs  whose  equity  is  part  of  the 
portfolios  they  manage.  On  the  one  hand,  the  proposed  revision  of  the 
NFRD may accelerate and intensify these trends. On the other hand, it can 
help  to  avoid  a  situation  in  which  non-financial  information  demands  on 
SMEs increase in an incoherent and burdensome way.  

82 

 
 
 
 
 
 
 
 
 
 
(2) Consultation with SMEs representatives 

SME  Panel:  a  targeted  consultation  of  micro,  small  and  medium 
enterprises was conducted from 3 March to 27 May 2020. The consultation 
was  extended  by  1  month  in  order  to  allow  SMEs  to  provide  input. 
However,  due  to  the  corona  virus  crisis  the  number  of  replies  (350)  was 
lower  than  expected.  Annex  5  provides  a  summary  of  the  results  of  the 
SME Panel.  

See annex 2 
(Stakeholder 
consultation) 

Open Public Consultation on NFRD: was organised from to 20 February-
11 June 2020. The public consultation was extended by 1 month in order 
to  give  stakeholders,  especially  corporates  and  representatives  of  SMEs, 
more time to reply.  

See sections 6.1, 
6.3, specifically 
6.3.4 (Analysis 
of impacts of 
Package 3),  
annex 17 (Costs 
Analysis) and 
Footnote 70 
(Estimation of 
costs of listing)   

(3) Measurement of the impact on SMEs 

Listed SMEs: 
Bringing  listed  SMEs  under  the  scope  of  the  NFRD  would  create  an 
additional  EUR  39  million  incremental  costs.  The  costs  of  non-financial 
reporting are marginal compared to the overall costs of listing for SMEs. A 
requirement  to  report  non-financial  information  is  therefore  not  likely  to 
make  the  difference  between  an  SME  deciding  to  list  or  not,  and  should 
not therefore have a significant impact on SMEs’ access to capital.  

Indirect impacts on other SMEs: It has not been possible to quantify the 
costs  of  these  indirect  effects.  In  particular,  it  would  not  be  possible  to 
disaggregate the indirect effect of the proposed revision of the NFRD from 
the effects of the overall transition to a sustainable economy described in 
point  1.  Additionally,  we  have  not  been  able  to  find  reliable  data  on  the 
number  of  SMEs  in  the  supply-chains  of  large  European  companies104. 
The  results  of  the  SME  Panel  do  nevertheless  provide  some  context  that 
help to understand these indirect impacts. For example: 
  28%  of  the  medium-sized  SMEs  that  responded  to  the  SME  panel 
already  publish  detailed  non-financial  information  their  websites, 
whereas only 9% of small enterprises do so. 

  48% of respondent SMEs (and 80% of medium-sized companies) have 
already received at least one request for non-financial information. The 

104 EcoVadis estimtaes that the largest European, UK and Swiss companies  with revenue between 100  million-1 billion USD 
have on average 4.500 tier 1 suppliers, (i.e. direct suppliers), companies with revenue between 1-5 billion USD have on average 
11.000  direct  suppliers,  and  companies  with  revenue  of  more  than  5  billion  USD  have  on  average  78.000  direct  suppliers. 
However, there is no data how many of the tier 1 suppliers are SMEs, let alone if they are European SMEs. 

83 

 
 
 
 
 
 
 
                                                           
two  most  common  sources  of  such  requests  were  large  companies  to 
whom  the  SME  supplies  good  or  services  (28%),  and  public 
administrations  when  the  SME  applies  for  public  funds  (24%).  Only 
14% of respondents have received such requests from banks.  

  Of all SME respondents who are in large company supply chains, 43% 
have received information requests from the large company buyer. For 
medium-sized companies who are in large company supply chains, the 
figures goes up to 76%.  

These  results  suggest  that  medium-sized  companies  are  more  likely  to 
receive  information  requests  than  smaller  companies,  and  that  supply-
chains  are  currently  a  bigger  source  of  these  requests  than  are  client 
relationships with banks.  
An ECB survey shows that 50% of Euro area SMEs consider bank loans 
and credit lines to be relevant financial instruments for their businesses.105 
This would suggest that a minimum of 50% of SMEs are therefore likely 
to  receive  information  requests  from  banks  that  will  need  to  report  on 
sustainability of their lending portfolios. 33% of Euro area SMEs receiving 
grants  and  subsidised  loans  are  also  likely  to  receive  such  request  as 
governments  are  introducing  sustainability  conditions  for  grants  and 
subsidies. 

4) Assess alternative options and mitigating measures 

The standard-setter would develop a simplified standard for voluntary use 
by SMEs who are not under the scope of the NFRD. The simplified nature 
of  this  standard  would  reflect  the  fact  that  SMEs  often  do  not  have  the 
technical  expertise  nor  resources  necessary 
in 
accordance  with  state-of-the-art,  sophisticated  standards.  This  standard 
would mitigate the indirect effects on SMEs outlined in point 1 above.  It 
would also facilitate SMEs’ participation in the transition to a sustainable 
economy. The simplified standard would be aligned with the full standard 
to  be  applied  by  companies  under  the  scope  of  the  NFRD,  and  it  would 
therefore provide a cost-effective means for SMEs to respond to additional 
information  demands  that  may  result  from  the  proposed  changes  to  the 
NFRD.  

to  prepare  reports 

In  response  to  the  SME  Panel,  53%  of  SMEs  supported  the  idea  of  a 
simplified,  voluntary  standard.  A  further  15%  were  in  favour  of  a 
mandatory standard, while 30% opposed any standard for SMEs.  

See sections 
5.2.1 
(Standardisation 
options), 
annex 16 
(Assessment of 
policy options 
for other 
variables), and 
annex 18 
(Discarded 
policy options) 

105      Survey  on  the  Access  to  Finance  of  Enterprises:  Small  businesses  report  challenging  outlook  for  their  access  to  external 
financing due to COVID-19, ECB, May 2020. 

84 

 
 
 
 
 
                                                           
Alternative options: 

The impact assessment considered two other options: expanding the scope 
to  non-listed  medium  sized  companies  (package  4  of  the  scope  options) 
and expanding the scope to all SMEs (option discarded at an early stage). 
These  options  were  not  retained  on  the  grounds  of  costs,  efficiency  and 
proportionality.  

85 

 
 
 
 
 
ANNEX 5: SUMMARY REPORT OF SME PANEL 

1.  Introduction 

As  part  of  the  consultation  strategy  for  the  revision  of  the  Non-Financial  Reporting  Directive 
(NFRD) (2014/95/EU)106, the European Commission deployed a targeted survey to micro, small, 
and medium enterprises (SME) referred to as the “SME Panel Consultation” or “Panel”, which 
was managed by the European Enterprise Network (EEN). The SME Panel was open to receive 
responses from 3rd March 2020 through 27th May 2020. 

For  purposes  of  this  document,  the  Panel  will  be  referred  to  as  the  “survey”  and  it  comprised 
thirteen  questions  that  aimed  to  provide  a  good  understanding  of  the  current  views  and 
experiences of SMEs around non-financial information processes and requirements.   

In order to present the results of the survey, this document summarises the responses provided by 
371 companies across the EU. The responses provided by 17 companies showed such companies 
to  be  large  undertakings;  likewise,  the  size  of  six  respondents  could  not  be  determined.  Both 
groups were therefore excluded from the graphs, analysis, and narrative presented here, which is 
meant  to  understand  the  context  of  SMEs  only.  This  leaves  a  total  of  348  respondents  whose 
replies  are  analysed  in  this  report.  Section  5  provides  more  information  on  the  criteria  used  to 
classify companies as micro, small or medium.   

2.  Demographics of the respondents 

The  348  respondents  to  the  survey  are  located  across  20  different  Member  States  (MS)  of  the 
European  Union  and  the  United  Kingdom.  78%  of  the  responses  to  the  survey  belong  to 
organisations from Portugal, Romania, Bulgaria, Spain, Poland, and Italy. Other MS represented 
to a smaller extent are Slovakia, Hungary, Czech Republic, Ireland, Sweden, Lithuania, Latvia, 
and Germany, among others. The survey also received 3% of responses (i.e. 9 responses) from 
the United Kingdom.  

The  respondents  to  the  survey  were  segmented  by  size  of  the  company  according  to  the 
Accounting  Directive107.  The  survey’s  population  is  comprised  as  follows:  micro  companies 
(58%),  small  companies  (27%),  and  medium  companies  (15%).    Table  1  provides  a  detailed 
overview of the number of respondents to the survey classified by size. 

106 Non-Financial Reporting Directive (NFRD) (2014/95/EU) https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A32014L0095 
107 See Section 5 

86 

 
 
 
 
 
                                                           
Company size 

Micro 
Small 
Medium 
Total 
Table 1 

Number of 
respondents 
203 
95 
50 
348 

Proportion to 
total 
58% 
27% 
15% 
100% 

On  26th  November  2019,  the  European  Commission  published  through  DG  GROW  the  annual 
report on European SMEs108 which provides, among other things, information on the number of 
SMEs  in  the  European  market.  Figure  1  shows  the  distribution  of  SMEs  that  responded  to  the 
survey  (blue)  and  the  estimated  distribution  of  SMEs  in  the  EU28  for  2018  according  to  the 
annual  report  on  European  SMEs  (orange).  The  observed  distribution  of  respondents  in  the 
consultation differs from that of the market as a result of targeting the survey to larger SMEs (i.e. 
medium and small companies), as they are more likely to be impacted by the NFRD. 

Distribution of respondents' size as per accounting directive 
(n=348) 

Micro

58% 

93% 

Small

6% 

27% 

Medium

1% 

14% 

2018 Est.for EU28

SME Panel

0%

20%

40%

60%

80%

100%

Figure 1 

The survey also identified whether or not respondents are listed on regulated financial markets. 
3% of the respondents identified themselves as listed, whereas 96% of the respondents declared 
not to be listed (Figure 2). A study carried out by CEPS shows that around 0,02% of the SMEs in 
the EU27 are listed on a regulated market.  

108 https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en 

87 

 
 
 
 
 
                                                           
Respondents listed in regulated markets 
(n=348) 

3% 

1% 

Not Listed

Listed

No Response

96% 

Figure 2 

As observed in Figure 3, 163 SMEs (47%) responded that they are part of the supply chain of a 
large  company  while  174  SMEs  (50%)  are  not  part  of  the  supply  chain  of  a  large  company. 
When looking at the sizes of SMEs (Figure 4) who are part of large companies’ supply chains, it 
may be observed that medium and small sized companies are more likely to be part of the supply 
chain of a large company (66% and 58% respectively) than are micro sized companies (37%). 

Respondents part of the supply chain of a 
large company (n=348) 

3% 

50% 

47% 

No Response

Yes

No

Figure 3 

88 

 
 
 
 
Respondents in the supply chain of large companies 
(n=348) 

Micro

Small

Medium

0%

10%

20%

30%

40%

50%

60%

70%

Not part of a large company supply chain

Part of a large company supply chain

No Response

Figure 4 

The  respondents  to  the  survey  have  business  activities  in  different  sectors  as  described  by  the 
NACE  codes.  Most  respondents  identified  themselves  to  have  business  activities  in  multiple 
sectors simultaneously. The top 3 sectors represented in this analysis are: 1) C Manufacturing, 2) 
S  Other  service  activities,  and  3)  M  Professional,  Scientific  and  Technical  activities.  Figure  5 
shows the percentage of any given sector in relation to the total number of respondents. No SME 
described itself as being involved in sectors: “T Activities of Households as Employers […]” or 
“O Public Administration and Defence […]”. 

Sectors of Activity of respondent SMEs (n=348) 

S Other Service Activities

G Wholesale and Retail Trade; Repair of…

F Construction

N Administrative and Support Service…

H Transportation and Storage

D Electricity, Gas, Steam and Air…

B Mining and Quarrying

R Arts, Entertainment and Recreation

K Financial and Insurance Activities

T Activities of Households as Employers;…

Figure 5 

0%

5%

10%

15%

20%

25%

30%

89 

 
 
 
 
3.  Current ESG practices and requirements 

3.1 Practices on ESG data collection 

From  the  total  348  SMEs  who  replied  to  the  survey,  291  companies  (i.e.  82%)  declared  they 
collect data on at least one of ten issues related to ESG matters, as proposed in the survey.109  

The  issues  on  which  SMEs  replying  to  the  survey  most  commonly  collect  data  are:  employee 
training  (64%),  accidents  and/or  sick  leave  (60%),  energy  use  (51%),  water  use  (47%),  and 
percentage of women  and men in  the workforce  (46%).  A small number  of respondents  to  the 
survey also collect data on other matters different from the options available in the consultation; 
these responses include but are not limited to, data protection, worker needs and satisfaction, and 
nutrition. Figure 6 provides a visual representation of this distribution.  

Percentage of respondents collecting data on different ESG 
matters (n=348) 

Employee training
Accidents and/or sick leave
Its energy use
Its water use
% women and men in the workforce
The waste it generates
Its use of other resources
Difference in pay between men and women
Pollution it generates
Its carbon emissions
Other

Figure 6 

0%

10%

20%

30%

40%

50%

60%

70%

The respondents to the survey collect data, on average, on 4 different issues. As shown in Figure 
7, 16% of the  respondents  do not  collect data on any issue, 13%  collect  on 4 issues, and 11% 
collect data on 6 issues. 

109 This text is based on the responses to Question 5 in the survey. Which asked whether the SMES itself collects data about its 
own performance. It was not a question about reporting or publishing the information.  

90 

 
 
 
                                                           
Number of respondents collecting data on ESG (n=348) 

60

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] 

0

1

2

3

4

5

6

7

8

9

10

11

Number of ESG matters on which data is collected 

s
t
n
e
d
n
o
p
s
e
r

f
o
r
e
b
m
u
N

50

40

30

20

10

0

Figure 7 

From the responses to the survey, it is observed that the likelihood to collect ESG information 
increases  for  medium  size  companies  (98%  collect  at  least  some  data)  compared  to  micro 
companies  (77%).  Similarly,  the  number  of  issues  on  which  companies  collect  data  tends  to 
increase with the size of the company. For instance, on average medium sized companies collect 
data  on  6  different  ESG  issues  whilst  micro  sized  companies  collect  data  on  3  issues.  Table  2 
provides  an  overview,  by  size,  of  the  total  number  of  SMEs  collecting  ESG  issues  and  of  the 
average number of issues on which data is collected for the total population. 

Company size 

Micro 
Small 
Medium 
Table 2 

Proportion of 
companies collecting 
data 
77% 
89% 
98% 

Average number of 
issues for which data is 
collected 
3 
5 
6 

Below, Figure 8 illustrates in  further detail  the individual issues of ESG information  on which 
different size SMEs collect data110. 

110 Figure 8 considers, yet does not display responses received as “No” or no responses. 

91 

 
 
 
 
                                                           
 
 
 
Percentege of respondents' collecting data on ESG 
issues, shown by company size (n=348) 

Micro

Small

Medium

Figure 8 

0%

20%

40%

60%

80%

100%

Employee training

Accidents and/or sick leave

Its energy use

Its water use

% women and men in the
workforce

The waste it generates

Its use of other resources

Difference in pay between men
and women

Pollution it generates

3.2 Publication and disclosure practices 

Respondents  to  the survey were asked whether they make any reference to  their ESG policies, 
performance, or commitment, if any, on their company website. Also, SMEs were asked if they 
ever share any ESG related information through social media.  

As it is shown in Figure 9, 52% of the respondents to the survey do not make any reference to 
ESG policies or performance on their website. Combined, 34% of the respondents either make a 
general statement or publish detailed information on their ESG policies and commitments.  

92 

 
 
 
Percentage of respondents publishing ESG data on 
website (n=348) 

No reference to policies or performance
regarding social and environmental issues on…
General statement about social and
environmental issues on website but do not…

Publish some detailed social and
environmental information about operations.

Do not have a company website.

No Response

0%

10%

20%

30%

40%

50%

60%

Figure 9 

Medium sized companies are more likely than small and micro sized companies to either make a 
general  statement  (34%)  or  publish  detailed  ESG  information  (28%)  in  their  websites. 
Comparably,  24%  of  small  sized  companies  make  general  statements  and  9%  publish  detailed 
ESG information in their websites, while 19% of micro companies make general statements and 
8% publish detailed ESG information in their websites. 

Percentage of respondents publishing ESG data on 
website, shown by company size (n=348) 

No reference to policies or
performance regarding social and
environmental issues on website.

General statement about social and
environmental issues on website
but do not publish detailed
information.

Publish some detailed social and
environmental information about
operations.

Do not have a company website.

Micro

Small

Medium

Figure 10 

0%

20%

40%

60%

80%

93 

 
 
 
 
 
 
Regarding  the  practices  of  the  respondents  of  sharing  ESG  information  via  social  media,  59% 
indicated  that  they  never  share  ESG  data  through  social  media,  35%  share  ESG  information 
sometimes,  and  6%  of  the  respondents  often  share  ESG  information  through  social  media. 
Similar  to  the  behavior  observed  in  the  publication  of  ESG  data  on  companies’  websites, 
medium-sized  companies  are  more  likely  to  share  ESG  information  through  social  media. 
However,  similar  percentages  of  micro  (4%),  small  (7%),  and  medium  (6%)  companies  often 
share ESG information through social media. 

Frequency respondents share ESG 
data through social media (n=348) 

6% 

35% 

59% 

Often

Sometimes

Never

Figure 11 

3.3 Requests of ESG information from stakeholders 

The  survey  included  questions  to  understand  how  different  SMEs’  stakeholders  (e.g.  SME’s 
customers,  insurance  companies,  banks,  NGOs,  etc.)  interact  with  them  regarding  requests  for 
ESG  information.  From  the  total  348  respondents,  169  companies  (48%)  indicated  they  have 
been requested to provide ESG data by at least one stakeholder group. Figure 12 shows the ratio 
of  companies  from  the  total  number  of  respondents  who  receive  requests  for  ESG  information 
from different categories of stakeholders. 

The  stakeholders  who  most  frequently  require  ESG  data  from  SMEs  are:  companies  to  which 
SMEs  provide  goods  or  services  (28%  of  respondents  receive  such  requests),  public 
administration when applying for funds (25%), and insurance companies (18%). A small number 
of  SMEs  also  indicated  that  organisations  who  provide  certification  services  and  public 
administration for purposes other than releasing funds, also request ESG data.  

94 

 
 
 
 
Percentage of respondents receiving ESG information 
requests from different stakeholder groups (n=348) 

A company to whom you provide services or goods

Public administration when applying for public funds

An insurance company

A non-governmental organisation

A bank when discussing a loan

Other financial institution when discussing external…

Any other cases?

0%

5%

10%

15%

20%

25%

30%

Figure 12 

The respondents to the survey receive, on average, requests for ESG data from 1 stakeholder. As 
shown in  Figure 13, 51% of the respondents  (179 SMEs) do not  receive any requests for ESG 
data from stakeholders. 

Number of respondents receiving requests for ESG 
data from stakeholders (n=348)  

[CELLRANGE] 

[CELLRANGE] 

[CELLRANGE] [CELLRANGE] 

[CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] 

0

1

2

3

4

5

6

7

Number of stakeholders from which respondents receive ESG data requests 

s
t
n
e
d
n
o
p
s
e
R
f
o
r
e
b
m
u
N

200

180

160

140

120

100

80

60

40

20

0

Figure 13 

Similar to what was observed regarding the collection of ESG data, the size of an SME and the 
number of stakeholders  requesting ESG data seem to be related. For  instance, 80% of medium 
sized  companies  (Figure  14)  receive  requests  to  share  ESG  data;  that  percentage  decreases  to 
45% for small sized companies (Figure 15) and 42% for micro sized companies (Figure 16). In 

95 

 
 
 
 
 
 
 
 
contrast,  the  average  number  of  stakeholders  who  request  ESG  data  from  the  SMEs  does  not 
change significantly according to the SMEs size. Table 3 illustrates an overview, by size, of the 
total number of respondent SMEs who receive requests to disclose ESG data and of the average 
number of stakeholders requesting such data.111 

Company size 

Micro 
Small 
Medium 
Table 3 

Percentage of 
respondents receiving at 
least one data request 
42% 
45% 
80% 

Average number of 
stakeholders 
requesting ESG data 
1 
1 
2 

Distribution of medium sized 
SME respondents on requests 
for ESG data (n=50) 

Distribution of small sized 
SME respondents on requests 
for ESG data (n=95) 

20% 

80% 

% of companies
requested ESG
data by
stakeholder

% of companies
not requested
ESG data by
stakeholder

55% 

45% 

% of companies
requested ESG
data by
stakeholder

% of companies
not requested
ESG data by
stakeholder

Figure 14  

111  The  average  is  calculated  considering  all  respondents to  the  survey,  including  those  who  do not  receive  requests  from  any 
stakeholders. 

96 

 
 
 
                                                           
 
 
 
 
          
Distribution of micro sized 
SME respondents on requests 
for ESG data (n=203) 

42% 

58% 

% of companies
requested ESG
data by
stakeholder

% of companies
not requested
ESG data by
stakeholder

Figure 15 

This  section  reviews  the  relation  between  SMEs  who  are  part  of  the  supply  chain  of  large 
companies  and  the  requests  they  receive  from  companies  to  whom  they  provide  services  or 
goods.  

Regardless of their size, 43% (70 SMEs) of the respondents who are part of the supply chain of a 
large company indicate they receive requests to disclose ESG data from companies to which they 
supply goods or services. In comparison, only 15% (26 SMEs) of the respondents who are not 
part  of  the  supply  chain  of  a  large  company  receive  requests  to  disclose  ESG  data  from 
companies that they supply. As it may be seen in Figure 18, medium SMEs in the supply chain 
of large companies are more likely to receive requests for ESG information from their customers. 
76% of the medium sized respondents who are also part of a large company supply chain receive 
requests  from  their  customers,  compared  to  36%  and  33%  for  small  and  micro  sized  SMEs 
respectively.  

97 

 
 
Percentage of respondents in large 
company supply chains that receive ESG 
data request from companies that they 
supply (n=163) 

57% 

43% 

Required ESG info by
client

Not required ESG info
by client

Figure 15 

Micro

Small

Medium

Figure 16 

Percentage of respondents large company supply chains that 
receive ESG data request from companies that they supply, 
shown by size of company (n=166) 

0%

10%

20%

30%

40%

50%

60%

70%

80%

98 

 
 
 
 
 
3.4 Time invested on ESG data processes 

Respondents  to  the  survey  were  asked  about  the  estimated  amount  of  time  they  spend  in 
responding to ESG information requests or publishing such information about their operations.112  
52% of the respondents to the survey (184) responded to this question. As observed in Figure 20, 
around  36%  of  those  responding  to  the  survey  use  between  zero  and  0.25  employee  days  per 
month for these tasks. 48% of the companies surveyed did not provide an answer because they 
do not publish ESG data and do not receive ESG data requests from stakeholders. 

Percentage of respondents' estimated time to respond to 
requests of ESG information (n=348) 

No time spent responding to requests for ESG info

Less than 0.1 employee-days per month.

Between 0.1 and 0.25 employee-days per month.

Between 0.26 and 0.5 employee days per month.

Between 0.6 and 1 employee days per month.

Between 1 and 2 employee days per month.

Between 2 and 5 employee days per month.

Over 5 employee days per month.

0%

10%

20%

30%

40%

50%

60%

Figure 17 

Figure 20 shows how the average number of issues on which ESG data is collected interacts with 
the  monthly  amount  of  time  related  to  the  ESG  activities.  It  may  be  observed  that  when  the 
number  of  issues  on  which  data  is  collected  increases,  so  does  the  amount  of  time  used  to 
respond to the requests. 

112 The questionnaire asked respondents that receive requests from stakeholders or that share information about 
operations (e.g. on the website), to include the estimated time spent by employees in collecting social and 
environmental information, as well in publishing it and preparing any necessary documents.  

99 

 
 
  
                                                           
Average number of ESG issues on which data is collected 
shown by time spent responding to ESG requests (n=348) 

10 

5 

6 

7 

6 

7 

6 

12

10

8

6

4

2

0

Less than 0.1
employee-days
per month.

Between 0.1
and 0.25
employee-days
per month.

Between 0.26
and 0.5
employee days
per month.

Between 0.6
and 1 employee
days per
month.

Between 1 and
2 employee
days per
month.

Between 2 and
5 employee
days per
month.

Over 5
employee days
per month.

Figure 18 

As  part  of  the  data  collection  process,  some  SMEs  may  ask  their  own  business  partners, 
especially  suppliers,  to  disclose  some  ESG  information.  In  general,  most  respondents  to  the 
survey  do  not  ask  their  suppliers  for  ESG  information  (72%)  and  very  few  do  request  such 
information (16%).  

Respondents requesting  ESG data 
from suppliers (n = 348) 

12% 

16% 

72% 

Figure 19 

a. Yes

b. No

c. Don’t know 

100 

 
 
 
 
 
4.  SMEs preference on development of a non-financial reporting standard for SMEs 

Currently, SMEs and larger companies do not have a unique set of standards to follow. One of 
the questions  in the survey is  for SMEs  to  share  their views on what  would  they would prefer 
regarding standards for reporting social and environmental information. 

The  results  of  the  survey  show  most  SMEs  (68%)  would  welcome  the  development  of  a 
simplified standard113 for SMEs to be used either in a voluntary basis (53%) or a mandatory basis 
(15%). 30% of the respondents state there is no need for a reporting standard for SMEs.  

Respondents' preference regarding SME simplified standards 
to report social and environmental information (n=348) 

No need for a reporting standard, it would only
increase the administrative burden.
Welcome the development of a simplified
standard, which could be used on a voluntary…
Welcome the development of a simplified
standard, which would be obligatory for us and…

No Response

1% 

15% 

30% 

53% 

0%

10%

20%

30%

40%

50%

60%

Figure 20 

When  looking  at  the  respondents’  size  (Figure  24)  it  is  observed  that  slightly  more  small  and 
medium SMEs prefer either a voluntary or mandatory standard, compared to micro companies. 

Distribution of companies preference on standard according 
to size (n=349) 

Micro

13,93% 

51,74% 

34,33% 

Welcome the development of
a simplified standard, which
would be obligatory for us and
similar size companies.

Welcome the development of
a simplified standard, which
could be used on a voluntary
basis.

Small

18,28% 

56,99% 

24,73% 

Medium

16,33% 

59,18% 

24,49% 

0%

20%

40%

60%

80%

100%

Figure 21 

113 A simplified standard for SMEs on how to report social and environmental information. 

101 

 
 
 
 
                                                           
5.  Methodology of Size Assessment  

The size used (micro, small, and medium) in the charts of this document corresponds to the size 
of undertakings as described in Article 3 of the Accounting Directive (2013/34/EU)114. For this 
purpose, companies were assessed according to their responses to the following criteria:  

i) 

ii) 

the number of employees,  

net turnover,  

iii) 

and balance sheet total.  

Companies  belong  to  a  size  category  when  at  least  two  out  of  three  of  their  responses  to  the 
criteria meet (or exceed) a given threshold (Examples 1 and 2). In some cases, the information 
provided  by  respondents  is  not  sufficient  to  allocate  them  to  a  size  category  as  per  the 
Accounting Directive. Such organisations are deemed as “undetermined” (Example 3). See Table 
4 for examples of such scenarios. 

Scenario  No. Employees 
Example 1 

Up to 10 

Net Turnover 
Between 8 000 001 
& 40 000 000 EUR 

Example 2 

Between 11-50  Up to 700 000 EUR 

Example 3  Between 51-250 
Table 4 

No response 

Balance sheet  
Between 4 000 001 & 
20 000 000 EUR 
Between 4 000 001 and 
20 000 000 EUR 
Up to 350 000 EUR 

Size 

Medium 

Small 

Undetermined 

114 Accounting Directive (2013/34/EU) 1. […] define micro-undertakings as undertakings which on their balance sheet dates do 
not exceed the limits of at least two of the three following criteria: (a) balance sheet total: EUR 350 000; (b) net turnover: EUR 
700 000; (c) average number of employees during the financial year: 10. 2. Small undertakings shall be undertakings which on 
their balance sheet dates do not exceed the limits of at least two of the three following criteria: (a) balance sheet total: EUR 4 000 
000;  (b)  net  turnover:  EUR  8  000  000;  (c)  average  number  of  employees  during  the  financial  year:  50. […]  3. Medium-sized 
undertakings  shall  be  undertakings  which  are  not  micro-undertakings  or  small  undertakings  and  which  on  their  balance  sheet 
dates  do  not  exceed  the  limits  of  at  least  two  of  the  three  following  criteria:  (a)  balance  sheet total:  EUR 20  000 000;  (b) net 
turnover: EUR 40 000 000; (c) average number of employees during the financial year: 250. […]. https://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:02013L0034-20141211&from=EN  

102 

 
 
 
 
 
 
                                                           
ANNEX 6: IMPLICATIONS OF THE COVID-19 PANDEMIC 

 Summary 

The Covid-19 pandemic directly underlines the exposure of companies to non-financial risks. It 
has also lead to increased stakeholder attention to the impacts of companies, especially regarding 
workers and supply chains. The pandemic will therefore further accelerate the growth in demand 
for more and better non-financial information from companies. At the same time, the economic 
crisis  generated  by  the  pandemic  makes  it  ever  more  important  to  avoid  the  imposition  of 
unnecessary administrative costs on business.  

Impact of Covid-19 on the problem definition 

The  Covid-19  pandemic  directly  underlines  the  exposure  of  companies  to  non-financial  risks. 
This  is  especially  the  case  of  companies  whose  business  models  are  dependent  on  the  global 
movement of goods and persons. Companies can expect that investors and supervisors will now 
require significantly enhanced reporting about such risks. This change will materialise at the very 
least from the 2021 reporting cycles, and for many companies it is already a reality. 

Some observers predict that the pandemic will in particular lead to a greater demand for social 
and  worker-related  information.115  To  date  the  investment  community  has  tended  to  pay  more 
attention  to  environmental  information,  especially  climate-related  information,  and  governance 
than  to  social  information.  It  is  notable  that  the  European  Investment  Bank  and  the  European 
Bank  for  Reconstruction  and  Development  have  published  new  guidelines  regarding  the 
sustainability risks of investments in the context the pandemic, and both have a strong emphasis 
on the social and worker-related issues, including workers in supply chains.116  

A  number  of  recent  analyses  have  suggested  that  the  pandemic  will  drive  the  growth  of  ESG 
investing.  For  example,  a  JP  Morgan  survey  of  investors  found  that  55%  of  them  see  the 
pandemic  as  a  positive  catalyst  for  ESG  investing  in  the  next  three  years,  while  only  about  a 
quarter (27%) expect a negative impact and 18% believe it will be neutral.117 A study published 
by  the  European  Capital  Markets  Institute  finds  that  “companies  integrating  an  ESG  approach 

115 See for example Julie Moret Covid-19 has brought the 'S' in ESG back into focus published on the International Investment 
website July 2020: “The crisis has both intensified and highlighted a range of societal issues, such as growing inequality and the 
fragility of customers and employees, especially in certain segments of the economy, which have been left with little protection. 
[…] The coronavirus pandemic has put human capital under the spotlight  – issues such as employee contracts and rights have 
come to the forefront as investors and civil society scrutinise how businesses act during the crisis, including the way they treat 
their  workers.  The  crisis  has  exposed  the  fragility  of  independent  contractors  within  the  gig  economy  and  those  on  zero-hour 
contracts in sectors heavily affected by the crisis, such as entertainment and leisure.” 
116  European  Investment  Bank  Guidance  note  to  EIB  promoters  On  environmental  and  social  performance  in  EIB-financed 
operations in response  to the COVID-19 outbreak crisis; European Bank for Reconstruction and Development Sustainabilty and 
coronavirus webpage.  
117 JP Morgan Why COVID-19 Could Prove to Be a Major Turning Point for ESG Investing July 2020 

103 

 
 
                                                           
recognised by investors  and ESG funds have been more resilient in  the crisis”, and goes on to 
conclude that “investors’ taste for ESG has not lessened during this crisis – quite the opposite, in 
fact.”118  

More generally, the pandemic may contribute to a greater awareness of the complex interactions 
between  environmental  degradation,  social  problems  and  the  health  of  the  economy.119  One 
informed analyst has stated that “the pandemic and the health crisis now ravaging all continents 
has put the spotlight on vulnerabilities and our dependence on the natural environment. It drives 
home the message that markets do not operate in isolation, but instead are embedded in societies 
and  the  natural  environment.  This  realization  will  fundamentally  change  our  long-term  risk 
perspective and the way we prepare for the looming climate crisis.”120  

If the pandemic indeed contributes to a further growth in ESG investing and to an acceleration of 
the paradigm  shift  towards a sustainable economy, then it will further accelerate the  growth  in 
demand  for  more  and  better  non-financial  information  from  companies  on  the  part  of  the 
investors and other stakeholders.  

Impact of Covid-19 on the policy options  

The pandemic does not substantially alter the identification or definition of the available policy 
options. It does however influence the assessment of the costs and benefits of the policy options. 

On  the  one  hand,  assuming  that  the  pandemic  increases  the  needs  of  users  for  better  non-
financial information, the disadvantages of non-action and the baseline scenario will increase. On 
the other hand, the economic crisis generated by the pandemic makes it ever more important to 
avoid the imposition of unnecessary administrative costs on business. In this respect, much will 
depend  on  the  pace  of  economic  recovery,  since  companies  subject  to  any  new  reporting 
requirements  under  the  revised  NFRD  would  not  have  to  dedicate  resources  to  meeting  those 
requirements until 2022 at the earliest. 

118 European Capital Markets Institute ESG resilience during the Covid crisis: Is green the new gold?  July 2020  
119 There is some evidence that biodiversity loss and the damage to ecosystems may encourage more rapid evolutionary processes 
and diversification of diseases, as pathogens spread more easily to livestock and humans. See for example Emerging Infectious 
Diseases of Wildlife-- Threats to Biodiversity and Human Health Peter Daszak, Andrew A. Cunningham, Alex D. Hyatt Science  
21 Jan 2000: Vol. 287, Issue 5452, pp. 443-449 
120  Covid-19  Is  Accelerating  ESG  Investing  And  Corporate  Sustainability  Practices  Georg  Kell,  founder  of  the  UN  Global 
Compact and Chair of asset manager Arabesque Partners. 

104 

 
 
 
 
                                                           
ANNEX 7: DESCRIPTION OF THE NON-FINANCIAL REPORTING DIRECTIVE 

In  2003  the  “Accounts  Modernisation  Directive”  (Directive  2003/51/EC,  second  Accounting 
Directive)  introduced  a  requirement  on  companies  to  include  “information  relating  to 
environmental and employee matters” in their management reports, to the extent necessary for an 
understanding  of  the  company’s  development,  performance  or  position.  Member  States  were 
able to exempt SMEs from this obligation.  

Around the same time and in subsequent years, a number of Member States (including Denmark, 
France, Spain, Sweden and the UK) introduced non-financial reporting requirements at national 
level that went beyond the requirements of the Accounts Modernisation Directive. 

In  2014  the  EU  agreed  the  Non-Financial  Reporting  Directive  (Directive  2014/95/EU),  which 
amended  the  Accounting  Directive  (Directive  2013/34/EU).  The  Non-Financial  Reporting 
Directive  (NFRD)  imposed  stronger  non-financial  reporting  requirements  on  certain  large 
companies.  

Companies  under the scope of the NFRD had to report according to  its provisions  for the first 
time in 2018, for information covering financial year 2017. Most companies have therefore now 
completed three reporting cycles under the NFRD. 

The Non-Financial Reporting Directive at a glance 

105 

 
 
 
 
Guidelines accompanying the NFRD 

As  required  by  the  NFRD,  in  2017  the  Commission  published  non-binding  guidelines  for 
companies  under  the  scope  of  the  Directive,  to  facilitate  the  reporting  of  relevant,  useful  and 
comparable  non-financial  information.121  In  2019,  as  part  of  the  Sustainable  Finance  Action 
Plan, the Commission  published additional guidelines, specifically  on reporting  climate-related 
information.122 

Scope (which companies) 

The NFRD applies to large public interest entities with more than 500 employees, and to public 
interest entities that are parent companies of a large group with more than 500 employees.123 In 
practice this means that it applies to large EU companies with securities listed in EU regulated 
markets,  large  banks  (whether  listed  or  not)  and  large  insurance  companies  (whether  listed  or 
not) – all provided that the entity has more than 500 employees.124 Likewise, it also  applies to 
EU companies with securities listed in EU regulated markets, banks (whether listed or not) and 
insurance  companies  (whether  listed  or  not)  which  are  parents  of  large  groups  with  more  than 
500 employees.125  

The  NFRD  exempts  the  subsidiaries  of  parent  companies  from  the  reporting  obligation,  if  the 
parent company itself reports the necessary information on a consolidated basis. 

Taking  account  of  how  Member  States  have  transposed  the  Directive,  we  estimate  that 
approximately  11  700  companies  are  subject  to  the  reporting  requirements  of  the  NFRD.  Not 
taking account of national transposition, about 2 000 companies are under scope of the NFRD. 

Location (where should the information be disclosed?) 

The default location of the non-financial statement is in the management report, therefore as an 
integral  part  of  the  company’s  annual  report.  However,  the  NFRD  allows  Member  States  to 

121  Communication  from  the  Commission  —  Guidelines  on  non-financial  reporting  (methodology  for  reporting  non-financial 
information) C/2017/4234    
122  Communication  from  the  Commission  —  Guidelines  on  non-financial  reporting:  Supplement  on  reporting  climate-related 
information C/2019/4490  
123 Article 2 of the Accounting Directive defines “public interest entities” as being listed companies, banks, insurance companies, 
and  other  entities  designed  by  Member  States  at  national  level  because  of  their  significant  public  relevance.  It  also  applies  to 
public interest entities that are parent companies of a large group with more than 500 employees. 
124 Article 3 of the Accounting Directive defines a “large undertaking” as an entity which on its balance sheet dates exceed at 
least two of the three following criteria: (a) balance sheet total: EUR 20 000 000; (b) net turnover: EUR 40 000 000; (c) average 
number of employees during the financial year: 250. 
125 Article 3 of the Accounting Directive defines a “large group” as a group consisting of parent and subsidiary undertakings to be 
included in a consolidation and which, on a consolidated basis, on the balance sheet date of the parent undertaking exceeds the 
limits of at least two of the three following criteria: (a) balance sheet total: EUR 20 000 000; (b) net turnover: EUR 40 000 000; 
(c) average number of employees during the financial year: 250. 

106 

 
 
                                                           
allow  companies  to  publish  the  necessary  non-financial  information  in  a  separate  report,  and 
most Member States have used this option. 

What information? 

The  NFRD  identifies  four  non-financial  ‘matters’:  environment,  social  and  employee  matters, 
human  rights,  and  anti-corruption  and  anti-bribery.126  With  regard  to  those  four  matters,  the 
NFRD requires companies to disclose information about five business concepts: business model, 
policies  (including  due  diligence  processes  implemented),  the  outcome  of  those  policies,  risks 
and risk management, and key performance indicators (KPIs) relevant to the business. The non-
financial information  that  companies should disclose according to  the NFRD can be visualised 
by cross-referencing the  four non-financial issues with  the five business  concepts,  as shown in 
the table below. 

Graphic representation of non-financial information according to the  
Non-Financial Reporting Directive 

If  a  company  does  not  have  a  policy  on  one  or  more  of  the  non-financial  issues  identified,  it 
should explain why. 

The reference to policies in the NFRD includes an obligation to disclose due diligence processes 
implemented  by  the  company.  Due  diligence  in  this  context  refers  to  the  process  by  which 

107 

 
 
 
                                                           
 
companies  identify,  prevent,  mitigate  and  account  for  how  they  address  actual  and  potential 
adverse impacts in their own operations, their supply chain and other business relationships.127 

The reference to risks specifically includes risks related to the company’s business relationships. 
Business  relationships  include,  but  are  not  limited  to,  supply-chains.  In  practice,  therefore,  the 
NFRD requires companies to report relevant risks related to their supply-chains.  

In  the  case  of  the  financial  sector,  the  concept  of  business  relationships  includes  relationships 
with organisations financed by the financial sector company in question, and therefore extends to 
the social and environmental impacts of the activities financed.  

Annex 8 provides a list of illustrative examples of the kind of information that companies could 
be expected to disclose under the NFRD, taken from the Commission’s 2017 Guidelines on Non-
Financial Reporting. 

The  NFRD  specifies  that  the  non-financial  statement  should  include  information  on  the 
environment,  social  and  employee  matters,  human  rights,  and  anti-corruption  and  anti-bribery, 
“as  a  minimum.”  In  principle,  therefore,  companies  should  disclose  information  on  other  non-
financial issues if they consider such information to be material (see explanation on materiality 
below).  Information  about  intangible  assets  is  an  example  of  the  kind  of  non-financial 
information that companies are not explicitly required to include in their non-financial statement. 
International  Accounting  Standard  38  defines  an  intangible  asset  as  “an  identifiable  non-
monetary  asset  without  physical  substance.”  Typical  examples  of  intangible  assets  include 
intellectual  property,  software,  customer  retention,  brand  value  and  reputation,  and  human 
capital. Investments in intangible assets often do not qualify to appear in a company’s financial 
accounts, and this is rarely compensated by adequate reporting on such assets in other parts of 
the  annual  report,  including  the  non-financial  statement.128  Some  information  relating  to 
intangible assets could coincide with the list of issues explicitly recognised in the NFRD. This is 
especially the case  for employee matters, which  will may  have links with human capital  as an 
intangible  asset.129  However,  information  about  other  intangible  assets,  such  as  customer 
retention,  does  not  coincide  with  the  list  of  non-financial  issues  explicitly  recognised  in  the 
NFRD.  

127 Definition of due diligence from OECD Due Diligence Guidance for Responsible Business Conduct, 2018. 
128 Patrick de Cambourg provides a more detailed exploration of intangible assets as part of the broader concept of non-financial 
information in his report to the French Minister for the Economy and Finance published in May 2019:  Ensuring the relevance 
and  reliability  of  non-financial  corporate  information:  an  ambition  and  a  competitive  advantage  for  a  sustainable  Europe, 
Patrick de Cambourg, May 2019.  
129  For  example,  the  Commission’s  2017  guidelines  suggest  that  companies  consider  disclosing  their  employee  turnover, 
employee consultation processes and the hours of training per year per employee. 

108 

 
 
 
                                                           
Materiality  

A  company  under  the  scope  of  the  NFRD  is  required  to  disclose  information  “to  the  extent 
necessary  for  an  understanding  of  [its]  development,  performance,  position  and  impact  of  its 
activity.”  The  reference  to  “impact”  represented  a  significant  innovation  compared  to  the 
Accounts  Modernisation  Directive.  It  introduced  a  double  materiality  perspective,  whereby 
companies have to report information not only on how non-financial issues affect the company, 
but also regarding the impact of the company itself on society and the environment.130  

The NFRD leaves very considerable flexibility to companies to judge what information is in fact 
necessary  for  an  understanding  of  their  development,  performance,  position  and  impacts.  The 
Directive itself provides no further clarification, and few Member States have introduced further 
specifications  when  transposing  the  Directive.  The  guidelines  issued  by  the  Commission  to 
accompany  the  Directive  do  nevertheless  provide  some  non-binding  guidance  on  what 
information to report.   

Article  2  of  the  Accounting  Directive,  which  the  NFRD  did  not  amend,  defines  “material”  in 
relation  to  financial  statements,  with  no  reference  to  non-financial  information:  “the  status  of 
information  where  its  omission  or  misstatement  could  reasonably  be  expected  to  influence 
decisions that users make on the basis of the financial statements of the undertaking.” 

Provisions regarding reporting standards and frameworks 

If  companies  use  national,  EU  or  international  reporting  frameworks  to  prepare  their  non-
financial statement, then the NFRD requires them to specify which frameworks they have used. 
The NFRD does not, however, require the use of a reporting framework. The great majority of 
Member States have decided not to go beyond the minimum requirements of the NFRD in this 
regard.  Spain  is  an  example  of  a  Member  State  that  has  gone  beyond  the  minimum  NFRD 
requirements: Spanish law requires companies to use a non-financial reporting standard (without 
specifying which), and to disclose key performance indicators that are consistent with the Global 
Reporting Initiative. 

Audit and assurance 

The NFRD requires the auditor to carry out an existence check: the auditor must verify that the 
company  has  provided  a  non-financial  statement  in  the  management  report  (or  has  published 
non-financial  information  in  a  separate  report  if  the  Member  State  allows  that  option).  Some 
Member States (Italy, Spain and France) have introduced stronger assurance requirements than 

130  For  a  more  in  depth  presentation  of  the  double  materiality  perspective  in  the  specific  context  of  reporting  climate-related 
information, see section 2.2 of the 2019 Commission guidelines on reporting climate-related information  
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52019XC0620(01)  

109 

 
 
                                                           
the  existence  check  specified  in  the  NFRD  and  require  the  verification  of  the  content  of  the 
information reported by an independent assurance service provider. 

Transposition 

Annex  9  provides  a  complete  overview  of  how  Member  States  have  transposed  the  NFRD.  In 
general,  most  Member  States  have  transposed  most  provisions  by  staying  close  to  the  original 
wording  of  the  Directive.  Only  in  exceptional  cases  have  Member  States  further  specified  or 
strengthened the reporting requirements set out in the Directive. 

110 

 
 
 
ANNEX 8: EXAMPLES OF NON-FINANCIAL INFORMATION GIVEN IN THE COMMISSION’S 2017 
GUIDELINES 

The  guidelines  published  by  the  Commission  in  2017  contain  examples  of  the  kind  of  non-
financial information that  companies might  report.  The  guidelines provide examples structured 
by: 

  key reporting principle 
  business concept 
  non-financial issue 

They also provide additional examples specifically relating to supply-chains and conflict. 

1.  Illustrative examples structured by key reporting principle 

Key principle 

Examples provided in 2017 guidelines 

Disclose  material 
information 

A  bank  may  consider  that  its  own  water  consumption  in  offices  and 
branches is not a material issue to be included in its management report. 
In contrast, the bank may assess that the social and environmental impacts 
of projects  that it funds and its  role in  supporting the real  economy of a 
city, a region or a country are material information. 

A company may consider that impacts through its upstream supply chain 
are relevant and material issues and report on them accordingly. Impacts 
may  be  direct  or  indirect.  For  example,  a  company  producing  mineral 
water  may  consider  specific  measures  taken  to  protect  the  hydric 
resources it relies upon. 

A  company  having  impacts  on  land  use  and  ecosystem  change  (for 
example deforestation), directly or through its supply chain, may consider 
appropriate disclosures on the due diligence applied. 

A  company  which  is  involved  in  the  supply  chains  of  minerals  from 
conflict-affected and high-risk areas may consider appropriate disclosures 
on  the  due  diligence  applied  to  ensure  that  it  respects  human  rights  and 
does not contribute to conflict. 

A  company  disclosing  certain  KPIs  may  increase  transparency  by 
providing  information  on  purpose  and  link  to  the  company  strategy; 
definitions  and  methodology;  sources  of  information,  assumptions  and 
limitations; scope of the activities concerned; benchmarks; targets; trends; 
changes  in  methodologies  (if  any);  and  qualitative  explanations  of  past 
and expected performance. 

111 

Fair,  balanced  and 
understandable 

 
 
 
 
 
 
 
 
Comprehensive but 
concise 

A  company  may  summarise  information,  focus  on  material  information, 
remove  generic  information,  limit  details,  avoid  elements  that  are  no 
longer relevant, use cross-reference and signposting, etc. 

Strategic 
forward-looking 

and 

A  company  may  disclose  how  it  approaches  a  sustainable  business 
strategy and how environmental, social and governance performance can 
help  achieve  its  business  goals.  It  could  also  disclose  targets  relating  to 
KPIs  reported,  and  explain  the  uncertainties  and  factors  which  may 
underpin forward-looking information and future prospects. 

A  company  may  disclose  relevant  information  based  on  the  expected 
impact  of  science-based  climate  change  scenarios  on  its  strategies  and 
activities.  Alternatively,  it  may  disclose  targets  for  reducing  the  number 
of occupational accidents or diseases. 

Stakeholder 
orientated 

A  company  may  disclose  material  information  on  its  engagement  with 
stakeholders,  and  explain  how  this  influences  its  decisions,  performance 
and the impact of its activities. 

Consistent 
coherent 

and 

A company may identify relationships and linkages between its business 
model and corruption and bribery aspects. 

2.  Illustrative examples structured by business concepts 

Business concept  Examples provided in 2017 guidelines 

Business model 

A company may consider specific disclosures explaining: 

Policies 

 

the  main  products  it  makes,  and  how  they  meet  the  needs  of 
consumers/customers; 

  how  these  products  are  made,  and  what  makes  its  production 

 

approach competitive and sustainable; 
the characteristics of the market where it operates, and how it may 
evolve.  

A  company  may  consider  disclosing  information  on  who  in  its 
organisation  and  governance  structure 
is  responsible  for  setting, 
implementing and monitoring a specific policy, for instance, on climate-
related  matters.  It  may  also  describe  the  role  and  responsibility  of  the 
board/supervisory  board  regarding  environmental,  social  and  human 
rights policies. 

112 

 
 
 
 
 
 
 
 
 
 
 
 
A  company  may  consider  disclosures  on  its  policies  aiming  at  avoiding 
the  use  of  hazardous  chemicals,  substances  of  very  high  concern  or 
biocides in its products, operations and supply chain. It may also disclose 
its  policies  on  research,  development  and  use  of  safe  alternatives. 
Companies  may  explain  how  they  assess  the  quality,  safety  and 
environmental impact of the chemicals that they use, and how they meet 
legal requirements on chemical safety (e.g. REACH, CLP -classification, 
labelling and packaging). 

A  company  may  disclose  relevant  information  on  how  it  identifies, 
assesses, and manages climate-related risks and/or natural capital 

A  company  may  consider  disclosing  the  following  health  and  safety 
information: 

  workplace's policies; 
  contractual  obligations  negotiated  with  suppliers  and  sub-

 

contractors; 
resources  allocated  to  risk  management,  information,  training, 
monitoring, auditing, cooperation with local authorities and social 
partners. 

Outcomes 

A company may consider including specific disclosures explaining:  

  actual carbon emissions, carbon intensity; 
  use of hazardous chemicals or biocides; 
  natural capital impacts and dependencies; 
  comparison v targets, developments over time; 
  mitigating effects of policies implemented; 
  plans to reduce carbon emissions. 

Risk 
management 

& 

risk 

A company may consider including specific disclosures on: 

  malfunctioning  products  with  possible  effects  on  consumers’ 

safety; 

  policies implemented to address the issue; 
 

remediation  measures  addressing  the  needs  of  consumers  already 
affected by those products. 

A  company  may  consider  disclosing  material  information  on  climate-
related  impacts  on  its  operations  and  strategy,  taking  into  account  its 
specific  circumstances  and 
including  appropriate  assessments  of 
likelihood and use of scenario analyses 

A  company  may  consider  disclosing  material  information  on  risks  of 
harm related to  human rights,  labour and environmental  protection in  its 
supply and subcontracting chain, and on how the company manages and 

113 

 
 
 
 
 
 
 
 
mitigates potential negative impacts. 

KPIs 

A  company  may  consider  appropriate  disclosures  on  metrics  and  targets 
used  to  assess  and  manage  relevant  environmental  and  climate-related 
matters. 

3.  Illustrative examples structured by non-financial issue (or “matter”)  

Non-financial 
issue (or ‘matter’) 
Environment 

Examples provided in 2017 guidelines 

A company may disclosure material information based on methodologies 
specified in specific legislation. For instance, the annexes to Commission 
Recommendation  (EU)  No  179/2013  include  the  Product  Environmental 
Footprint  and  Organisation  Environmental  Footprint  methods.  These  are 
life cycle assessment methods that enable companies to identify for each 
product  or  an  entire  organisation:  (i)  the  most  relevant  impacts;  and  (ii) 
their  contributing  processes  and  emissions  along  the  supply  chain.  The 
environmental  impacts  may  be  reported  separately  or  as  a  single 
aggregated score. 

A company may consider KPIs such as: 

  energy performance and improvements in energy performance; 
  energy  consumption  from  non-renewable  sources  and  energy 

intensity; 

  greenhouse gas emissions in metric tonnes of CO2 equivalent and 

greenhouse gas intensity; 

  emissions  of  other  pollutants  (measured  in  absolute  value  and  as 

intensity); 

  extraction of natural resources; 
 
  waste management (e.g. recycling rates). 

impacts and dependences on natural capital and biodiversity; 

Social & employee  A company may consider disclosing KPIs based on aspects such as: 

  gender diversity and other aspects of diversity; 
  employees entitled to parental leave, by gender; 
  workers  who  participate  in  activities  with  a  high  risk  of  specific 

 

accidents or diseases; 
the  number  of  occupational  accidents, 
occupational diseases; 

types  of 

injury  or 

  employee turnover; 
 

the  ratio  of  employees  working  under  temporary  contracts,  by 
gender; 

114 

 
 
 
 
 
 
 
 
  average hours of training per year per employee, by gender; 
  employee consultation processes; 
  number of persons with disabilities employed. 

Human rights 

A company may consider disclosing material information and KPIs on: 

  occurrences  of  severe  impacts  on  human  rights  relating  to  its 

 

activities or decisions; 
the  process  for  receiving  and  addressing  complaints,  and 
mitigating and providing remedies to human rights violations; 
  operations  and  suppliers  at  significant  risk  of  human  rights 

violations; 

  processes and measures for preventing trafficking in human beings 
for  all  forms  of  exploitation,  forced  or  compulsory  labour  and 
child  labour,  precarious  work,  and  unsafe  working  conditions,  in 
particular as regards geographic areas at higher risk of exposure to 
abuse; 

  how  accessible  their  facilities,  documents  and  websites  are  to 

people with disabilities; 
 
respect for freedom of association; 
  engagement with relevant stakeholders. 

Anti-bribery 
corruption 

& 

A  company  may  consider  disclosing  material  information  and  KPIs 
relating to aspects such as: 

  anti-corruption policies, procedures and standards; 
  criteria used in corruption-related risk assessments; 
 

internal  control  processes  and  resources  allocated  to  preventing 
corruption and bribery; 

  employees having received appropriate training; 
  use of whistleblowing mechanisms; 
 

the  number  of  pending  or  completed  legal  actions  on  anti-
competitive behaviour. 

4.  Illustrative examples for additional issues (supply chains and conflict minerals) 

Additional issue 

Examples provided in Non-Binding Guidelines 

Supply-chains 

A  company  may  consider  disclosing  material  information  and  KPIs 
relating to aspects such as monitoring suppliers on: 

 

labour  practices,  including  child  labour  and  forced  labour, 
precarious  work,  wages,  unsafe  working  conditions  (including 
building safety, protective equipment, workers’ health);  

115 

 
 
 
 
 
 
 
trafficking in human beings and other human rights matters;  

 
  greenhouse  gas  emissions  and  other 

types  of  water  and 

environmental pollution; 

  deforestation and other biodiversity-related risks;  
  and  monitoring  the  company's  impact  on  suppliers,  for  instance, 

its payment terms and average payment periods. 

Conflict minerals 

Specific KPIs include:  

 

 

the  proportion  of  direct  relevant  suppliers  having  adopted  and 
implemented  a  conflict  minerals  due  diligence  policy  consistent 
with the OECD Due Diligence Guidance;  
the  proportion  of  responsibly-sourced  tin,  tantalum,  tungsten  or 
gold originating in conflict-affected and high-risk areas;  

  and  the  proportion  of  relevant  customers  contractually  requiring 
conflict minerals due diligence information under the OECD Due 
Diligence Guidance. 

116 

 
 
 
 
 
ANNEX 9: OVERVIEW OF TRANSPOSITION OF THE NON-FINANCIAL REPORTING DIRECTIVE BY MEMBER STATES 

117 

 
 
 
 
 
 
 
 
 
 
 
 
118 

Member StateScopeAllowed separate reportWhere should information be published?Audit / assuranceReporting against international standards for non-financial reportingCzech Republic1. PIE (AD). Plus: pension companies and health insurance companies2. Large3. Employees: above 500YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Declare that the (consolidated) non-financial statement (or separate report) has been provided.- If included in management report, in theory, auditor's opinion on whether the management report is consistent with the financial statements and whether it has been drawn up in accordance with the legal provisions, also extends to the non-financial statement.Independent assurance:NONot requiredDenmark1. Financial PIEs2. Large3. Employees: above 500+ All non-financial PIEs+ Large non-financial undertakingsYES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website at the same time the management report is published, and referred to in the (consolidated) management report. Available for at least 5 years on the internet address. If the internet address is changed during the period, a direct referral from the original internet address to the new internet address should be provided.Statutory auditor- Auditor's opinion on whether the management report is consistent with the financial statements and whether it has been drawn up in accordance with the legal provisions.- If the undertaking chooses to comply with the NFRD via another report after an international standard, the auditor must confirm that the company can use this report to comply with the NFRD, and give an opinion on whether the non-financial statement has been drawn up in accordance with the legal requirements. Independent assurance:NONot requiredEstonia1. PIE (AD)2. Large3. Employees: above 500- (Consolidated) Management reportStatutory auditor- In theory, as part of the auditor's obligation to audit the compliance of financial and other information disclosed with the financial statements.Independent assurance:NONot requiredFinland1. PIE (AD)2. Large3. Employees: over 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been provided.- If included in management report, in theory, auditor's opinion on whether the management report is consistent with the financial statements and whether it has been drawn up in accordance with the legal provisions, also extends to the non-financial statement. If published in separate report, auditor's opinion on whether it is consistent with the financial statements.Independent assurance:NONot requiredPIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees.PIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees. 
 
 
119 

Member StateScopeAllowed separate reportWhere should information be published?Audit / assuranceReporting against international standards for non-financial reportingFrance1. Listed2. Large3. Employees: above 500+1. Non-listed2. Size threshold: one of the two criteria: net turnover over EUR 100 million; balance sheet total over EUR 100 million.3. Employees: above 500NO- (Consolidated) Management reportStatutory auditor- Declare that the (consolidated) non-financial statement has been providedIndependent assurance:YES when EUR 100m Balance Sheet / EUR 100m Turnover and employees above 500 (by an independent third party, can be auditors if belong to this group of accreditted by the French Accreditation Committee COFRAC). Some issues limited, some in more detail.Not requiredGermany1. PIE (AD)2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within four months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Declare that the (consolidated) non-financial statement (or separate report) has been provided.Independent assurance:NONot required.There is a non-financial reporting standard in Germany for group management reports: 'GAS 20 - German Accounting Standard - Group Management Report'.Greece1. PIE (AD)2. Large3. Employees: above 500 NO- (Consolidated) Management reportStatutory auditor- Declare that the (consolidated) non-financial statement has been provided- In theory, give an opinion on non-financial statement as part of management report.Independent assurance:NONot requiredHungary1. PIE (AD)2. Size threshold: two of the three criteria-  a) the balance sheet total is HUF 6.000 million (ca. EUR 16,5 million); b) annual net sales of HUF 12.000 million (ca. EUR 33 million); c) the average number of employees during the business year is 250)2. Employees: above 500NO- (Consolidated) Annual report.Statutory auditor- Declare that the (consolidated) non-financial statement has been provided- In theory, give an opinion on non-financial statement as part of management report.Independent assurance:NONot required.Not transposed.Ireland1. PIE (AD)2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Declare that the (consolidated) non-financial statement (or separate report) has been provided.Independent assurance:NONot requiredPIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees.PIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees. 
 
 
120 

Member StateScopeAllowed separate reportWhere should information be published?Audit / assuranceReporting against international standards for non-financial reportingItaly1. PIE (AD)2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management reportStatutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been providedIndependent assuranceYES (has to be a certified auditor, statutory or not), check compliance of information reported with legal requirementsNot requiredLatvia1. PIE (AD)2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management reportStatutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been provided- If included in management report, in theory, auditor's view on whether the management report is consistent with the financial statements and whether it has been drawn up in accordance with the legal provisions, also extends to the non-financial statement.Independent assurance:NONot requiredLithuania1. PIE (AD). Plus: brokerage firm, collective investment undertaking, pension fund, occupational pension fund, management undertaking of collective investment undertakings or (occupational) pension funds, public or private limited liability companies which are owned by the State and/or a municipality, Lithuanian Central Securities Depository and operator of regulated market, potable water supplier and wastewater manager, surface wastewater manager, energy company whose service prices are regulated by the state.2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Making it available on the undertaking’s website within three months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been provided- In theory, give an opinion on non-financial statement as part of management report.Independent assurance:NONot requiredLuxembourg1. PIE (AD)2. Large3. Employees: above 500YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:NONot requiredMalta1. PIE (AD)2. Large3. Employees: above 500NO- (Consolidated) Management reportStatutory auditor- Check that the (consolidated) non-financial statement has been providedIndependent assurance:NONot requiredPIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees.PIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees. 
 
 
121 

Member StateScopeAllowed separte reportWhere should information be published?Audit / assuranceReporting against international standards for non-financial reportingNetherlands1. PIE (AD). Plus: central credit institutions2. Large3. Employees: above 500NO- (Consolidated) Management reportStatutory auditor- Opinion on whether the (consolidated) non-financial statement has been drawn up in accordace with the legal requirements and whether it is consistent with the financial statements.Independent assurance:NONot requiredPoland 1. PIE (AD). Plus: pension funds, national payment institutions, electronic money institutions, entities intending or pending for admission to one of the EU regulated markets, certain alternative investment companies, certain entities conducting brokerage activities, entities listed on an alternative market2. Large3. Employees: above 500 YES- (Consolidated) Management report; or-  Separate report:          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.          . In case of listed entities the separate report is a mandatory part of the Annual Financial Report which has to be published on the entity's website within 4 months of the balance sheet date (and filed within the Polish Financial Supervision Authority).Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:NONot required.A national non-mandatory standard on non-financial reporting developed and published by the end of 2017 by the Polish Association of Reporting Standards (FSR) and the Polish Association of Issuers (SEG) is available in Poland: Standard Informacji Niefinansowych – SIN.Portugal1. PIE (AD). Plus: investment companies, collective investment schemes, venture capital companies, venture capital funds, securities investment companies and specialized securities investment funds, credit securitization companies and credit securitization funds, pension funds, holding companies in the field of insurances and mixed-activity insurance holding companies if majority of voting rights in credit institutions, public undertakings with certain size thresholds.2. Large3. Employees: above 500 YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:NONot requiredRomaniaFinancial years 2017 and 2018 (reporting years 2018 and 2019):1. PIE (AD). Plus: national/state owned/companies, companies with full or majority state capital, self-managed public company, non-bank financial institutions, payment institutions and e-money institutions, privately managed pension funds, financial investment services companies2. Employees : above 500Financial year 2019 (reporting year 2020):All companies with above 500 employeesYES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been provided.Independent assurance:NONot requiredPIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees. 
 
 
122 

Member StateScopeAllowed separate reportWhere should information be published?Audit / assuranceReporting against international standards for non-financial reportingSlovakia1. PIE (AD). Plus: Export-import bank, health insurance company, management company, branch of a foreign management company, a pension fund management company, supplementary pension insurance company, stock exchange, Central securities depository, securities dealers, payment institutions, electronic money institution, collective investment unit, pension funds, subsidiaries of foreign financial institutions and very large entities above certain thresholds that prepare their financial statements in accordance with IFRS/EU.2. Employees: above 500NO- (Consolidated) Management reportStatutory auditor- Declare that the (consolidated) non-financial statement has been providedIndependent assurance:NONot requiredSlovenia1. PIE (AD)2. Large3. Employees: above 500YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Check that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:NONot requiredSpain1. PIE (AD). Plus: the concept of PIE is extended in Spain- to which companies?2. Employees: above 500+1. All companies2. Large 3. Employees: above 500Reporting year 2021:In both cases, employee threshold lowered to 250 for consolidated reporting, SMEs excluded.YES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management reportStatutory auditor- Declare that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:Provided by an independent assurance service provider (possible for statutory auditor)Required.KPIs especially recommended to be consistent with the COM guidelines and the Global Reporting Initiative.SwedenAll Large companiesYES- (Consolidated) Management report; or- Separate report:          . Published together with the (consolidated) management report; or          . Making it available on the undertaking’s website within six months of the balance sheet date, and referred to in the (consolidated) management report.Statutory auditor- Declare that the (consolidated) non-financial statement (or separate report) has been providedIndependent assurance:NONot requiredPIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees.PIE (AD): undertakings listed in EU regulated markets, credit institutions, insurance undertakings.Large: two out of three criteria, 20m BS / 40m turnover / 250 employees. 
 
ANNEX 10: Relevant EU legislation and policy initiatives  

This  annex  describes  the  most  relevant  existing  and  upcoming  EU  legislation  and  policy 
initiatives, and how they interact with the Non-Financial Reporting Directive. It is divided into 
two  parts:  part  A  addresses  the  interaction  between  the  NFRD  and  other  legislation  and 
initiatives  in  the  field  of  sustainable  finance,  while  part  B  looks  at  interactions  beyond 
sustainable finance. 

A.  Interaction  between  the  NFRD  and  other  legislation  and  initiatives  in  the  field  of 

sustainable finance 

The Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, together with the 
NFRD,  are  the  central  elements  of  the  sustainability  reporting  regime  that  underpins  the  EU’s 
Sustainable Finance Strategy. The figure below represents the interactions between these pieces 
of legislation. 

Interaction between NFRD, SFDR and Taxonomy Regulation 

The  NFRD  (represented  in  blue  in  the  figure)  governs  reporting  by  companies  to  a  variety  of 
stakeholders, including financial market participants and end investors. As shown in the graphic 
sometimes the flow of non-financial information will be directly from the investee company to 

123 

 
 
 
the  end  investor.  More  often,  however,  the  flow  of  information  will  be  from  the  investee 
company to a financial market participant (including assets managers and financial advisers), and 
then from the financial market participant to the end investor. 

The  Sustainable  Finance  Disclosure  Regulation  (SFDR,  represented  in  orange  in  the  figure) 
governs how financial market participants should disclose sustainability information towards end 
investors and asset owners.  

The Taxonomy Regulation (represented in green in the figure) creates a classification system of 
sustainable economic activities. It requires companies under the scope of the NFRD to disclose 
the extent to  which their activities are considered environmentally sustainable according to  the 
taxonomy.  Financial  market  participants  subject  to  the  SFDR  must  also  disclose  the  extent  to 
which financial products marketed as sustainable are aligned with the taxonomy.  

Consistency and coherence 

Financial market participants will require information from investee companies in order to meet 
their disclosure requirements under the SFDR. Since the NFRD governs disclosures by investee 
companies, there is an obvious case for ensuring the consistency of the disclosure requirements 
between  the  NFRD  and  the  SFDR.  The  goal  is  to  create  a  consistent  and  coherent  flow  of 
sustainability-related information through the financial value chain.  

Respondents to the open public consultation carried out in preparation for this initiative strongly 
endorsed the need for better alignment between different pieces of legislation on sustainability-
related  disclosures.  79%  of  financial  sector  respondents  believed  that  such  alignment  was 
necessary, while only 3% of respondents believed that the alignment between the different pieces 
of legislation currently works well.  

If  reporting  standards  were  to  be  developed  as  described  in  section  5.2.1  of  this  impact 
assessment,  then  those  standards  would  be  the  vehicle  for  ensuring  that  investee  companies 
report  the  information  that  financial  market  participants  need  to  meet  their  own  disclosure 
requirements  under  the  SFDR.  The  revised  NFRD  should  specify  that  this  is  as  one  of  the 
necessary conditions for the adoption of non-financial reporting standards into EU law.  

The SFDR disclosure requirements regarding adverse sustainability impacts will be specified in a 
Regulatory  Technical  Standard  that  the  European  Supervisory  Authorities  are  currently 
developing. Consistency and alignment between that RTS and any possible standards developed 
under the NFRD will be especially important. The final version of the RTS will be available in 
the  first  half  of  2021,  which  means  that  any  organisation  working  on  the  development  of 
European  non-financial  reporting  standards  will  be  in  a  position  to  ensure  that  such  standards 

124 

 
 
fully  cover the information that financial market  participants  need in  order to  comply  with  the 
RTS. 

Financial market participants under the SFDR and investee companies under the NFRD are both 
required to disclose the extent to which their products or activities respectively are sustainable as 
defined  by  the  taxonomy.  The  taxonomy  therefore  provides  a  common  reference  point  that 
supports  alignment  between  the  SFDR  and  the  NFRD.  In  response  to  the  open  consultation,  a 
significant  majority  of  respondents  (69%)  said  that  the  legal  provisions  related  to  reporting  on 
environmental  matters  should  be  structured  according  to  the  six  objectives  of  the  Taxonomy 
Regulation.  The  proportion  of  financial  sector  respondents  who  held  this  view  as  even  higher 
(81%). 

The precise content and methodology of the taxonomy-related disclosures of companies subject 
to  the  NFRD  will  be  specified  in  a  Delegated  Act  of  the  Taxonomy  Regulation  that  the 
Commission  should  adopt  by mid-2021. This  Delegated Act  will therefore also  be available in 
good time for it to be considered appropriately in potential non-financial reporting standards that 
might be developed under the NFRD. 

The  taxonomy  sets  performance  thresholds  (referred  to  as  ‘technical  screening  criteria’)  for 
economic  activities  which:  (1)  make  a  substantive  contribution  to  one  of  six  environmental 
objectives; (2) do no significant harm (DNSH) to the other five environmental objectives; and (3) 
meet  minimum  safeguards  (e.g.,  OECD  Guidelines  on  Multinational  Enterprises  and  the  UN 
Guiding  Principles  on  Business  and  Human  Rights).  These  performance  thresholds  should  be 
taken into account in any potential non-financial reporting standards developed under the NFRD, 
with the aim of achieving as much consistency as possible and reducing unnecessary burden on 
companies. The revised NFRD should specify that this is as one of the necessary conditions for 
the adoption of non-financial reporting standards into EU law. 

The  performance  thresholds  regarding  minimum  safeguards  are  defined  in  the  Taxonomy 
Regulation  itself,  and  are  therefore  already  known.  The  performance  thresholds  regarding 
substantial  contribution  and  DNSH  are  defined  for  two  environmental  objectives  (climate 
mitigation  and  climate  adaption)  in  a  Commission  Delegated  Regulation  [Publication  Office: 
please fill in number of Regulation as per footnote].131 They are therefore already known and can 
be taken into account during any standard-setting process under the NFRD. 

131 Commission Delegated Regulation (EU) …/… of XXX supplementing Regulation (EU) 2020/852 of the European Parliament 
and  of  the  Council  by  establishing  the  technical  screening  criteria  for  determining  the  conditions  under  which  an  economic 
activity  qualifies  as  contributing  substantially  to  climate  change  mitigation  or  climate  change  adaptation  and  for  determining 
whether that economic activity causes no significant harm to any of the other environmental objectives. 

125 

 
 
                                                           
The  performance  thresholds  regarding  substantial  contribution  and  DNSH  for  the  other  four 
environmental  objectives  identified  in  the  taxonomy  will  defined  in  a  Delegated  Act  that  is 
scheduled for adoption by the end of 2021. Depending on the start date of any process to develop 
potential NFR standards, the preparation of this Delegated Act could run in parallel for a period 
time with the standard-setting process. However the Delegated Act would in any case be adopted 
well before any NFR standards are complete, so there should be no significant obstacles to taking 
account of the content of the Delegated Act in the NFR standards.  

The table below summarises the different  aspects  of the SFDR and the Taxonomy Regulation, 
including Delegated Acts, that would need to be considered in potential non-financial reporting 
standards under the NFRD.  

Level 1 
legislation 
SFDR 

Taxonomy 
Regulation  

Taxonomy 
Regulation  

Aspect 

Level 2 act 

Adverse impact disclosures 

Regulatory 
Technical Standard  

Adoption 
date 
Q1 2021 

Substantial contribution and 
DNSH for climate mitigation 
and adaptation 
Substantial contribution and 
DNSH for other environmental 
objectives 

Delegated Act  

Q1 2021 

Delegated Act 

Q4 2021 

Taxonomy 
Regulation 

Minimum social safeguards 

None – minimum 
social safeguards 
defined in the 
Regulation itself. 

Not 
applicable.  

Implications for NFR 
standards 

Available in time for 
consideration in NFR 
standards.  
Available in time for 
consideration in NFR 
standards. 
Development of DA and 
of NFR standards could 
run in parallel for a time, 
but DA will be available 
and adopted before any 
standards are completed.  
Available in time for 
consideration in NFR 
standards. 

The  following  arrangements  have  ensured  and  will  continue  to  ensure  adequate  coordination 
between  the  possible  development  of  NFR  standards  on  the  one  hand,  and  the  SFDR  and  the 
Taxonomy Regulation on the other hand: 

  The  mandate  of  the  EFRAG  Task  Force  on  the  preparation  of  possible  NFR  standards 
specifically required the Task Force’s recommendations to be consistent with the SFDR 
and the Taxonomy Regulation.132.  

  The  three  European  Supervisory  Authorities  responsible  for  drafting  the  Regulatory 
Technical  Standards  under  the  SFDR  are  part  of  the  EFRAG  Task  Force.  This  ensures 
direct  interaction  between  the  authorities  developing  the  RTSs  for  the  SFDR  and  the 

132 EFRAG’s Task Force report: https://www.efrag.org/Lab2   

126 

 
 
 
 
                                                           
experts  carrying  out  the  preparatory  work  for  possible  EU  non-financial  reporting 
standards.  

  The  Platform  on  Sustainable  Finance  is  carrying  out  technical  work  to  advise  the 
Commission  on  the  further  development  of  screening  criteria  under  the  Taxonomy 
Regulation. The chair of the Platform nominated a representative from the Platform to be 
a  member  of  the  EFRAG  Task  Force.  The  Chair  of  the  EFRAG  Task  Force  will  also 
participate in plenary meetings of the Platform as necessary. In addition, there are already 
two experts who are members of both the Platform and the Task Force. 

Double materiality 

Both  the  NFRD  and  the  SFDR  apply  a  double  materiality  perspective,  meaning  that  entities 
subject to either of these two pieces of legislation have to consider both the outside-in risks that 
sustainability  issues  create  for  the  company  or  the  investment,  and  inside-out  sustainability 
impacts of the company or the investment itself. Since the taxonomy defines activities that make 
a  substantial  contribution  to  environmental  objectives,  it  is  highly  relevant  in  the  case  of 
disclosing the sustainability impacts of companies and investments. 

In  the  case  of  the  NFRD,  the  double  materiality  perspective  is  expressed  through  the  existing 
requirement on companies to report information “to the extent necessary for an understanding of 
[their] development, performance, position and impact of [their] activity.” If reporting standards 
were  to  be  developed  as  described  in  section  5.2.1  of  this  impact  assessment,  then  those 
standards  would  further  specify  what  information  is  considered  material  from  both  materiality 
perspectives.   

By  introducing  the  additional  obligation  on  companies  to  report  their  alignment  with  activities 
that  qualify  as  sustainable  according  to  the  taxonomy,  the  Taxonomy  Regulation  is  consistent 
with and reinforces the NFRD requirement on companies to report about their impacts.   

In the case of the SFDR, the double materiality perspective is expressed through the requirement 
on  financial  market  participants  to  disclose  how  they  integrate  sustainability  risks  in  their 
decision-making processes (outside-in risks) and to disclose their adverse sustainability impacts 
(outside-in impacts). In addition, if a financial market participant markets a financial product as 
having sustainability objectives or sustainability characteristics, then it must justify that claim by 
disclosing the alignment of the investments underlying the financial product with activities that 
qualify as sustainable according to the taxonomy.  

Entities subject to both the NFRD and the SFDR 

127 

 
 
 
  
Some entities in the financial sector will be subject to both the NFRD and the SFDR. Typically 
this is the case of banks or insurance companies with more than 500 employees that also carry 
out asset management activities. It is also the case of a very small number of asset management 
companies  with  listed  securities.  The  NFRD  covers  reporting  on  all  activities  of  such  entities, 
including  lending,  whereas  the  SFDR  only  covers  asset  management  and  investment-advice 
activities. 

Currently there are approximately 300 entities that will be subject to the NFRD and SFDR. If the 
scope  of  the  NFRD  were  to  be  broadened  as  described  in  section  7  (preferred  option)  of  this 
impact  assessment,  then  approximately  700  entities  would  be  subject  to  the  NFRD  and  SFDR 
disclosure requirements. 

The burden on such entities is dependent on the extent to which the disclosure requirements of 
the NFRD and the entity-level disclosure requirements of the SFDR are aligned, especially with 
regard  to  individual  indicators.  If  there  is  no  or  little  alignment,  then  there  is  a  risk  that  such 
entities  will  be  obliged  to  disclose  different  information  in  an  incoherent  manner  under  each 
piece of legislation even though the underlying sustainability matters in question (environment, 
human rights etc.) are the same. If there is a high degree of alignment between the SFDR and the 
NFRD, then these entities will in principle be able to use the same underlying set of information 
for  both  disclosure  exercises,  thereby  keeping  administrative  burden  to  a  minimum.  The 
development of EU non-financial reporting standards as described in section 5.2.1 would provide 
the opportunity to achieve the necessary alignment of the disclosures required under the NFRD 
with  the  Regulatory  Technical  Standards  under  the  SFDR  being  developed  by  the  European 
Supervisory Authorities.  

Interaction with other sustainable finance legislation and initiatives 

In addition to the SFDR and the Taxonomy Regulation, the NFRD also interacts with the Capital 
Requirements  Regulation  and  with  work  on  Green  Bonds  Standards,  with  the  Eco-label  for 
financial products, and with EU climate benchmarks.  

Regarding the Capital Requirements Regulation (CRR), some banks will be subject to both the 
NFRD and article 449a  of the. Article 449a of the CRR requires large listed banks to  disclose 
information on ESG risks, including physical risks and transition risks.  

The definition of large banks in the CRR is narrower than in the Accounting Directive/NFRD, 
and therefore there are currently only approximately 50 entities that will be subject to both the 
NFRD and the CRR ESG risks disclosure requirements. Broadening the scope of the NFRD as 
described in section 6.3 of this impact assessment, would not significantly affect the number of 
banks subject to both the NFRD and CRR ESG risks disclosure requirements. 

128 

 
 
The burden on such entities is dependent on the extent to which the disclosure requirements of 
the  NFRD  and  CRR  are  aligned.  If  there  is  a  high  degree  of  alignment  between  the  ESG 
disclosure requirements in the CRR and the NFRD, then these entities will in principle be able to 
use the same underlying set of information for both disclosure exercises, thereby administrative 
burden  would  be  minimal.  The  EBA  is  developing  a  technical  standard  implementing  Article 
449a  disclosure  requirements.  Detailed  cooperation  between  the  EBA  and  the  possible  future 
standards setter would ensure such alignment.  

Detailed descriptions of legislation and initiatives in the field of sustainable finance 

More  thorough  descriptions  of  all  relevant  sustainable  finance  legislation  and  initiatives  are 
provided below.  

Title 

Legislative or 
non-legislative?  
Brief description 
of policy or 
legislation 

Sustainable  Finance  Disclosure  Regulation  (Regulation  EU  2019/2088  on 
Sustainability-related disclosure in the financial services sector) (SFDR) 
Legislative 

The  SFDR  was  adopted  by  co-legislators  in  spring  2019  and  was  published  on  9 
December in the Official Journal. It is already in force and most of the provisions 
apply from 10 March 2021.  

The  SFDR  together  with  its  Regulatory  Technical  Standards  (RTS)  aim  to  trigger 
changes  in  investment  decisions  by  financial  market  participants  that  produce 
financial products and end-investors that purchase them, and financial advisers that 
provide investment recommendations towards more ESG sustainable considerations 
by improving the quality of information from the point of view of ESG positive and 
negative  impacts.  The  Regulation  is  expected  to  also  have  effects  on  business 
models of investee companies. 

The  SFDR  lays  down  rules  for  sustainability-related  disclosures  toward  end-
investors,  for  both  outside-in  sustainability  risks  and 
inside-out  adverse 
sustainability impacts. 

It does so in relation to:  
  the  integration  of  sustainability  risks  by  financial  market  participants  and 

financial advisers in all investment processes,  

  financial  products  that  pursue  the  objective  of  sustainable  investment  or  have 

environmental or social characteristics, and 

  adverse impacts  on sustainability  matters  at  entity  and  financial  products levels, 
i.e.  that  or,  in  certain  circumstances,  whether  financial  market  participants  and 
financial  advisers  consider  negative  externalities  on  environment  and  social 

129 

 
 
 
 
 
 
 
justice of the investment decisions/advice and, if so, how this is reflected at the 
product level.133  

These obligations have considerable behavioural implications. 

In  terms  of  legal  technique,  the  SFDR  is  a  directly  applicable  Regulation  which 
introduces  additional  disclosure  requirements  to  the  existing  elements  of  relevant 
sectoral legislations (AIFMD, UCITS, Solvency II, IORP II, national pension rules, 
IDD  and  MiFID  II),  via  a  self-standing  text  (lex  specialis)  providing  full 
harmonization, cross-sectoral consistency and regulatory neutrality as well as joint 
convergence  by  ESMA,  EIOPA  and  EBA.  Instead  of  amending  all  these  existing 
sectoral legislations in identical way, the SFDR comes on “top” of existing rules in 
order  to  impose  sustainability  disclosure  obligations  in  the  same  way.  This  way 
consistency  and  regulatory  neutrality  across  all  relevant  institutional  investors' 
sectors is ensured. 

The  ESAs  have  submitted  to  the  Commission    seven  Regulatory  Technical 
Standards  (RTSs)  on  the  content,  presentation  and  methodologies  of  information, 
including  legally  binding  definitions.  The  RTS  will  apply  as  of  January  2022.  In 
addition,  the  Taxonomy  Regulation  included  in  the  SFDR  other  three  RTS 
mandates. 

In  addition,  COM  is  working  on  revision  of  Level  2  measures  through  Delegated 
Acts  (under  current  empowerments  in  UCITS,  AIFMD,  MiFID  II,  Solvency  II, 
IDD)  to  explicitly clarify how product manufacturers and financial advisers should 
integrate  sustainability  risks  and  consider  principal  adverse  impact  in  the  in 
investment  and  advisory  processes  (that  is  in  the  areas  of  organizational 
requirements, operating conditions, risk management and target market assessment) 
as part of their duties towards  clients/customers/beneficiaries. 

It  is  important  for  product  manufacturers  (such  as  asset  managers,  institutional 
investors)  and  financial/insurance  advisers  to  have  easier  access  to  sustainability 
relevant  information  by  investee  companies  that  are  included  in  their  portfolios/ 
financial  products  they  offer  to  end-investors.  Where  non-financial  information  is 
not available, information on those companies in the portfolios of asset managers, 
institutional  investors,  nor  financial  advisers,  will  not  be  included  in  the  data 
consolidation,  product  documentation  or  marketing  information  and  will  not  be 
eligible  for  investments  by  financial  products  that  pursue  the  objective  of 
sustainable investment. 

The  SFDR  foresees  an  evaluation  by  December  2022  regarding  the  effect  of  the 
absence of reliable and comparable data coming from investee companies as regards 
sustainability matters. 

Interaction with 
non-financial 
reporting 

133  The  reason  is  that  investment  decisions  and  financial  advice  might  cause,  contribute  to  or  be  directly  linked  to  negative 
material effects on environment and society, regardless of whether the investment strategy pursues a sustainable objective or not, 
such as investments in assets that pollute water or devastate bio-diversity, to ensure the sustainability of investments. 

130 

 
 
 
 
 
 
 
 
 
                                                           
Title 

Legislative or 
non-legislative?  
Brief 
description of 
policy or 
legislation 

Taxonomy  Regulation:  Regulation  (EU)  2020/852  on  the  establishment  of  a 
framework to facilitate sustainable investment, and amending Regulation (EU) 
2019/2088. 
Legislative 

Regulation  (EU)  2020/852,  or  Taxonomy  Regulation  (TR),  establishes  criteria  for 
determining whether an economic activity qualifies as environmentally sustainable in 
the EU. The TR applies to: (i) measures adopted by Member States or by the Union 
that  set  out  requirements  for  financial  market  participants  or  issuers  in  respect  of 
financial  products  or  corporate  bonds  that  are  made  available  as  environmentally 
sustainable; (ii) financial market participants that make available financial products; 
and (iii) undertakings which are subject to the obligation to publish a non-financial 
statement or a consolidated non-financial statement pursuant to Article 19a or Article 
29a of the NFRD. 
The  TR  is  centred  around  six  environmental  objectives:  climate  change  mitigation, 
climate  change  adaptation,  sustainable  use  and  protection  of  water  and  marine 
resources,  transition  to  a  circular  economy,  pollution  prevention  and  control,  and 
protection and restoration of biodiversity and ecosystems. 
In order to qualify for inclusion in the EU Taxonomy, economic activities will need 
to: (a) substantially contribute to at least one of the six environmental objectives, by 
complying  with  robust  and  science-based  technical  screening  criteria;  (b)  do  no 
significant harm to the remaining environmental objectives; and (c) respect minimum 
social safeguards. 
With respect to climate change mitigation, the TR recognises three different types of 
environmentally  sustainable  economic  activities:  (i)  low-carbon,  which  in  and  of 
themselves  contribute  substantially  to  one  of  the  six  environmental  objectives;  (ii) 
transitional, which are consistent with EU and international environmental goals but 
for  which  there  are  no  technologically  and  economically  feasible  low-carbon 
alternatives;  and  (iii)  enabling,  which  enable  other  activities  to  make  a  substantial 
contribution to at least one of the environmental objectives and, at the same time, are 
environmentally sustainable themselves (according to three specific criteria). 
The technical screening criteria will be developed in two batches: a delegated act on 
the  two  climate-related  objectives  will  be  adopted  by  the  Commission  at  the 
beginning of Q2 2021, whereas a delegated act on the remaining four environmental 
objectives  will  be  adopted a  year  later.  An  additional  delegated  act  complementing 
the TR will be adopted by June 2021 specifying the application of the requirements 
to  publish  the  information  that  undertakings  under  the  scope  of  the  NFRD  would 
have  to  disclose  in  their  non-financial  statements  or  consolidated  non-financial 
statements. 

Interaction 
with non-
financial 
reporting 

Article  8  of the TR  will  require  financial  and  non-financial  undertakings  under the 
scope of the NFRD to include in their non-financial statements or consolidated non-
financial  statements  information  on  how  and  to  what  extent  their  activities  are 
associated with economic activities that qualify as environmentally sustainable. This 
requirement  will  apply  from  31  December  2021.  This  provision  will  ensure 
consistent data streams between the information reported by entities under the NFRD 

131 

 
 
 
 
(i.e.,  large  listed  companies,  banks  and  insurance  companies)  and  the  taxonomy-
related information that financial market participants will need to disclose. If the EU 
adopted  EU  reporting  standards,  these  would  need  to  be  consistent  with  the 
disclosure requirements of Article 8. 

Title 

Legislative or 
non-legislative?  
Brief description 
of policy or 
legislation 

Bank prudential regulation (Capital Requirements Regulation and Directive)  
Regulation (EU) No 575/2013 on prudential requirements for credit institutions  
Directive 2013/36/EU on access to the activity of credit institutions and the prudential 
supervision of credit institutions  
Legislative 

The prudential requirements for credit institutions established in the EU are laid down 
in  the  Capital  Requirements  Regulation  (CRR)  and  in  the  Capital  Requirements 
Directive  (CRD).  The  goal  of  these  rules  is  to  strengthen  the  resilience  of  the  EU 
banking  sector  so  that  it  can  better  absorb  economic  shocks,  while  ensuring  that 
banks  continue  to  finance  economic  activity  and  growth.  The  CRR  lays  down  the 
rules  on  the  amount  of  capital  that  credit  institutions  must  have  in  order  to  cover 
potential losses, on liquidity, on leverage and on reporting and disclosure. The CRD 
lays  down  the  rules  on  the  licensing  of  credit  institutions,  on  their  supervision,  on 
supervisory  cooperation,  on  risk  management,  on  corporate  governance  (including 
remuneration) and on capital buffers. 

Interaction with 
non-financial 
reporting 

Amendments to the CRR in 2019 have introduced a disclosure requirement of 
environmental, social and governance risks for large listed banks, which will become 
applicable in June 2022.  The European Banking Authority is working on an 
Implementing Technical Standard due in 2021.  

A  bank  is  considered  as  large  under  the  CRR  if  it  meets  any  of  the  following 
conditions:  
(a) it is a Global Systemically Important Institution (G-SII);  
(b)  it  has  been  identified  as  an  other  systemically  important  institution  (O-SII)  in 
accordance with Article 131(1) and (3) of Directive 2013/36/EU;  
(c)  it  is,  in  the  Member  State  in  which  it  is  established,  one  of  the  three  largest 
institutions in terms of total value of assets;  
(d)  the  total  value  of  its  assets  on  an  individual  basis  or,  where  applicable,  on  the 
basis  of  its  consolidated  situation  in  accordance  with  this  Regulation  and  Directive 
2013/36/EU is equal to or greater than EUR 30 billion. 

A bank is considered as listed if it has issued securities that are admitted to trading on 
a regulated market of any Member State, as defined in point (21) of Article 4(1) of 
Directive 2014/65/EU. 

Title 

Establishment of an EU Green Bond Standard 

Legislative or 
non-legislative?  

Legislative/ non-legislative (no final decision yet, pending outcome of impact 
assessment)  

132 

 
 
 
 
 
 
 
 
Brief description 
of policy or 
legislation 

In general, standards and labels for sustainable financial products help to protect the 
integrity of sustainable financial markets and allow investors to more easily identify 
and trust green financial products. This is why the Commission committed itself to 
“Creating  standards  and  labels  for  green  financial  products”  in  the  Sustainable 
Finance Action Plan from March 2018. 

As  follow-up  on  this  Action,  the  Technical  Expert  Group  (TEG)  on  Sustainable 
Finance presented a report with concrete recommendations of the EU Green Bond 
Standard (EU GBS) in June 2019 as well as a usability guide in March 2020.  

The TEG recommended the creation of an official voluntary standard, building on 
existing market standards, with the following features: 

(1)  Alignment of the use of proceeds of the bond with the EU Taxonomy;  
(2)  Publication of a Green Bond Framework alongside the bond;  
(3)  Mandatory reporting on allocation and impact; and  
(4)  Mandatory verification of Framework and (final) allocation report.  

In  addition,  the  TEG  recommended  that  external  verifiers  of  EU  Green  Bonds 
should  be  formally  authorised  or  supervised,  ideally  by  ESMA.  It  also  underlined 
that different incentives could be attached to the EU GBS.  

On  the  basis  of  these  recommendations,  DG  FISMA  is  currently  exploring  the 
establishment of an EU GBS. 

To  gather  further  input  i.  a.  from  market  participants,  stakeholders  and  the  public 
sector, DG FISMA has taken following measures:  

  Published  an  Inception  Impact  Assessment  on  12  June  (open  until  7 

August); and 

  Launched  two  consultations  that  refer  to  the  EU  GBS:  (1)  the  public 
consultation  on  the  Renewed  Sustainable  Finance  Strategy  (open  until  15 
July) and (2) a dedicated targeted consultation on the EU GBS (open until 2 
October).  

Based  on  the  outcome  of  these  consultations,  the  Commission  will  put  forward  a 
proposal  for  a  Regulation  on  European  green  bonds,  as  part  of  a  renewed 
sustainable  finance  strategy.  Any  potential  legislative  proposal  for  an  EU  GBS 
would be foreseen for Q2 2021. 
As described above, the TEG recommends that a future EU GBS should require a 
certain  degree  of  alignment  of  the  use  of  proceeds  of  the  bond  with  the  EU 
Taxonomy.  

When  applying  the  EU  Taxonomy,  Article  8  of  the  EU  Taxonomy  Regulation 
requires financial and non-financial undertakings under the scope of the NFRD to 
include  in  their  non-financial  statements  or  consolidated  non-financial  statements 
information on how and to what extent their activities are associated with economic 
activities 
these 
undertakings  will  be  required  to  report  the  share  of  their turnover,  capital 
expenditure, and operating expenditure that is Taxonomy-aligned.  

that  qualify  as  environmentally  sustainable.  In  particular, 

133 

Interaction with 
non-financial 
reporting 

 
 
 
 
 
 
 
 
 
Title 

Legislative or 
non-legislative?  

Brief description 
of policy or 
legislation 

In the same way, issuers of future EU GBS bonds will also be required to disclose 
the  Taxonomy-alignment  of  projects  funded  by  their  bond,  so  the  two  initiatives 
will support each other.  

The  information  disclosed  according  to  the  NFRD  will  provide  additional 
information  to  investors,  including  green  bond  investors,  allowing  them  to  better 
assess the overall non-financial performance of companies. 

Regulation (EC)  No 66/2010 of the European Parliament and  
of the Council of 25 November 2009 on the EU Ecolabel 
Legislative.  
According to the EU Ecolabel Regulation, the criteria developed for products to 
be awarded the Ecolabel are adopted by a Commission Decision and have a 
limited validity in time (revision clause in the Commission Decision). 
Established  in  1992,  the  EU  Ecolabel  is  a  symbol  of  environmental  excellence 
awarded  to  products  and  services  that  meet  environmental  standards  throughout 
their  life  cycle  and  provides  guidance  to  companies  on  environmental  best 
practices. Minimum social, ethical, governance safeguards are also considered. 
In the 2018 Action Plan on Sustainable Finance, the Commission saw the potential 
merit  in  the  application  of  the  EU  Ecolabel  Regulation  to  specific  financial 
products  offered  to  retail  investors,  including  Packaged  Retail  Investment  and 
Insurance Products (PRIIPs). The lack of labelled financial products may in fact 
prevent 
into  sustainable 
investments. 
The  objective  of  introducing  the  EU  Ecolabel  for  financial  products  is  to  allow 
retail  investors  concerned  with  the  environmental  impact  of  their  investment  to 
rely upon a trusted and verified label to make informed investment decisions while 
incentivising financial markets to develop more products with reduced or positive 
environmental  impacts.  Thanks  to  the  use  of  an  existing  framework,  the  EU 
Ecolabel Regulation, it is possible to achieve a quick establishment of an EU label 
for  financial  products  and  improve  the  currently  confusing  situation  on  the 
different  types  of  green  products  for  end-investors,  contributing  in  this  way  to 
avoid "greenwashing". The EU Ecolabel Regulation: 

investors  from  directly  channelling 

their  funds 

  defines 

the  general  principles  and 

for 
developing/revising  criteria,  the  labelling  awarding  mechanisms  and 
promotional activities;  

the  procedures 

rules, 

  requires Members States to designate competent bodies in charge of the 
verification of the product’s compliance with the EU Ecolabel criteria on 
a regular basis; 

  foresees  a  governance  structure  around  the  work  on  developing  EU 
Ecolabel  criteria  for  products  and  services.  This  includes  setting  up  the 
EU  Ecolabelling  Board  (EUEB)  that  has  an  advisory  role;  the 
involvement  of  stakeholders  (NGOS,  consumers  organisations,  ESAs, 
etc…)  in  criteria  development  process  via  two  rounds  of  consultations 
and  ad-hoc  stakeholders  meetings;  the  final  vote  on  the  criteria  by  the 

134 

 
 
  
 
 
 
Regulatory Committee, composed by Members States, and their adoption 
via a Commission Decision.  

The ongoing work on the EU Ecolabel for retail financial products is co-lead by 
DG  ENV  and  DG  FISMA  at  political  level.  The  Joint  Research  Centre  (JRC) 
provides  the  environmental,  economic  analysis  and  scientific  support  to  develop 
the criteria that financial products would have to fulfil in order to be awarded the 
EU  Ecolabel.  The  JRC  has  analysed  scientific/academic  research  in  order  to 
inform  the  philosophy  and  rationale  for criteria  structure and the comprehension 
of what environmental impact means for financial products.  
The first product group, that would be covered by the EU Ecolabel for financial 
products, includes UCITS/Retail AIFs/unit-linked life insurances products, having 
investment funds as underlying; and savings and deposits accounts. It exclusively 
targets products offered to retail clients. 
Structure of the criteria proposal: 
The current structure of the criteria proposal includes 6 criteria that have all to be 
fulfilled  by  a  financial  products  in  order  to  be  awarded  the  EU  Ecolabel.  An 
important  criterion  relates  to  portfolio  composition  (criterion  1),  for  which,  as 
opposed  to  the  other  criteria  (criterion  2  to  6),  distinct  rules  apply  for  different 
products. 

Criterion  1:  Investment  in  green  economic  activities  (as  defined  in  the  EU 
Taxonomy Delegated Acts) 
Criterion  2:  Exclusions  of  companies/activities  based  on  environmental 
aspects 
Criterion  3:  Exclusions  of  companies/activities  based  on  social  and 
governance aspects 
Criterion 4: Engagement requirements 
Criterion 4: Engagement requirements 
Criterion 5: Measures taken to enhance investor impact 
Criterion  6  and  7:  Retail  investor  information  and  information  on  the  EU 
Ecolabel 

The  strong  link  with  the  EU  Taxonomy  in  the  draft  criterion  1  ensures  that 
investments  are,  to  an  important  extent,  made  in  economic  activities  that  are 
defined (by EU taxonomy) as being green.  
In  the  context  of  taxonomy,  the  EU  Ecolabel  will  first  be  able  to  build  on  the 
definition of green activities in the areas of climate change mitigation and climate 
change  adaptation.  Green  activities  in  the  areas  of  pollution  prevention  and 
control, circular  economy  as  well  as  in  the  areas  of water resources  and  healthy 
ecosystems will only be defined later (the relevant delegated acts are scheduled to 
be adopted by the end of 2021 and to apply one year later). 
Timeline: 
• 

JRC  is  still  working  on  the  finalization  of  the  draft  criteria  for  the  1st 
product group financial products to be awarded the Ecolabel.  
Inter Service Consultation – Q4 2020-Q1 2021 

• 
•  Final  vote  in  Regulatory  Committee  through  a  Regular  Procedure  with 

Scrutiny - summer 2021 

•  Adoption 4/5 months later as Decision of the Commission 

Interaction with  The  criteria  developed  to  award  the  Ecolabel  to  financial  products,  use  and 

135 

 
 
 
non-financial 
reporting 

integrate  the  results  obtained  in  the  development  of  the  EU  taxonomy,  the 
improvements of sustainability-related disclosure and potentially the standard for 
European  green  bond.  For  instance,  the  current  lack  of  consistent  data  and 
reporting  on  the  alignment  of  companies’  activities  to  the  EU  climate  change 
mitigation  Taxonomy  represents  a  current  limitation  for  the  development  of 
criterion  1.  The  implementation  of  the  Taxonomy  Regulation  will  address  this 
issue  for  companies  falling  within  the  scope  of  the  Non-Financial  Reporting 
Directive. 
The  fact  of  having  easier  access  to  good  quality  and  consistent  sustainability 
relevant  information  by  investee  companies/underlying  investments  that  are 
included  in  the  portfolios/financial  products  offered  to  retail  investors  is  very 
important for:  

-  manufacturers,  distributors  and  financial/insurance  advisers  of  retail 
financial  products  that  fall  in  the  scope  of  the  ongoing  work  on  the  EU 
Ecolabel for financial products and would need this information to apply 
for the EU Ecolabel, 
for the competent bodies in charge of verifying compliance with the EU 
Ecolabel criteria for these financial products. 

- 

Where non-financial information is not available, these entities would not be able 
to apply for the EU Ecolabel nor to verify compliance.  

Title 

Legislative or 
non-legislative?  
Brief 
description of 
policy or 
legislation 

EU  Climate  Benchmarks:  Regulation  (EU)  2016/1011  as  amended  by 
Regulation (EU) 2019/2089 and the respective Delegated Regulations 
Legislative 

Regulation (EU) 2016/1011 as amended by Regulation (EU) 2019/2089 creates two 
new types of EU climate benchmarks (EU Climate Transition and EU Paris-aligned 
benchmarks)  and  lays  down  a  number  of  Environmental,  Social  and  Governance 
(ESG)  disclosure  requirements  for  all  benchmarks  (with  the  exception  of  interest 
and foreign exchange benchmarks). 

The  minimum  standards  for  the  construction  of  the  EU  Climate  Benchmarks  and 
the exact scope and content of the ESG disclosure requirements have been further 
specified in the three delegated acts that were published in the Official Journal on 3 
December 2020, and which entered into application on 23 December 2020.134 

On  the  disclosure  front,  the  delegated  acts  require  benchmark  administrators  to 

134  Commission  Delegated  Regulation  (EU)  2020/1816  of  17  July  2020  supplementing  Regulation  (EU)  2016/1011  of  the 
European Parliament and of the Council as regards the explanation in the benchmark statement of how environmental, social and 
governance factors are reflected in each benchmark provided and published (OJ L 406, 3.12.2020, p. 1). 
Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European 
Parliament and of the Council as regards the minimum content of the explanation on how environmental, social and governance 
factors are reflected in the benchmark methodology (OJ L 406, 3.12.2020, p. 12). 
Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European 
Parliament  and  of  the  Council  as  regards  minimum  standards  for  EU  Climate  Transition  Benchmarks  and  EU  Paris-aligned 
Benchmarks (OJ L 406, 3.12.2020, p. 17). 

136 

 
 
 
 
 
 
                                                           
explain, using a set template, which ESG factors they have taken into account when 
designing their benchmark methodology. They shall also explain how those factors 
are reflected in the key elements of that methodology, including for the selection of 
underlying assets, weighting factors, metrics and proxies.  

In  addition,  benchmark  administrators  shall  explain  in  the  benchmark  statement, 
using  a  standard  template,  how  ESG  factors  are  reflected  in  each  benchmark  or 
family of benchmarks they provide and publish.  

Finally, benchmark administrators shall disclose information on the alignment with 
the objectives of the Paris Agreement. 

Interaction 
with non-
financial 
reporting 

The  Delegated  Regulations  lay  down  a  list  of  ESG  factors  to  be  disclosed  by 
benchmark  administrators,  for  those  benchmarks  that  pursue  ESG  objectives, 
depending  on  the  type  of  underlying  assets  concerned  (e.g.  equity,  fixed  income, 
sovereign).  Information  on  the  ESG  factors  should  be  made  at  an  aggregated 
weighted value of the benchmark, not for each individual constituent (company).  

in order for benchmark administrators to be able to disclose such information at an 
aggregated weighted value, they should still be in position of the data from each of 
the constituent. They 
However,  in  order  for  benchmark  administrators  to  be  able  to  disclose  such 
information at an aggregated weighted value, they should still be able to obtain data 
from  each  of  the  constituents.  They  will  have  to  source  the  information  directly 
from  companies  (e.g.  via  their  annual  reports)  or  obtain  this  information  from 
external data providers. If EU non-financial reporting standards are developed, they 
should 
that  benchmark 
therefore 
administrators will need.  

take  account  of 

information 

the  ESG 

In  addition,  the  rules  for  the  construction  of  EU  Climate  Benchmarks  contain  a 
number of exclusions for companies involved in controversial weapon, in tobacco 
activities, found in violation of social norms, that significantly harm environmental 
objectives or which derive a percentage of their revenues from fossil fuel activities. 
Benchmark  administrators  should  be  in  a  position  to  obtain  information  on  the 
above elements. 

B.  Interaction between the NFRD and other legislation and initiatives 

This section describes a number of other existing and forthcoming initiatives that are relevant to 
the revision of the NFRD:  

  Sustainable Corporate Governance Initiative 
  Pay Transparency 
  Green Claims Initiative 
  Environmental Accounting 

137 

 
 
 
 
 
 
 
 
 
  Eco-management and audit scheme (EMAS) 
  Emissions Trading System 
  Late Payments Directive and Directive on unfair trading practices in business-to-business 

relationships in the agricultural and food supply chain 

Title 
Legislative or 
non-legislative?  

Sustainable Corporate Governance 
Legislative initiative, with possible secondary legislation or further guidance. The 
legal form and content of the initiative will be determined taking into account the 
results of the public consultation and the impact assessment. 

Brief 
description of 
policy or 
legislation 

The  initiative  aims  to  ensure  that  sustainability  is  further  embedded  into  the 
corporate governance framework with a view to align better the long-term interests 
of  management,  shareholders,  stakeholders  and  society.  It  aims  at  improving  the 
framework  to  incentivise  corporate  boards  to  integrate  properly  stakeholder 
interests, sustainability risks, dependencies, opportunities and adverse impacts into 
strategies, decisions and oversight. It would serve the following specific objectives: 
help  companies’  directors  to  establish  longer-term  time  horizons  in  corporate 
decision-making  and  withstand short-term  pressures, strengthen the  resilience  and 
long-term performance of companies through sustainable business models and help 
reducing adverse impacts. It would create legal certainty and level playing field as 
to the necessary measures to be taken by companies to identify, assess and mitigate 
adverse impacts in the value chain.  

An EU level initiative could include the appropriate combination of the following 
corporate  (company)  and  directors’  duties  with  a  view  to  requiring  (still  to  be 
determined  categories  of)  limited  liability  companies  “not  to  do  harm”  and  to 
empowering corporate directors to integrate wider interests into decisions, building 
also on existing corporate governance mechanisms: 

 

 

companies  to  take  measures  to  address  their  adverse  sustainability  impacts, 
such  as  climate  change,  environmental,  human  rights  (including  workers  and 
child  labour)  harm  in  their  own  operations  and  in  their  value  chain  by 
identifying and preventing relevant risks and mitigating negative impacts (due 
diligence  duty).  Such  duty  could  be  designed  by  building  on  existing 
authoritative guidelines using well-established definitions as developed by the 
UN and later expanded by the OECD3. The performance standards could be set 
in line with the goals of relevant international conventions and EU goals, such 
as those on human rights, climate and environment including biodiversity; 
company  directors  to  take  into  account  all  stakeholders’  interests  which  are 
relevant  for  the  longterm  sustainability  of  the  firm  or  which  belong  to  those 
affected  by  it  (employees,  environment,    other  stakeholders  affected  by  the 
business,  etc.),  as  part  of  their  duty  of  care  to  promote  the  interests  of  the 
company  and  pursue  its  objectives;  company  directors  to  define and integrate 
stakeholders’ 
impacts  and 
interests  and  corporate  sustainability  risks, 
opportunities  into  the  corporate strategy  –  following appropriate  procedures  – 
with  measurable  and  time-bound,  science-based  targets  where  relevant, 

138 

 
 
 
 
 
 
including as regards climate targets aligned to the Paris agreement, biodiversity 
and  deforestation  targets,  etc.  and  according  also  to  the  company’s  size  and 
activity, and to implement such strategy through proper risk management and 
impact mitigation procedures; 
an  appropriate  facilitating,  enforcement  and  implementation  mechanism 
accompanying these duties, including possible remediation where necessary; 
  other  possible  corporate  governance  arrangements  for  example  regarding 

 

directors remuneration etc.     

Depending  on  the  scope  and  detail  of  the  initiative,  it  would  also  need  to  be 
assessed  to  what  extent  legislative  and  to  what  extent  non-legislative  measures 
would  be  best  suited  to  meet  the  objectives.  In  particular,  it  will  need  to  be 
established which issues would need to be laid down in legislation and which issues 
would rather have their place in complementary guidance.   
The  initiative  would  include  proper  mechanism(s)  to  enforce  these  duties  and 
responsibilities. 
Adoption by the Commission is foreseen for 2021.  
The  initiative  on  sustainable  corporate  governance  and  the  review  of  the  Non-
Financial  Reporting  Directive  would  complement  each  other.  Close  cooperation 
will be required during the preparation of both initiatives, to ensure consistency and 
alignment. For companies under the scope of the revised NFRD, the NFRD should 
mandate  all  the  necessary  disclosures  that  may  be  necessary  under  the  proposed 
sustainable corporate governance initiative. 
On the one hand, the sustainable corporate governance initiative would contribute 
to  reaching  the  objectives  of  the  NFRD  review.  Firstly,  the  reliability  of 
information disclosed under the NFRD would improve as it would be underpinned 
by  the  above-detailed  (enforceable)  corporate  and  director  duties.  The  initiative 
would  also  mitigate  systemic  risks  in  the  financial  sector  by  making  investee 
companies themselves more sustainable.  
On  the  other  hand,  companies  covered  by  the  sustainable  corporate  governance 
initiative would disclose information about how they have applied sustainability in 
corporate  governance  and  fulfilled  their  duties.  Such  disclosure  could  include  in 
particular  corporate  sustainability  targets  and  progress  towards  them,  and  the  due 
diligence  processes  implemented.  Reporting  on  these  to  the  public  would  enable 
stakeholders to monitor director and corporate duties set out in the new initiative, 
thereby helping ensure that companies are accountable for how they mitigate their 
environmental and social impacts. 
Gender  pay  transparency:  Proposal  for  a  Directive  on  strengthening  the 
principle  of  equal  pay  between  men  and  women  through  transparency 
(COM(2021) 93 final).135 
Legislative 

The  objective  of  the  initiative  is  to  enhance  the  application  of  the  equal  pay 

Interaction 
with non-
financial 
reporting 

Title 

Legislative or 
non-
legislative?  
Brief 

135 https://ec.europa.eu/commission/presscorner/detail/en/ip_21_881  

139 

 
 
 
                                                           
description of 
policy or 
legislation 

principle  for  equal  work  or  for  work  of  equal  value  between  women  and  men 
regulated  in  Article  157  TFEU  and  Directive  2006/54/EC.  It  further  aims  to 
empower  workers  to  enforce  their  rights  to  equal  pay  and  reduce  the  space  for 
gender  bias  through  pay  transparency  measures  tailored  to  company  size,  a 
clarification  of  key  legal  concepts  relating  to  equal  pay  ensuring  uniform 
interpretation and application as well as reinforced enforcement mechanisms. 

The initiative will lay down rules on pay transparency before hiring. In addition, it 
gives  a  right  to  information  on  pay  and  on  pay  setting  and  career  progression 
policy  upon  request  of  workers.  The  initiative  also  foresees  annual  public  pay 
reporting on the gender pay gap (for companies with at least 250 employees), and 
joint pay assessment - when the pay reporting demonstrates a difference of average 
pay between female and male workers in the organisation of at least 5 per cent in 
any category of workers doing the same work or work of equal value which has not 
been justified by objective and gender-neutral factors. Member States would have 
the obligation in accordance with national law and practice to ensure that the rights 
and  obligations  under  the  directive  are  discussed  with  social  partners  -  without 
prejudice to their autonomy. 
Under  the  measures  related  to  a  better  understanding  and  implementation  of 
concepts on equal pay, the concepts of ‘pay’ and ‘equal work’ and ‘work of equal 
value’ are clarified based on existing CJEU case law. This is key for legislators and 
those  involved  in  the  enforcement  of  equal  pay  measures  to  have  a  better  and 
common understanding of the relevant legal concepts. 

Under measures facilitating the enforcement of the right to equal pay, the initiative 
encompasses support for victims such as the strengthening of the role of equality 
bodies,  and  workers’  representatives.  It  provides  for  collective  claim  and  the 
alleviation of the burden of proof, as well as the collection of evidence, remedies 
for  victims  of  pay  discrimination  and  sanctions.  The  initiative  also  limits 
procedural  barriers  to  enforcement  (limitation  periods  and  judicial  costs),  and 
promotes  the  consideration  of  intersectionality,  i.e.  situations  with  discrimination 
based on a combination of sex and any other ground or grounds of discrimination 
protected under EU law. 

Interaction 
with non-
financial 
reporting 

The  present  initiative  would  require  certain  companies  to  make  information 
regarding  the  gender  pay  gap  publicly  available.  Some  of  these  companies  may 
also be covered by the forthcoming revision of Non-Financial Reporting Directive 
2014/95/EU (NFRD). Both initiatives will be aligned so that any public reporting 
on the gender pay gap pursuant to the Pay Transparency Directive by companies 
subject to the NFRD would be taken into account in the future standards for non-
financial reporting under the NFRD. 

Title 

Green Claims initiative: Substantiating environmental claims using the 
Product/Organisation Environmental Footprint methods 

140 

 
 
 
 
 
 
 
 
Legislative or 
non-
legislative?  
Brief 
description of 
policy or 
legislation 

Legislative 

The objective of the initiative is to move to a more harmonised approach for providing 
voluntary  environmental  information  and  ensuring  the  reliability  and  relevance  of 
information that companies provide on a voluntary basis regarding the environmental 
impacts of products and organisations, thus making it easier for consumers, business 
and  other  market  participants  to  integrate  environmental  considerations  into  their 
decisions. 

The Circular Economy Action Plan of 2020  commits that “The Commission will also 
propose  that  companies  substantiate  their  environmental  claims  using  Product  and 
Organisation  Environmental  Footprint  methods”  by  the  end  of  2020  [now  scheduled 
for 2021]. We will examine several policy options, including a voluntary scheme and 
an obligation of substantiating green claims via the Environmental Footprint methods 
for environmental issues covered by the methods. The initiative would include claims 
both in business-to-consumer and business-to-business/stakeholder situations.  

There are two methods: one focussing on products (Product Environmental Footprint, 
PEF)  and  one  for  organisations  (including  companies,  Organisation  Environmental 
Footprint, OEF). The methods are the result of several years of common testing with 
businesses,  business  associations  both  in  the  EU  and  internationally;  and  other 
stakeholders including public administrations, NGOs and academia. The methods were 
developed  by  DG  JRC  based  on  existing  methods,  taking  best  practice  approaches. 
They were subject to a Commission Recommendation on the use of common methods 
for  measuring  and  communicating  the  life  cycle  environmental  performance  of 
products and organisations in 2013. A revised version based on learnings of the pilot 
phase will be the basis of the green claims initiative. 

The  methods  were  created  having 
in  mind  reliability,  reproducibility  and 
comparability of information. The methods cover impacts from the whole value chain 
and  focus  the  analysis  on  environmental  impacts  and  processes  that  are  most 
contributing  to  the  overall  impact  of  a  product  or  company.  They  cover  16 
environmental impacts, including climate change, water use, land use, toxicity. They 
require the user to identify which are the environmental hotspots of the undertaking. 
Environmental  hotspots  include  environmental  impacts,  processes  (either  direct  or 
indirect, occurring upstream or downstream in the value chain) and life cycle stages.  
The  method  enables  the  development  of  product-  and  sector-specific  environmental 
performance  calculation  rules  (Product  Environmental  Footprint  Category  Rules  – 
PEFCRs  and  Organisation  Environmental  Footprint  Sector  Rules  –  OEFRs).  If  such 
rules exist, they pre-define relevant (material) environmental impacts, life cycle stages 
and processes for the given product category/ sector. 

Interaction 
with non-
financial 
reporting 

In preparing the green claims proposal, the Commission will define more clearly what 
can be considered a “green claim”. Environmental information published in company 
annual  reports,  which  is regulated by  the  NFRD,  will  not in any  case  fall  within  the 
definition of “green claims”. Any legislation of green claims would therefore not apply 
to the information in company annual reports. Environmental information published in 

141 

 
 
 
 
 
 
annual reports is mandatory, whereas companies choose to make green claims or not 
on a voluntary basis. 

The PEF and OEF methods are already referenced in the Guidelines on non-financial 
reporting.  Particularly,  OEF  is  relevant  for  company-level  reporting,  as  a  means  to 
quantify  impacts  (and  therefore  enable  target  setting  and  tracing),  to  identify 
environmental  hotspots  that  may  pose  a  risk  to  companies  (including  along  their 
supply and value chain), and to increase relevance, consistency and comparability of 
information. 

The  green  claims  proposal  will  likely  require  companies  to  substantiate  their  green 
claims based on environmental performance using the PEF (for product-related claims) 
and OEF (for organisational related claims) methods. 

In  some  cases  companies  might  make  green  claims  on  the  basis  of  environmental 
performance  information  contained  in  their  annual  reports  (non-financial  statement). 
To ensure  maximum  consistency  and  coherence between  the  Green  Claims  initiative 
and the NFRD, any possible EU non-financial reporting standards developed as part of 
the  NFRD  revision  should  take  account  of  and  incorporate  as  appropriate  the  OEF 
methodology.   

Environmental  Accounting:  Transparent  Project  –Supporting  business  and 
stakeholders in developing standardized natural capital accounting practices 
in the EU and internationally  
Non-legislative (supporting better implementation of legislation, including NFRD) 

solutions 

and  pragmatic 

accounting  practices 

Of the many existing corporate environmental reporting initiatives, few focus on 
developing  underlying  management  accounting  methods  that  can  produce 
relevant,  credible,  auditable,  and  comparable  data  supporting  internal  decision 
making  (and  external  reporting).  Advanced  insights  on  how  to  best  account  for 
environmental  impacts  and  dependencies  were  captured  in  the  Natural  Capital 
Protocol  referenced  in  the  NFRD  guidelines.  Further  standardization  of  natural 
capital 
its 
implementation  are  key  for  its  mainstreaming  –an  essential  condition  for 
overcoming  the  general  shortage  of  relevant,  credible,  and  comparable  data  on 
total environmental impacts and greening the economy generally.  Natural capital 
or environmental accounting seeks to identify, quantify, and value the impacts and 
dependencies of an entity’s activities on natural capital also (but not exclusively) 
in  monetary  terms.  Hence,  it  allows arriving  at  total weighted impacts along  the 
supply,  and  eventually  the  value  chain.  These  impacts  which  generally  remain 
unaccounted for in today’s financial and non-financial statements   are especially 
useful to management decision-making in companies or other economic entities.  
The  Transparent  project  is  a  LIFE  preparatory  project  responding  to  the  EGD’s 
call to support businesses and stakeholders developing standardized natural capital 
accounting practices. It supports a leading global public-private partnership in the 
field of natural capital accounting for the period 2020-2022, including the Value 

facilitating 

142 

Title 

Legislative or 
non-legislative?  
Brief description 
of policy or 
legislation 

 
 
  
  
  
 
 
Interaction with 
non-financial 
external 
reporting 

Balancing  Alliance,  the  Capitals  Coalition,  and  the  World  Business  Council  for 
Sustainable  Development.  The  project’s  output  will  include  the  world’s  first 
standardized  and  widely  accepted  methodology  to  identify,  measure  and  value 
environmental impacts in corporate entities.  The standardized method will serve 
as  the  principal  benchmark  for  companies  establishing  and  using  natural  capital 
accounts and data (as well as providing assurances). It will be consistent with the 
NFRD’s  double  materiality  principle.  Drafts  for  public  consultation  are  due  in 
2021/Q1 with the final set due latest by 2022/Q4. Standards and guidelines will be 
further  promoted  as  part  of  the  international  natural  capital  accounting  initiative 
called for by the EU’s recent biodiversity strategy and related initiatives, e.g. the 
green investment and circular economy strategies, etc.   

The Transparent consortium is committed to also reinforce the core objectives of 
closely  related  policy  initiatives  and  pursuing  maximum  synergies,  notably  the 
present revision of the NFRD. The methodology of   the Transparent project and 
already  agreed  actions  to  further  promote  its  application  globally  will  help 
implementing the revised non-financial reporting directive and achieving its core 
objectives,  notably  by  enabling  companies  to  identify,  and  manage  significant 
environmental  risks  related  to  impacts  and  dependencies  associated  with  its 
business activities. An important aim of the Transparent project is to enhance the 
trust and credibility of information to that is to be relied upon for decision making 
by  managers  which  can  then  be  monitored  and  reported  with  confidence  both 
internally and externally. The proposed method will capture the total impact and 
dependency  for  all  (relevant)  environmental  areas  (air  including  climate,  water, 
land and biodiversity) covering the entire supply chain and ultimately aiming for 
the value chain at large. This data is likely to strengthen internal decision-making, 
and  may  also  be  an  input  to  external  reporting  under  the  NFRD  and  any  future 
reporting  standards.  The  Transparent  output  will  not  serve  to  label  activities  or 
assets as ‘green’ or not green per se – an area reserved for the taxonomy, the green 
claims  initiative,  and  other  green  product  standards.  It  will  enable  companies  to 
better  identify  and  manage  their  environmental  impacts  and  dependencies  in  a 
credible  way.  As  such  it  would  underpin  reporting  and  potentially  the  work  of 
auditors  and  assurance  providers  and  could  also  play  a  role  in  sustainable 
corporate  governance,  business  models,  and  related  assurance  provisions  under 
development in the EU and globally. 

Title 

Regulation (EC)  No 1221/2009 of the European Parliament and  
of the Council of 25 November 2009 on the voluntary participation by 
organisations in a Community eco-management and audit scheme (EMAS) 

Legislative or 
non-legislative? 

Legislative 

Brief 
description of 

EMAS  is  a  management  tool  for  organisations  to  evaluate,  improve,  and  report  on 
their  environmental  performance.  EMAS  helps  organisations  to  implement  a 

143 

 
 
 
 
 
policy or 
legislation 

management  framework  that  ensures  a  systematic  identification  and  management  of 
key environmental performance issues in order to reduce the environmental footprint 
and  risk  profile  of  the  organisation.    Established  already  in  1993,  currently  almost 
4.000  organisations  with  over  12.000  sites  in  Europe  and  the  world  use  the  EMAS 
instrument. 

EMAS registration requires organisations to regularly produce a public environmental 
statement  that  reports  on  their  environmental  performance,  thereby  enhancing 
transparency. The credibility and recognition of EMAS and participating organisations 
stems from this publication of environmental information checked by an independent 
environmental verifier for accuracy and reliability.  

tool  requiring  publication  of  an  annual, 
As  an  environmental  management 
independently validated environmental statement with detailed core indicators, EMAS 
provides registered organisations with a high degree of transparency. EMAS registered 
organisations can use their environmental statements  and the official EMAS logo  to 
give their clients and customers a clear signal of their commitment  to environmental 
performance,  backed up by real data.   

These  efforts  are  recognised  not  only  by  customers,  but  also  by  regulators  in  the 
Member  States.  Several  national  and  local  regulators  accept  the  EMAS  registration 
and environmental statement as proof of an organisation's legal compliance or to fulfil 
other reporting requirements. 

Interaction 
with non-
financial 
reporting 

The  current  Directive  on  non-financial  reporting  explicitly  states  in  its  recital  9  “In 
providing this information, undertakings which are subject to this Directive may rely 
on  national  frameworks,  Union-based  frameworks  such  as  the  Eco-Management  and 
Audit Scheme (EMAS), […]” 

The EU Commission also emphasizes the importance of EMAS for transparency in the 
Guidelines on non-financial reporting. There, environmental assessment according to 
Annex  I  of  the  EMAS  Regulation  is  recognized  as  a  methodology  to  perform  the 
materiality assessment. Also, for assessing sector-specific issues, the EMAS Sectoral 
Reference Documents are named.  

Thus,  also  for  the  future  updated  NFRD  and  possible  reporting  standards,  EMAS 
could be recognized as a tool to fulfil part of the reporting obligations. 

Title 
Legislative  or 
non-
legislative?  
Brief 
description  of 
policy 
or 
legislation 

EU Emission Trading System 
Legislative 

Pending the outcome of the 2030 Climate Target Plan and in line with the Green Deal 
Communication, the Commission will review and propose to revise, if necessary to 
increase its ambition, the EU ETS by June 2021.  
The EU ETS is the key EU policy to reduce its emissions cost-effectively, meet its 

144 

 
 
 
 
 
 
Interaction 
with 
financial 
reporting 

non-

industry  and  aviation  within 

overall  emission  reduction  targets  and  thus  combat  climate  change.  It  is  a  market-
based measure that caps overall emissions permissible for the installations it covers in 
power  generation,  energy-intensive 
the  EEA. 
Installations  covered  are  obliged  to  surrender  allowances  against  their  annual 
emissions.  
Article  14  of  the  EU  ETS  Directive136  requires  the  monitoring,  reporting  and 
verification  of  emissions  of  several  greenhouse  gases  for  the  purposes  of  annual 
submission of verified emissions by installation operators. Eligible installations must 
submit  an  inventory  of  verified  annual  emissions  each  year,  covering  Scope  1 
emissions  as  defined  by  the  Greenhouse  Gas  Protocol137,  comprising  emissions 
emitted  directly  in  the  execution  of  the  activities  covered.  Eligible  installations 
compile and submit this data to the Commission annually for publication. 

Currently,  the  legal  obligations  conferred  on  undertakings  in  the  Non-financial 
Reporting  Directive  (NFRD)  do  not  explicitly  include  the  reporting  of  greenhouse-
gas emissions in the non-financial statement. Recital (7) indicates that non-financial 
statements  “should  contain…details  of…the  undertaking’s  operations  on  the 
environment,  and,  as  appropriate…greenhouse  gas  emissions”.  Article  1  obliges 
eligible undertakings to include in their non-financial statements the impact of their 
operations  on environmental  matters, the principal risks  to the  environment  and the 
ways in which the undertaking is managing these risks. If no policies are in place, it 
must provide an explanation. There are clear grounds to expect companies to include 
greenhouse-gas  emissions  in  their  non-financial  statements,  as  they  impact  the 
environment significantly. 

To minimise costs and administrative burden, any further specification of emissions 
reporting  as  part  of  the  NFRD  revision  could, in  the  case  of  installations  under  the 
ETS,  oblige  the  companies  concerned  to  consolidate  and  submit  the  data  for  their 
installations  in  their  NFRD  non-financial  statements.  To  gain  a  full  picture  of 
corporate emissions, emissions from the energy consumed by a company (Scope 2) 
and all other indirect emissions (Scope 3) would need to be accounted for separately.  

Title 

Legislative 
or non-

Directive  2011/7/EU138  of  the  European  Parliament  and  of  the  Council  of  16 
February  2011  on  combating  late  payment  in  commercial  transactions  (and 
Directive 2019/633 of the European Parliament and of the Council of 17 April 2019 
on unfair trading practices in business-to-business relationships in the agricultural 
and food supply chain)139 
Legislative 

136 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003  
137 https://ghgprotocol.org/ 
138 Directive 2011/7/EU on combating late payment in commercial transactions. 
139 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32019L0633  

145 

 
 
 
 
 
 
 
                                                           
legislative?  
Brief 
description 
of policy or 
legislation 

the 

internal  market, 

thereby  fostering 

the  proper  functioning  of 

The aim of the LPD Directive is to combat late payment in commercial transactions, to 
ensure 
the 
competitiveness of undertakings and in particular of SMEs. The Directive addresses late 
payments in commercial transactions both between public authorities and businesses, and 
between businesses. The “Late Payment Expert Group140” was set up in 2011 to facilitate 
a  smooth  transposition  and  implementation  by  the  Member  States  of  the  new  late 
payment  Directive.  In  the  short  to  medium  term,  late  payment  can  lead  to  cash  flow 
issues, income loss, slow growth and an inability to hire new employees, which in turn 
has  direct  consequences  for  GDP  and  employment.  It  also  affects  businesses’ 
competitiveness  and  profitability  when  the  creditor  needs  to  obtain  external  financing 
because of late payment. The risk of such negative effects strongly increases in periods of 
economic  downturn  when  access  to  financing  is  more  difficult.  In  the  longer  term, 
unsustainable  cash  flow  threatens  company  survival  and  leads  to  bankruptcies.  It  is 
estimated that late payment accounts for 1 out of 4 bankruptcies in the EU. Late payment 
is above all an intentional practice – especially when there is an asymmetry between the 
debtor  (large  business)  and  the  creditor  (smaller  business).  Unfair  payment  practices 
(setting longer payment terms – often unsustainable for suppliers, refusing to pay interest, 
“paid when paid” clauses) are the symptoms of a bad payment culture deeply embedded 
in  the  business  environment.  This  is  why  the  Directive  pleads  for  a  decisive  “shift” 
towards a payment culture where prompt payment is the new norm. Reporting on average 
payment  periods  will  ultimately  foster  better  payment  practices.  This  is  an  important 
signal  especially  in  moments  of  crisis,  where  disruptions  in  the  supply  chain  payments 
further put under pressure SMEs.  
The LPD has been recently complemented by a Directive to combat practices that grossly 
deviate from good commercial conduct, that are contrary to good faith and fair dealing 
and  that  are  unilaterally  imposed  by  one  trading  partner  on  another,  in  the  agricultural 
and  food  supply  chain.  It  prohibits  late  payments  for  agricultural  and  food  products, 
including  late  payments  for  perishable  products  as  they  impact  negatively  on  the 
economic viability of the supplier, without providing off-setting benefits. 

Interaction 
with non-
financial 
reporting 

The  principle  that  prompt  payment  can  avoid  social  consequences  through  the  supply 
chain is already included in the Guidelines on non-financial reporting (methodology for 
reporting non-financial information) under the thematic aspect “supply chain”. Reference 
to payment routines can also be found in existing sustainability international standards.141  
The Commission should further build on this principle in the future reporting standards if 
such standards are developed.  
The Late Payment Directive contains an Article devoted to “Transparency and awareness 
raising”  (Article  8),  which  obliges  Member  States to  ensure  transparency  regarding  the 
rights and obligations stemming from this Directive. In addition, they should spread good 
payment practices, to foster a prompt payment culture. The LPD Directive does not go as 
far as imposing the regular production of a specific report, but it does encourage virtuous 

140 Late Payment Expert Group 
141 GRI 204 Procurement practices 2016 https://www.globalreporting.org/standards/gri-standards-download-center/?g=05059bfb-
2058-47c3-b80b-c093d13cc976  

146 

 
 
 
                                                           
payment practices, and the spreading of such practices. 
In 2018, the Commission carried out a study142 which explored, among other measures, 
the use and potential of transparency of payment practices. Indeed, a few Member States 
(France, Sweden, Slovenia, Spain) and the UK have established provisions setting out the 
mandatory  communication  and  publication  by  businesses  of  payment  practices  and 
policies  (e.g.  average  payment  periods  in  France,  Spain,  Sweden  and  the  United 
Kingdom143, and protested bills of exchange in Slovenia). The obligations usually apply 
to large companies, with turnover exceeding a certain amount, or above a certain number 
of employees.  
Access to information on the payment practices of future (or existing) partners can help 
companies  choose  more  reliable  business  partners.  In  addition,  public  access  to 
information  can  be  an  incentive  for  companies  to  improve  the  way  they  deal  with 
suppliers. However, where access to payment information is limited, requires payment or 
offers  only  fragmented  coverage,  this  can  prevent  SMEs  from  systematic  use  of  these 
data.  Mandatory  reporting  of  payment  practices  for  larger  operators  would  counteract 
these shortcomings.  
In addition, the SME Strategy published in March 2020 emphasised that, due to increased 
concentration and vertical integration in supply chains, the main customers of SMEs are 
often  much  larger  organisations.  This  leads  to  asymmetries  in  bargaining  power  and 
increases  the  risk  of  small  businesses  being  subject  to  unfair  business  practices  and 
conditions, including late payments144 and access to data. Better monitoring and reporting 
on LPD enforcement is also part of the actions of the Strategy. 

142 “Business-to-business transactions: a comparative analysis of legal measures vs. soft-law instruments for improving payment 
behaviour” 
143 Although it is still too early to draw comprehensive conclusions, initial data on the implementation of this measure in the UK 
indicates that 60% of companies reporting had not paid 95% of invoices within 60 days. This has triggered additional measures 
from the UK  government, such as the new rule entered into force in 2018 whereby businesses that do not demonstrate proper 
payment performance towards their clients are excluded outright from public procurement contracts. 
144  Directive  (EU)  2019/633  of  the  European  Parliament  and  of  the  Council  of  17  April  2019  on  unfair  trading  practices  in 
business-to-business  relationships  in  the  agricultural  and  food  supply  chain  prohibits  late  payments  for  agricultural  and  food 
products, including late payments for perishable products (Art. 3.1 (a)), with a dynamic approach based on the relative size of the 
supplier and the buyer in terms of annual turnover, to provide better protection against unfair trading practices for those operators 
who need it most.  

147 

 
 
 
 
 
 
                                                           
ANNEX 11: CAPITAL MARKETS UNION HIGH-LEVEL FORUM PROPOSAL FOR EUROPEAN 
SINGLE ACCESS POINT. 

The Capital Markets Union High-Level Forum published its final report in June 2020. The report 
contains  the  following  specific  recommendation  for  the  creation  of  an  EU-wide  digital  access 
platform (EU Single Access Point, or “ESAP”) to companies’ public financial and non-financial 
information:  

Recommendation 
The Commission is invited to:  
  Propose legislation for ESMA to establish an EU-wide digital access platform (EU Single Access 
Point, or “ESAP”) to companies’ public financial and non-financial information, as well as other 
financial  product  or  activity-relevant  public  information  (hereafter  referred  to  only  as  “public 
information”), which shall be freely accessible to the public and free of fees or license use.145 
  Ensure that companies (listed and non-listed) are required to submit all the public information only 
once  through  a  single  reporting  channel,  which  may  necessitate  streamlining  existing  multiple 
reporting  channels  (considering  for  instance  Officially  Appointed  Mechanisms,  National 
Competent Authorities, European Authorities).146  

  Conduct  work  on  harmonising  the  content  and,  if  appropriate,  the  format  of  companies’  public 
information to foster better comparability and usability of data. The use of technology as well as 
templates  and  standards  should  not  impose  additional  language  requirements  causing  significant 
burden.  

Regarding  the  scope  of  public  information  which  could  be  made  available  through  the  EU  Single 
Access Point, the Forum recommends adopting a staged approach: 
 

In a first stage, the EU Single Access Point should: 

o  Serve as a platform to access all public information of companies with securities listed on 

EU Regulated Markets. 

o  Focus  on  periodic  /  ongoing  information  disclosed  by  companies  pursuant  to  securities 
markets legislation including at least the Transparency Directive, Non-Financial Reporting 
Directive,  Prospectus  Regulation,  Shareholders  Rights  Directive,  Market  Abuse 
Regulation, Short Selling Regulation and Take-Over Bid Directive.  
Include  non-financial  statements  disclosed  by  companies  listed  on  EU  regulated  markets 
pursuant to the Non-Financial Reporting Directive. 

o 

 

In  a  second  stage,  it  should  be  considered  whether  to  expand the  scope  of  the ESAP,  once  fully 
established, to include some, or all of the following: 

145  The  exact  cost  model  will  need  to  be  carefully  thought  through.  Furthermore,  ESMA  will  need  to  receive  appropriate 
resources to set up and operate the ESAP so that access to the public remains free of fees. 
146 Where issuers are already allowed today to outsource submission of reporting requirements to third parties, this authorisation 
should  also  be  given  regarding  the  submission  of  the  corresponding  reporting  requirements  through  the  ESAP.  As  is  the  case 
today, liability regarding the accuracy of the information would remain with the issuer. 

148 

 
 
 
 
                                                           
o  Public  information  disclosed  by  companies  on  SME  Growth  Markets  pursuant  to  the 

Prospectus and Market Abuse Regulations. 

o  Serve  as  a  platform  for  the  disclosure  of  documents  prepared  under  the  UCITS  and 
2011/61/EU AIFM Directives (such as annual financial reports and any public fund-related 
information documents).  

o  A broader range of sustainability-related companies’ public information disclosed pursuant 
to  sustainable  finance  legislation,  such  as  the  entity-  and  product-level  information  on 
sustainability  risks  and  impacts  disclosed  pursuant  to  the  Regulation  (EU)  2019/2088  on 
sustainability-related  disclosures. This  would  make  the  ESAP  a  repository  for all  current 
sustainability-related  public  information  by  listed  companies  (managed  by  ESMA,  or  in 
stage 3 by the relevant authority for any information beyond ESMA’s remit).   

 

In  a  third  stage,  it  should  be  considered  whether  to  expand  the  scope  of  the  ESAP,  once  fully 
established,  to  include  some,  or  all  of  the  following  public  information  beyond  ESMA’s  remits, 
such as: 

o  market-relevant information made public pursuant to prudential or other legislation, such 
as  Pillar  3  reports  to  be  disclosed  by  credit  institutions  pursuant  to  Regulation  (EU) 
575/2013 on Capital Requirements (CRR), and Solvency and Financial Condition Reports 
(SFCR)  to  be  disclosed  by  insurance  undertakings  pursuant  to  the  Solvency  II  Directive 
(2009/138/EC). Appropriate arrangements should also be made with other relevant public 
authorities (e.g. EBA and EIOPA and corresponding authorities/bodies at national level). 

In parallel to stage 1, the Commission should mandate ESMA to assess the possibility to expand the 
scope of the EU Single Access Point to include public information disclosed by non-listed companies 
including notably non-listed SMEs, on a voluntary basis147, provided that they comply with the relevant 
format and content requirements. This could leverage, to the extent possible, on the Business Register 
Interconnection System (BRIS).   

When setting up the EU Single Access Point, the Forum recommends the following steps to improve 
searchability of the information contained therein: 

In the first stage: 
  Grant ESMA powers and resources to oversee the proper collection of data and its compliance with 

EU standards to the extent of its jurisdiction.  

  Task  ESMA  with  developing  technical  standards  to  develop  data  fields  and  formats  (XML  or 
similar metadata) to ensure that public information is findable on the database (i.e. similar to the 
approach used in ESEF for annual financial reports or the Prospectus Register) which shall be used 
by companies when submitting the public information foreseen in the first stage described above in 

147 The operational challenges and costs of expanding the scope of the EU single access point from listed firms only (around 5000 
companies across the EU) to all non-listed firms (hundreds of thousands of companies) should not be underestimated. Therefore 
the inclusion of non listed firms in the ESAP should be on a voluntary basis and be based on the condition that non listed firms 
will be voluntarily complying with all format and content requirements. 

149 

 
 
 
 
 
                                                           
order to foster cross-border searchability. 

  Such  technical  standards  to  develop  data  fields  and  formats  should  use  appropriate  entity  and 
document  identifiers  (LEIs,  ISINs,  etc.)  to  ensure  that  public  information  about  issuers  and 
securities can be easily inter-linked and cross-referenced. 

  Grant ESMA powers to coordinate and drive implementation with national authorities in order to 
ensure  that  the  public  information  collected  at  national  level  is  accompanied  by  the  correct  data 
fields and, in case of structured information (i.e. as of today, Annual Financial Reports prepared in 
XBRL148  pursuant  to  the  ESEF  Regulation),  that  information  submitted  by  companies  complies 
with the applicable format requirements. 

In parallel to the first stage: 
  Task  ESMA  to  assess  whether  it  is  appropriate  and  useful  for  comparability  reasons  and  for 
facilitating  machine-based  data processing  that  all  public  information  within  its remits  should  be 
prepared in a machine-readable format such as XBRL or in standardised templates149; if so, ESMA 
should be tasked to develop the relevant taxonomies (for more harmonised documents, such as the 
Non  Financial  Statements)  or  standardised  templates  and  should  ensure  that  any  formatting  is 
affordable to all issuers across the EU, and do not result in significant additional burden on issuers 
nor costs. 

In the later stages, consider to: 
  Task the ESAs Joint Committee or EBA/EIOPA to perform the same assessment / develop relevant 

taxonomies or templates for Regulations and documents within their remit. 

When setting up the EU Single Access Point, the Forum recommends the following architecture: 
  The  EU  Single  Access  Point  should  be  built  in  the  first  stage  by  ESMA  as  a  hybrid  structure 
whereby  public  information  is  submitted  by  companies  at  national  level  (to  OAMs/NCAs  in  the 
first  step,  and  potentially  to  other  authorities/bodies  in  the  future)  and  then  it  is  collected, 
aggregated  and  disclosed  by  ESMA  (and  in  stage 3  also  by  the  relevant  authority  for  any 
information beyond ESMA’s remit) at EU level via system specifications provided by ESMA. 
  OAMs or other authorities/bodies should be allowed to check the correct application of data fields 
entered by issuers, in line with their respective competences, and to ensure compliance with format 
requirements (XBRL or other) whenever applicable. ESMA shall be empowered to supervise the 
compliance  with  these  requirements  for  information  within  its  remit.  In  later  phases  adequate 
arrangements should be made with other ESAs and other national bodies if necessary. 

  ESMA,  under  the  authority  of  the  legislative  proposals  from  the  Commission  shall  establish  the 
ESAP  having  regard  to  the  EU  Data  Strategy  of  March  2020,  ensure  that  the  architecture  of  the 
ESAP  can  be  scaled  up  so  as  to  prepare  the  grounds  for  stages  2  to  4,  and  encompass  further 
authorities or bodies at national level and at EU level to the extent necessary.  

148 See CMU HLF recommendation fiche on listing requirements and simplification. 
149  As  of  today,  only  Annual  Financial  Reports  including  IFRS  consolidated  financial  statements  prepared  pursuant  to  the 
Transparency Directive are in XBRL format  

150 

 
 
 
 
 
                                                           
  The EU Single Access Point needs to be devised in a way that a one-click access for human users is 
possible,  and  that  machine-data  users  can  automatically  download  public  information  from  the 
platform in order to foster "big data" applications and data reuse. The data fields should ensure that 
public information is searchable by criteria such as Member State of origin, sector, size, turnover 
range, etc. 

  The  IT  infrastructure  of  the  EU  Single  Access  Point  should  ensure  interconnectedness  of  the 
existing  European  and  national  registers,  and  should  be  devised  so  that  in  the  future  further 
repositories/ databases currently managed by other authorities or bodies (e.g. National Competent 
Authorities,  Officially  Appointed  Mechanisms  “OAMs”,  or  European  authorities).  This  would 
allow users, in particular investors, to have an integrated access to all relevant public information. 
The  system  should  be  designed  with  sufficient  flexibility  to  encompass  new  or  additional 
categories of public information in the future, remain up-to-date with technical developments and 
address evolving user needs. 

  ESMA should establish the EU Single Access Point as quickly as possible leveraging  on existing 
provisions  in  the  Transparency  Directive,  while  ensuring  that  the  system  is  able  to  evolve  in  a 
flexible manner to cover a broader range of public information. For this purpose, ESMA should be 
provided with adequate ad hoc funds and resources. 
In order to collect, aggregate and disseminate data at EU level, the EU Single Access Point should 
rely on the most appropriate technology. 

 

Issue at stake 
Some of the key objectives of a true Capital Markets Union include (i) promoting market integration, 
and  (ii)  ensuring  easy  access  to  diverse  sources  of  funding  for  all  companies,  including  sustainable 
ones.  Unfortunately,  issuers  often  have  to  rely  on  national  markets  only,  and  investors  on  more 
developed capital markets, thereby reducing their chances of finding capital/investment opportunities. 
In  particular,  many  smaller  companies  –  including  in  smaller  Member  States  –  struggle  to  attract 
investors’ interest. This national or home bias furthermore limits the Union’s economic resilience by 
hindering  geographical  and  sectoral  diversification.  This  is  partly  explained  by  the  lack  of  easily 
accessible,  reliable,  understandable  and  comparable  public  information  that  would  help  investors  in 
their investment  decisions and  ease their  diversification  strategies.  Setting  up  a European  centralized 
access to public financial and non-financial information would boost issuers’ exposure to a wider set of 
investors, while ensuring a better allocation of capital in the EU.  

Setting  up  such  a  centralised  access  point  will  take  time.  A  phased  approach  should  be  preferred  in 
order  to  gradually  develop  the  initiative,  whilst  not  losing  sight  of  the  ultimate  objective  of  free 
centralized access to public information. 

Justification 
To  make  investment  decisions,  investors  in  capital  markets  require  information  about  issuers  of 
securities. The availability and quality of such public information is a measure of the transparency of a 
capital  market,  which  is  itself  a  driver  of  investor  confidence  in  capital  markets.  Suboptimal 
accessibility or quality of information about issuers therefore undermines investor confidence and the 

151 

 
 
 
 
 
development  of  capital  markets.  In  addition,  the  fragmentation  and  lack  of  comparability  of  public 
information  on  a  geographical/jurisdictional  basis  increases  search  costs  for  investors,  thereby 
undermining  their  ability  to  scale  their  investment  strategies  across  geographical/jurisdictional 
boundaries. This undermines the integration of capital markets. Public information therefore plays an 
essential role for both elements of the CMU project: 1) the development of national capital markets; 
and 2) the integration of capital markets across the EU. 

Accessing public financial and sustainability-related information can be difficult for anyone including 
investors, especially as it is scattered all across the EU. Accessibility is currently undermined by the 
lack  of  consistent  disclosure  mechanisms  and  of  a  single  point  of  access  to  such  information.  In 
addition,  diverse  implementation  of  reporting  obligations  at  national  level,  lack  of  harmonised 
definitions,  together  with language  barriers  render  data  understanding  and  comparability  across  most 
EU listed and non-listed companies challenging. This is first and foremost to the detriment of smaller 
companies  and  those  in  smaller  Member  States  with  less-developed  capital  markets.  These  market 
conditions  act  as  an  impediment  to  a  true  CMU.  Comparable,  usable  and  easily  accessible  public 
information is not only essential for investors, but also for financial intermediaries (i.e. rating agencies, 
financial  analysts,  research  providers,  etc.)  who    need  such  data  to  help  investors  to  make  informed 
investment decisions. Hence, there is scope for improving accessibility, usability and comparability of 
publicly  disclosed  public  information.  The  usability  of  public  information  could  also  potentially  be 
enhanced by broader use of structured data which could facilitate both analysis by investors and the use 
of information disclosed pursuant to securities markets legislation. 

Legal amendments 
The Commission is invited to put forward dedicated legislative proposals for the establishment of an 
EU Single Access Point (ESAP) for public information. In terms of sequencing, during ESAP’s stage 
ESMA, under the authority of the legislative proposals from the Commission should firstly set up the 
IT  infrastructure  (point  1  below).  The  legal  changes  needed  to  finalise  the  ESAP’s  stage  1  (point  2 
below)  could  be  proposed  in  parallel  before  proposing  the  legal  amendments  needed  to  implement 
ESAP’s stages 2 and3(corresponding to points 3 and 4 below respectively). 

1.  During  ESAP’s  stage  1,  as  a  very  first  action,  the  Commission  would  propose  new  provisions  in 
order  to  establish  the  ESAP  architecture,  as  there  is  currently  no  legal  obligation  to  interconnect 
national  and  European  registers  and  databases  other  than  the  European  Electronic  Access  Point 
foreseen in the Transparency Directive. When setting up this interconnection, relevant existing EU law 
should  be  taken  into  account  (e.g.  Open  Data  Directive,  EU  communication  on  data  strategy).  In 
addition, the Commission should define rules setting out how users can access such information (i.e. 
the characteristics of the ESAP for users, such as ensuring searchability by Member States of origin, 
sector,  size,  turnover  range,  etc.).  This  would  allow  users  to  already  have  access  to  all  listed 
companies’ public information via the ESAP, whatever the format of disclosure.  

2. For the finalisation of the ESAP’s stage 1, all pieces of EU legislation regulating the disclosure of 
public information shall be amended as follows: 

152 

 
 
 
 
 
 
ii) 

i)  The  Transparency  Directive  and  the  RTS  on  the  EEAP  should  be  amended  to  reflect  the 
amended  objective,  scope  and  organisational  set-up  of  the  European  electronic  access  point; 
adequate funding for ESMA should be foreseen in the related Legislative Financial Statement  
In order to facilitate the analysis and comparability of public information retrieved via the ESAP, 
the  Commission  should  amend  the  Transparency  Directive  (2004/109/EC),  the  Non  Financial 
Reporting  Directive  (2014/95/EU),  Prospectus  Regulation  (EU/1129/2017),150  Shareholders’ 
Rights  Directive  (2007/36/EC),  Take-Over  Bids  Directive  (2004/25/EC),  Market  Abuse 
Regulation  (EU/596/2014)  and  Short  Selling  Regulation  (EU/236/2012)  to  delegate  powers  to 
ESMA to define the machine-readable data fields and format (i.e. XML or similar data fields) to 
be applied by issuers when fulfilling each reporting obligation of public information. 

iii)  In order to ensure that companies’ reportings comply with the EU rules on the machine-readable 
data  fields  and  format, 
the  Transparency  Directive 
the  Commission  should  amend 
(2004/109/EC),  the  Non  Financial  Reporting  Directive  (2014/95/EU),  Prospectus  Regulation 
(EU/1129/2017),  Shareholders’  Rights  Directive  (2007/36/EC),  Take-Over  Bids  Directive 
(2004/25/EC),  Market  Abuse  Regulation  (EU/596/2014)  and  Short  Selling  Regulation 
(EU/236/2012)  to    grant  the  relevant  competent  bodies/authorities  in  charge  of  receiving  the 
company’s filings the power to conduct quality check, order resubmission and hold companies 
responsible for the public information that they submit and grant ESMA the power and budget to 
coordinate and steer such activities.  

iv)  In order to limit the administrative burden on companies related to disclosures, the Commission 
should  require  Member  States  to  implement  a  ‘file-only-once’  principle  for  companies  to 
disclose their public information only once through this entry point. In addition, the Commission 
should amend the Transparency Directive (2004/109/EC), the Non Financial Reporting Directive 
(EU/1129/2017),  Shareholders’  Rights  Directive 
(2014/95/EU),  Prospectus  Regulation 
(2004/25/EC),  Market  Abuse  Regulation 
(2007/36/EC),  Take-Over  Bids  Directive 
(EU/596/2014) and Short Selling Regulation (EU/236/2012) to require companies to submit their 
reporting only once through the established national single entry point.  
In  order  to  ensure  that  the  public  information  submitted  into  the  ESAP  by  companies  are 
complete and are compliant with the machine-readable data fields and formats, the Commission 
should amend articles 31 and 35 of the Regulation 1095/2010 establishing ESMA to broaden its 
powers of coordination over the collection of public information within its remit.  

v) 

3.  Once  stage  1  of  the  ESAP  is  operational,  its  scope  could  be  extended  to  include  all  public 
information foreseen in the ESAP’s stage 2:  

i) 

ii) 

the Commission should amend the Prospectus Regulation (EU) 1129/2017 and the Market Abuse 
Regulation  (EU)  2014/596  to  require  SME  growth  market  issuers  to  submit  their  reporting  of 
public information pursuant to these texts (i) only to the established national entry point and (ii) 
using the machine-readable data fields and formats developed at EU level. 
the Commission should amend Directive 2014/91/EU on UCITS and Directive 2011/61/EU on 
AIFM  to  require  related  disclosure  obligations  by  funds  (e.g.  UCITS  Prospectuses,  annual 

150 Building on the experience gathered in the context of the Prospectus register  

153 

 
 
 
                                                           
financial reports and any other fund-related public information documents) to be carried out (i) 
only once through the established national entry point and disclosed through the ESAP and (ii) 
using the machine-readable data fields and formats developed at EU level. 

iii)  The Commission should amend Regulation 2019/2088 on sustainability-related disclosures in the 
financial  services  sector,  as  well  as  any  future  legislation  on  sustainability  issues,  in  order  to 
require  market  participants  to fulfil their disclosure  obligations  (i) only  through  the  ESAP  and 
(ii) using the machine-readable data fields and formats developed at EU level.  

iv)  In  parallel,  the  Commission  should  delegate  powers  to  ESMA,  EBA  and  EIOPA  to  assess 
whether  it  is  appropriate  to  develop,  and  if  so  to  develop,  relevant  taxonomies  (in  XBRL  or 
similar formats) or standardised reporting templates for issuers to be able to fulfil their reporting 
obligations within the scope of the ESAP’s stage 2 in a standardised and comparable manner. 

4. During ESAP’s stage 3, the following amendments could be considered: 

i)  The  Commission  should  amend  Regulation  (EU)  575/2013  on  Capital  Requirements  the 
Solvency  II  Directive  (2009/138/EC) to require  (i)  credit  institutions  to  submit Pillar  3 reports 
only  to  the  national  entry  point;  (ii)  insurance  undertakings  to  submit  Solvency  and  Financial 
Condition Reports (SFCRs) only to the national entry point; and that both (iii) use the machine-
readable data fields and formats developed at EU level. 

In  parallel  with  the  ESAP’s  stage  1,  the  Commission  should  mandate  ESMA  to  assess  whether  the 
scope and functionalities of the ESAP could be expanded to non-listed companies (including non-listed 
SMEs)  willing  to  opt-in  on  a  voluntary  basis.  Public  information  disclosed  by  non-listed  companies 
would  need  to  be  harmonised  and  comparable.  For  instance,  on  the  basis  of  ESMA’s  advice,  the 
Commission could allow non-listed companies, on a voluntary basis, to either (i) comply with the same 
reporting  obligations  as  listed  companies,  or  (ii)  comply  with  a  subset  of  these requirements,  or  (iii) 
publish financial accounts according to alleviated IFRS standards. 

Feasibility: Implementation process and possible risks 

  The EU single access point is an ambitious project, which might face reluctances from Member 
States  and  national  supervisors,  despite  its  potential  of  being  a  game-changer  for  investors, 
companies  and  financial  intermediaries.  In  particular,  broadening  the  scope  of  the  ESMA’s 
(and potentially, in a later phase, other ESA’s) powers and unlocking budget to set up and run 
the ESAP could prove difficult. 

  The  scope  of  public  financial  and  sustainability-related  information  which  could  be  included 
within the ESAP following the first phase means that proper consideration would need to be 
given  to  operational  arrangements  to  ensure  smooth  coordination  among  the  ESAs  and  other 
national databases/ registrars. For instance, sustainability-related disclosures of entities within 
the  exclusive  scope  of  EIOPA  or  EBA’s  remits  (i.e.  non  listed  banks  or  insurances),  are  not 
within ESMA’s remits.  

  Making the ESAP free for users will require finding appropriate budget or funding for national 
entry points and the ESAP set-up and running. In addition, the cost of implementing the ESAP 
will vary depending on how ambitious its scope will be.  

154 

 
 
 
 
 
Expected benefits 

  Contribute  to  further  integrating  European  capital  markets  by  giving  investors  an  easy,  EU-
wide  view  of  investment  options,  thus  enabling  a  more  efficient  allocation  of  capital  and 
indirectly strengthening economic resilience through diversification 

  Promote companies’ visibility to potential investors and financial intermediaries 
  Enable big data and IA based services through the increased use of structured data  
  Contribute  to  the  harmonisation  and  standardisation  of  publicly  disclosed  information  of 

companies, both financial and non-financial, to allow its findability  

  Facilitate  the  findability  of  SME  data,  thus  tackling  an  important  barrier  to  more  SME 

investment. 

Delivery timetable 

  The  Commission  should  put  forward  a legislative  proposal  by  mid-2021  to  task  ESMA  with 
setting  up  the  ESAP  IT  structure  and  providing  ESMA  with  adequate  ad  hoc  funds  and 
resources to deliver on this project. 

  ESMA should identify the most suitable IT structure for the ESAP by mid-2022. 
  ESMA should roll out the ESAP’s first stage by Q2 2023.  
  Following stages should be assessed after phase 1 is fully operational. Stage 2 should ideally 

follow by 2025. 

  The Commission should empower other relevant authorities to deploy stage 3 by Q2 2028. 

155 

 
 
 
 
 
 
 
 
 
ANNEX 12: PROBLEM DEFINITION  

This  annex  provides  a  full  description  of  the  problem  definition,  to  complement  the  overview 
given in section 2.1. 

It  is  useful  to  make  a  distinction  between  problems  for  users  of  non-financial  information 
disclosed in company annual reports, and problems for preparers of that information (that is to 
say, reporting companies). 

1.  Problems and consequences from the perspective of users of non-financial information 

a.  Specific problems from a user perspective 

The specific problems from the perspective of users of non-financial information are:  

i. 

Some  companies  from  which  users  want  non-financial  information  do  not  report  such 
information. 

ii.  Many  companies that do report non-financial information  nevertheless do not  report all 

relevant information that users need or want. 
iii.  Reported information is not sufficiently comparable. 
iv.  Reported information is not sufficiently reliable. 
v. 

It is hard for users to find and exploit the information they are looking for even when that 
information is reported.   

Each of these specific problems is described in more detail below. 

i. 

Specific problem: Some companies from which users want non-financial information do not 
report such information.  

NGOs  and  other  organisations  that  wish  to  hold  companies  accountable  for  their  social  and 
environmental  impacts  argue  that  some  companies  do  not  disclose  adequate  non-financial 
information  even  though  their  impacts  may  be  significant.  For  example,  large  non-listed 
companies,  with  the  exception  of  banks  and  insurance  companies,  are  not  subject  to  the 
disclosure  requirements  of  the  NFRD  even  though  they  may  have  significant  social  and 
environmental  impacts.151  A  very  high  proportion  (87%)  of  social  and  environmental 
organisations  responding  to  the  2020  public  consultation  believed  that  the  scope  of  the  NFRD 
should be expanded to include all large non-listed companies.   

151  According  to  estimates  based  on  CEPS  study  only  around  25%  of  other  categories  of  large  companies  and  5%  of  SMEs 
publish non-financial information on a voluntary basis.  

156 

 
 
 
 
 
                                                           
 
Some  investors/financial  market  participants  argue  that  they  need  information  from  a  larger 
number of companies than those subject to the NFRD. For example, they may need non-financial 
information  from  smaller  listed  companies  (not  under  the  scope  of  the  NFRD),  to  be  able  to 
assess  and  compare  risks  between  listed  companies.  They  will  also  need  some  non-financial 
information  from  companies  that  do  not  currently  disclose  such  information  in  order  to  meet 
their own reporting requirements under the SFDR and Taxonomy Regulation. 70% of financial 
sector respondents to the open consultation believed that all listed companies should be required 
to disclose non-financial information, regardless of their size.  

The subsidiaries of parent companies are not obliged to disclose non-financial information if the 
parent company does so according to the NFRD provisions on a consolidated basis. Information 
at  the  subsidiary  level  may  nevertheless  be  of  interest  to  users,  either  for  civil  society 
organisations who wish to know more about the impacts of a group at individual country level, 
or for investors considering investments in the subsidiary.  

Box 1 

Examples  of  evidence  that  some  companies  from  which  users  want  non-financial  information  do 
not report such information 

 

 

 

“Large  private  companies  have  considerable  societal  and  environmental  impacts.  They  also 
operate in high-risk sectors and areas of the world […] In light of this reality, there is therefore 
no  justification  for  excluding  privately-owned  companies  from  these  reporting  obligations.” 
European  Coalition  for  Corporate  Justice,  response  to  2018  public  consultation  on  EU 
framework for public corporate reporting. 

“The scope of the NFRD is too limited, as it fails to include medium-sized companies from 
these  reporting  obligations.  Increasing  the  pool  of  companies  that  shall  do  sustainability 
reporting will give the public and investors a broader and more adequate picture of how the 
market  stands  […].”  World  Wildlife  Fund,  response  to  2018  public  consultation  on  EU 
framework for public corporate reporting. 

“The  EU  rules  on  non-financial  reporting  should  apply  to  all  listed  companies  given  the 
application  of  the  taxonomy  to  all  financial  investments  in  the  capital/financial  market. 
Companies  from  sectors  with  a  high  transition  risk  (for  example  mining,  carbon,  smaller 
utilities), should also comply with reporting obligations for material risks (e.g. climate only), 
regardless of the size of the company.” European Banking Federation, comments on Inception 
Impact Assessment for review of the Non-Financial Reporting Directive, February 2020.  

157 

 
 
 
 
 
 
 
 
 
ii. 

Specific problem: Many companies that do report non-financial information nevertheless do 
not report all relevant information that users need or want.  

There  is  a  large  amount  of  evidence  that  many  companies  fail  to  disclose  the  non-financial 
information  that  users  find  necessary  and  relevant.  This  evidence  comes  from  a  variety  of 
different sources, including investors, non-governmental organisations, and national supervisors 
and enforcement authorities.152 In summary, the principal disclosure gaps are:  

  Failure  to  report  non-financial  information  that  is  sufficiently  specific  and  detailed  to 
meet  user  needs.  The  information  reported  is  in  many  cases  generic  and  summary  in 
nature,  and  does  not  address  particular  issues  or  risks  faced  by  the  company.  For 
example,  few  companies  provide  adequate  information  about  their  dependencies  on 
natural  capital  and  the  implications  of  such  dependencies  for  their  business  model  and 
risks.   

  Weaknesses in  reporting  of specific non-financial  matters. There is  evidence of  gaps in 
reporting of relevant information on all the non-financial matters identified in the NFRD: 
environment (including climate), social  and employee issues, human rights, and bribery 
and  corruption.  There  is  also  evidence  of  gaps  in  reporting  on  risk  management,  on 
supply-chain risks, and on due diligence processes.  

 

it 

is  widely  recognised 

In  addition, 
is 
that 
underreported.153  Investments  in  intangible  assets  often  do  not  qualify  to  appear  in  a 
company’s  financial  accounts,  and  this  is  rarely  compensated  by  adequate  reporting  on 
such assets in other parts of the annual report, including the non-financial statement. 59% 
of  users  who  replied  to  the  consultation  stated  that  companies  should  be  required  to 
disclose non-financial information on intangible assets. 

intangible  assets 

information  on 

  Failure to report about negative impacts and positive impacts in a balanced way, with a 

tendency to emphasise the positive impacts and under-report negative impacts.  

152  Examples  include:  “Undue  short-term  pressure  on  corporations”,  European  Securities  and  Markets  Authority  (ESMA), 
December 2019; “2019 Research Report: An analysis of the sustainability reports of 1000 companies pursuant to the EU Non-
Financial Reporting Directive”, Alliance  for Corporate Transparency, 2020; “In Balance 2019 - Survey of value creation and 
follow-up to the Non-Financial Information (Disclosure) Decree”, Dutch Authority for the Financial Markets (AFM), December 
2019; “Compliance by Belgian listed companies with the requirement to publish a non-financial statement”, Belgian Financial 
Services and Markets Authority, March 2019; “Integration of Sustainability into Corporate Governance: A survey of financial 
firms’  public  sustainability  information”,  Finansinspektionen  (Swedish  Financial  Supervisor),  November  2018;  Ensuring  the 
relevance  and  reliability  of  non-financial  corporate  information:  an  ambition  and  a  competitive  advantage  for  a  sustainable 
Europe, Patrick de Cambourg, May 2019.  
153 See for example: “Investment in intangible assets in the euro area” in ECB Economic Bulletin, Issue 7/2018, European Central 
Bank, 2018.  

158 

 
 
  
 
 
 
                                                           
  Failure to report adequate information on the outcomes of company policies on the non-
financial issues identified in the NFRD (environment, social and employee issues, human 
rights,  and  bribery  and  corruption).  This  can  be  linked  to  imprecise  descriptions  of 
company policies, which often lack measureable targets. 

  Failure to link key performance indicators to the company’s policies, targets or outcomes. 
This  reduces  the  relevance  of  the  reported  KPIs  for  investment  analysts  and  other 
stakeholders.  

  Failure  to  explain  potential  links  between  non-financial  and  financial  information, 
including the impacts of non-financial issues on the company. This problem tends to be 
exacerbated  in  the  case  of  companies  that  publish  non-financial  information  separately 
from their management report. 

  The  lack  of  adequate  forward-looking  information,  which  many  users  value  especially 

highly in comparison to backward-looking, historical performance data.  

  Failure  to  comply  with  the  requirement  in  the  NFRD  to  provide  an  explanation  in  the 
case  that  the  company  does  not  have  a  policy  on  any  of  the  sustainability  matters 
identified in the NFRD. 

  Failure  to  disclose  how  the  company  has  decided  what  information  is  material  to  its 
particular circumstances and should therefore be reported. 83% of users responding to the 
open  consultation  think  companies  reporting  under  the  NFRD  should  be  required  to 
disclose their materiality assessment process. 

Responses to the open public consultation show that the 72% of users consider companies do not 
disclose  all  relevant  non-financial  information.  This  problem  will  intensify  further  when  the 
SFDR  comes  into  force.  This  is  because  financial  market  participants  will  need  investee 
companies to report certain specific information in order to be able to meet their own disclosure 
requirements  under  the  SFDR.  Of  financial  sector  respondents  to  the  public  consultation,  only 
25%  believed  the  current  reporting  requirements  of  the  NFRD  would  ensure  that  investee 
companies report the information that financial market participants will require once the SFDR 
comes into force.   

While  users  generally  believe  that  companies  fail  to  disclose  significant  amount  of  relevant 
information, companies themselves generally believe that they are at least complying with legal 
requirements. In the CEPS survey of companies currently under the scope of the NFRD, nearly 
all the surveyed companies stated that they report on their business model, environmental, social, 

159 

 
 
 
 
 
 
 
 
human rights, anti-corruption and bribery matters as required under the NFRD. Around half of 
surveyed companies stated that they report on all required matters to the full extent and nearly 
one-third  of  the  companies  stated  that  they  report  on  all  the  matters  to  a  high  extent.  Only  a 
marginal  share  of  companies  (1%–3%)  stated  that  they  do  not  report  at  all  on  one  of  the  five 
matters. 

Companies  that  only  publish  non-financial  information  in  reports  that  are  separate  from  the 
management  report  are  less  likely  to  explain  the  connections  between  the  financial  and  non-
financial  information  that  they  are  reporting.  The  separate  publication  of  financial  and  non-
financial  information  therefore  prevents  investors  from  receiving  an  integrated  and  coherent 
overview  of  the  risks  facing  the  company.  At  the  same  time,  the  strategic  importance  of 
synergies between financial and non-financial information is growing rapidly, as the interactions 
between  sustainability  and  company  value  become  ever  more  evident.  Companies  that  publish 
financial  and  non-financial  information  together  in  the  same  report  are  more  likely  to  provide 
users with relevant information about how non-financial risks and performance might influence 
the future value of the company. 

Whether  a  company  reports  against  a  recognised  reporting  standard,  is  a  useful  proxy  for 
assessing  the  relevance  reported  information.  Based  on  CEPS  study,  we  estimate  that  only 
around  20%  of  large  limited  liability  companies  in  the  EU  comprehensively  apply  recognised 
reporting standards.  

 Box 2 

Examples of evidence that companies do not report all information that users consider relevant 

 

“Some  companies  create  links  between  the  information  provided  in  their  non-financial 
statement  and that included  in  other  parts  of the annual financial statement, thereby  making 
the latter more consistent and logical. Too few such links have, however, been established to 
date  between  financial  and  nonfinancial  information.  “Compliance  by  Belgian  listed 
companies  with  the  requirement  to  publish  a  non-financial  statement”,  Belgian  Financial 
Services and Markets Authority, March 2019. 

  A report on human rights reporting by French companies found that 18 out of 20 companies 
analysed did not identify their salient human rights issues (i.e. the human rights at risk of the 
most  severe  negative  impact  through  the  company’s  activities  and  business  relationships). 
Human Rights Reporting in France, Shift, 2018. 

  60%  of  institutional  investors  responding  to  an  EY  survey  believed  that  companies  do  not 
disclose  ESG  risks  that  could  affect  their  business  and  that  they  should  disclose  them  more 
fully. This represented an increase of 21 percentage points on the previous survey. EY survey 
of institutional investors, EY, 2017 

160 

 
 
 
 
 
 
 
iii. 

Specific problem: Reported information is not sufficiently comparable.  

One  of  the  most  frequent  complaints  from  users  of  non-financial  information  is  that  reported 
information  is  not  easily  comparable  between  companies.  Respondents  to  the  2018  Fitness 
Check public consultation were significantly less optimistic about the impacts of the NFRD on 
the comparability of non-financial information  compared to its impacts on other characteristics 
of that information (e.g. material, timely). Similarly, respondents to the 2020 public consultation 
believed that limited comparability was a bigger problem that the limited reliability of reported 
information or than the non-reporting of relevant information. The great majority of users (84%) 
believed  that  the  limited  comparability  of  information  is  a  problem,  and  only  3%  of  users 
believed is not a problem.   

Comparability  is  critical  in  certain  circumstances,  especially  when  comparing  the  risks  of 
different  investments.  Without  comparable  information  from  different  companies,  the  value  of 
information  from  any  one  company  is  greatly  reduced.  Comparability  is  especially  important 
between companies in the same economic sectors.  

The problem of comparability manifests itself in different ways. It may arise when one company 
reports  a  certain  piece  of  information  but  another  company  does  not  disclose  that  same 
information. It may result from differences in the methodologies used by different companies to 
report  data  on  the  same  issue  (e.g.  different  methodologies  to  report  a  KPI  on  environmental 
impact). In addition, differences in presentation of data can hamper comparability. 

Box 3 

Examples of evidence that reported information is not sufficiently comparable 

  48% of a sample of 100 European investors from France, Germany, Italy, Spain, and the U.K 
say  that  obtaining  consistent  and  comparable  historical  data  is  a  big  challenge.  “The 
Sustainability  Imperative:  Business  and  Investor  Outlook  2018”,  Bloomberg  Sustainable 
Business & Finance Survey. 

  An analysis found 20 different ways companies report their employee health and safety data, 
and showed that these inconsistencies lead to significantly different conclusions when looking 
at  the  same  group  of  companies.  “Four  Things  No  One  Will  Tell  You  About  ESG  Data”, 
Journal  of  Applied  Corporate  Finance  31  (2),  Spring  2019,  pages  50-58.  Sakis  Kotsantonis 
and George Serafeim.  

 

“The  lack  of  consistent  methodologies  and  reporting  standards,  and  mixed  evidence  of 
performance  make  it  challenging  for  investors  to  incorporate  ESG  principles  into  their 
investment  process.”  October  2019  Global  Financial  Stability  Report  (GFSR),  International 
Monetary Fund.  

161 

 
 
 
 
 
 
 
 
iv. 

Specific problem: Reported information is not sufficiently reliable  

The  value  of  non-financial  reporting  is  closely  linked  to  the  extent  to  which  users  trust  the 
information  reported.  While  users  generally  have  confidence  in  the  accuracy  of  financial 
information reported by companies, they tend to have less confidence in reported non-financial 
information.  A  number  of  analyses  have  pointed  to  the  limited  reliability  of  non-financial 
information  as  one  of  the  reasons  why  such  information  often  fails  to  meet  the  needs  of  the 
intended users.154  

The publication of non-financial information in a separate report, instead of in the management 
report,  can  impact  negatively  on  the  perceived  reliability  of  the  information  if  it  gives  the 
impression that the company board attaches less importance to non-financial reporting. 

73% of users who responded to the open public consultation believe that the limited reliability of 
non-financial  reported  information  is  a  problem.  Moreover,  69%  of  users  responding  to  the 
consultation believe the existing differences between financial and non-financial information are 
not  at  all  justifiable  or  are  justifiable  only  to  small  extent,  compared  to  34%  of  respondents 
believe differences are justifiable.  

Based on CEPS study, we estimate that only around 30% of large limited liability companies in 
the EU publish non-financial information that has been assured to a minimum level.  

Box 4 

Examples of evidence that reported information is not sufficiently reliable 

 

 

“One  implication  of  our  study  is  that  policy-makers  need  to  consider  whether  existing  NFD 
requirements will lead to the provision of information of sufficient quality. To enhance quality, 
policy  makers  could  require  companies  to  undertake  external  assurance  of  the  information 
disclosed.  The  importance  of  rigorous  independent  verification  processes,  designed  to  reassure 
stakeholders  about  the  credibility,  completeness  and  materiality  of  the  social  information 
reported, has been stressed in various previous studies […]”  “Mandatory Non-financial Disclosure 
and  Its  Influence  on  CSR:  An  International  Comparison”,  Jackson,  G.,  Bartosch,  J.,  Avetisyan,  E.  et  al. 
Journal of Business Ethics (2019) 

“[… N]ow that there are legal requirements for financial market participants to disclose the ESG 
risks and factors of their financial products based on data sourced from issuers of the instruments 
underlying  the  financial  products,  mandatory  third-party  assurance  around  such  data  would  be 
critical.  It  would  help  enhance  the  quality  and  credibility  of  the  non-financial  information 
reported  by  issuers  and  consequently  by  financial  product  manufacturers  and  distributors.  As  a 
result,  this  would  help  decrease  the  risk  of  mis-selling  and  greenwashing  for  investors.”  

154 For example: “Undue short-term pressure on corporations”, European Securities and Markets Authority (ESMA), December 
2019; “Social and environmental value creation”, Association of Chartered Certified Accountants, 2019. 

162 

 
 
 
 
 
                                                           
Association  for  Financial  Markets  in  Europe  (AFME),  response  to  2020  open  public  consultation  on  the 
revision of the NFRD.  

 

“Bringing assurance as to the quality of the non-financial information reported is essential. As a 
consequence,  external  control  of  non-financial  information  by  third-party  verification  providers 
should  be  mandatory  throughout  the  EU  and  those  third-party  verification  providers  should 
certify the information.”  Finance Watch, response to 2020 open public consultation on the revision of 
the NFRD 

v. 

Specific problem: It is hard for users to find and exploit the information they are looking for 
even when that information is reported.   

There  are  a  number  of  reasons  why  users  often  experience  difficulties  in  finding  the  non-
financial information they are looking for even when that information has been reported. Firstly, 
many reporting companies disclose significant amounts of information that users consider not to 
be  relevant  alongside  the  information  that  they  do  consider  relevant.  Typical  examples  of  less 
relevant  information  are  descriptions  of  the  company’s  philanthropic  activity,  or  performance 
indicators that are not critical to understanding the company’s principal impacts or risks (e.g. a 
bank  reporting  on  its  paper  consumption).  The  reporting  of  such  information  increases  the 
overall volume of reports, meaning  that users must spend more time and resources finding the 
information  that  they  do  consider  relevant.  59%  of  users  who  replied  to  the  open  public 
consultation face difficulties finding the reported information. 

Secondly, non-financial information is not sufficiently digitalised, which hinders users’ access to 
and the usability of the reported information. There is no widely accepted IT taxonomy for non-
financial information that would enable digital tagging.155 This in turn limits the extent to which 
non-financial  information  machine-readable.  In  addition  there  is  no  single  data  space  that 
provides  easy  access  to  all  non-financial  information  reported  by  companies.  The  limited 
digitalisation of non-financial information exacerbates the other problems that users experience 
in terms of finding and exploiting reported non-financial information. According to the results of 
the open publication, 77% of users agree that it would be useful to require the tagging of reports 
containing  non-financial  information  and  79%  of  users  agree  that  non-financial  information 
should be available through a single access point. 

Thirdly,  companies  present  their  non-financial  information  in  different  formats  rather  than 
according to  a standard format. For example, while some companies present a summary list of 

155  ‘Taxonomy’  is  the  technical  term  used  for  IT  systems  (categorisation  system).  It  does  not  refer  to  the  new  taxonomy  of 
sustainable economic activities established by the Taxonomy Regulation.  

163 

 
 
 
 
 
 
                                                           
KPIs  in  one  place,  many  present  KPIs  throughout  their  report  with  no  summary  list.156  The 
greater the variety between companies in terms of structuring their non-financial information, the 
greater the difficulty for users in finding and using the information they need. 

Finally,  companies  often  divide  their  non-financial  information  between  different  publications, 
meaning that some users may have difficulty in finding all the information they are looking for in 
one place. This may be the case when companies publish some non-financial information in the 
management report, and also  publish a separate sustainability or  corporate social  responsibility 
report. According to the public consultation, a substantial majority of users (58%) say that non-
financial information published in a separate report is hard to find.  

In  addition,  the  exemption  of  subsidiaries  from  the  reporting  obligations  of  the  NFRD  if  the 
parent company is subject to the NFRD provisions on consolidated reporting, makes it difficult 
for  users  to  identify  the  reporting  parent  company  and  to  find  the  non-financial  information  it 
publishes. 

b.  How do the problems of NFR reporting vary across the EU? 

According  to  the  2019  report  by  the  Alliance  for  Corporate  Transparency,  the  quality  of  non-
financial  reporting  by  companies  from  the  Eastern  European  region  was  worse  than  that  of 
companies  from  other  regions  on  most  criteria.  The  reporting  of  companies  from  the  Eastern 
European region was especially weak with regard to climate and human rights.  

This  statement  is  consistent  with  the  research  conducted  by  Polish  Institute  for  Human  Rights 
and  Business  as  part  of  the  Valuing  Respect  Project  led  by  Shift.  According  to  the  latter, 
information provided and the way it is presented make it also rather doubtful that the company is 
using it in a strategic way to inform its further actions. At times, the user is also not sure if the 
company  is  actually  measuring  anything  that  would  be  useful  to  advance  it  on  its  quest  to  be 
better. Finally very low number of companies actually reports on risks in a specific way. With 
few  exceptions  amongst  the  107  reports  examined,  even  those  companies  reporting  on  risks 
approached this issue as risks to company and not risks to people.  

The key points from PIHRB research in  2017 into the current  use of metrics regarding human 
rights in NFR are: 1) Company reporting is focused on input, activity and output data with 79% 
of all information  falling into these indicator categories. Detailed information  about  inputs and 
activities  is  rarely  provided.  2)  With  regard  to  outputs,  which  are  the  dominant  category  of 
indicators,  about  88%  of  these  are  reported  in  numerical  form.  They  are  often  presented  as  a 

156 “Only 21.9% of companies provide their KPIs in summarised statements. The absence among four fifths of all companies of 
such a summary significantly undermines the practical usability of their reports.”  – “2019 Research Report: An analysis of the 
sustainability  reports  of  1000  companies  pursuant  to  the  EU  Non-Financial  Reporting  Directive”,  Alliance  for  Corporate 
Transparency, 2020.  

164 

 
 
                                                           
snap-shot for the reporting period, without a narrative of what the company concluded or did as a 
result of that data. PIHRB considers that this might reflect that data included in monitoring and 
reporting  is  driven  more  by  external  requirements  than  by  the  perceived  value  of  the  data  for 
business decision making. 

The  CEPS  study  carried  out  in  preparation  of  this  impact  found  that  companies  in  central  and 
Eastern  European  Member  States  were  more  likely  to  perceive  non-financial  reporting  as  a 
communication  exercise  than  as  a  strategic  document  reflecting  the  company’s  approach  to 
sustainability.  They  were  also  less  likely  to  understand  the  concept  of  the  ‘double  materiality 
perspective’ (the obligation to report information on how non-financial issues effect the company 
and the impact of the company itself on society and the environment).  

According to the 2019 report by the Alliance for Corporate Transparency , the key trend is that in 
most  categories  Nordic  companies  tend  to  be  among  regions  that  report  more  specific 
information  than  others,  whereas  Eastern  European  companies  lag  behind.  The  exception  is  a 
very low rate of disclosure of integration of ESG criteria in executive remuneration in the Nordic 
region.  Since  this  is  not  in  line  with  any  other  data,  it  is  likely  a  result  of  specific  corporate 
governance or disclosure traditions.  

According  to  the  same  report,  in  some  countries  such  as  France,  in  addition  to  the  NFR 
Directive,  companies  are  subject  to  more  detailed  requirements  on  climate  change  disclosures. 
So that, in general, French companies provide noticeably information on their strategy and they 
also often describe how they integrate ESG criteria in the executive remuneration. This suggests 
that clear reporting requirements result in the disclosure of relevant data 

It is worthy to mention the 2019 Spanish report by the Alliance for Corporate Transparency and 
Sustentia which analyse sustainability reports of 67 Spanish companies. According to the latter, 
Spanish companies present better results in several indicators than European companies in most 
cases,  however  this  information  is  formal  and  not  very  material.  In  other  words,  there  are 
significantly more Spanish companies that report on their commitments on climate change, use 
of natural  resources, respect  for human rights  or anti-corruption. However, the percentages are 
similar to those in Europe when we focus only on those companies that report on the key aspects 
and objectives of these policies. 

Something similar occurs with the information on the results of the policies where only 10% of 
Spanish  and  European  companies  provide  results  that  allow  understanding  the  degree  of 
compliance with the objectives and goals established by the policies. However, it is important to 
note that regarding certain indicators that are specified by the national Law, there are many more 
Spanish than European companies that provide data, for example the wage gap between men and 
women  (Spain  72%,  average  European  24%).  As  in  the  case  of  France,  a  clear  reporting 
requirements result in the disclosure of relevant data. 

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c.  General problems from a user perspective 

The specific problems described in point (a) above create the following general problem from the 
user  perspective:  users  do  not  have  access  to  adequate  information  about  how  non-financial 
issues,  and  sustainability  issues  in  particular,  might  impact  companies,  or  about  how  the 
company itself impacts society and the environment:   

  General problem: Users do not have access to adequate publicly-available information about 
how  non-financial  issues,  and  sustainability  issues  in  particular,  might  impact  companies. 
This information is of most interest to investors / financial market participants, who wish to 
understand and compare the financial risks of different companies. 

  General problem: Users do not have access to adequate publicly-available information about 
the  potential  and  actual  impacts  of  companies  on  society  and  the  environment.  This 
information is of interest both to NGOs and to investors/financial market participants.  NGOs 
and  other  organisations  want  to  have  such  information  in  order  to  hold  companies 
impacts.  Investors/financial  market 
accountable  for 
participants may want this information either to fulfil their own legal requirements under the 
Sustainable  Finance  Disclosure  Regulation  (SFDR)  and  the  Taxonomy  Regulation;  and/or 
because they are marketing a ‘sustainable’ financial product and therefore need information 
about the social and environmental impacts of companies financed by that product. 

their  social  and  environmental 

The specific and general problems from a user perspective 

Overall,  “there  is  a  growing  expectation  gap  between  users  and  providers  of  ESG 
information.”157 The investor demand for sustainability and other non-financial information has 

157 Undue short-term pressure on corporations, ESMA, December 2019 

166 

 
 
 
 
 
                                                           
been growing fast and is predicted to increase further.158 These specific problems are therefore 
highly likely to intensify (see section 2.3 “How will the problems evolve?”).  

Added  to  the  increasing  demands  for  non-financial  information  from  investors  is  accompanied 
by  other  legislative  requirements  that  companies  must  comply  with,  such  as  the  SFDR  for 
financial  market  participants,  or  the  Taxonomy  Regulation.  Under  this  context,  69%  of  the 
financial sector respondents to the public consultation believe the current NFRD requirements do 
not ensure, or to a small extent, that investee companies report the information  required by the 
financial sector to meet the new disclosure regulations.  

d.  Consequences of problems from a user perspective 

The  specific  and  general  problems  from  a  user  perspective  have  a  number  of  consequences, 
which vary depending on the potential users of the information. 

i.  Consequences of inadequate information for investors. 

The lack of adequate non-financial information means that investors are unable to take sufficient 
account  of  sustainability-related  and  other  non-financial  risks  and  opportunities  in  their 
investment  decisions.  This  has  the  potential  to  create  systemic  risks  that  threaten  financial 
stability. It is for this reason that central banks, in the G20’s Financial Stability Board, launched 
the  Task  Force  on  Climate  Related  Financial  Disclosures  (TCFD)  in  2018.  Their  aim  was  to 
improve  reporting  by  companies  on  the  financial  implications  of  climate  change  and  thereby 
reduce systemic risk.  

Analysis  by  the  European  Central  Bank  shows  that  climate  change-related  risks  have  the 
potential to become systemic for the euro area, in particular if markets are not pricing the risks 
correctly.159 The Network of Central Banks and Supervisors for Greening the Financial System 
(NGFS) has recognised that there is “a strong risk that climate-related financial risks are not fully 
reflected  in  asset  valuations.”160  To  help  address  this  risk,  the  NGFS  endorses  the  TCFD 
disclosure  framework,  and  recommends  that  policy-makers  and  supervisors  support  the 
development of an internationally consistent environmental disclosure framework. 

In November 2020 the Financial Stability Board published a report on the implications of climate 
change  for  financial  stability.161  The  report  states  that  “the  breadth  and  magnitude  of  climate-

158 See  for example  Stakeholder Perceptions of Non-Financial Reporting, UK Department for Business, Energy  and Industrial 
Strategy, 2019: “There was also a consensus that non-financial reporting is becoming and will be increasingly important in the 
future as investors become more engaged with non-financial risks.” 
159 “Climate change and financial stability” in Financial Stability Review, European Central Bank, May 2019.  
160 A call for action Climate change as a source of financial risk, Network for Greening the Financial System, April 2019.  
161 The Implications of Climate Change for Financial Stability, Financial Stability Board, November 2020.  

167 

 
 
 
                                                           
related  risks”  might  make  the  effects  of  these  risks  “more  pernicious  than  in  the  case  of  other 
economic  risks”,  and  that  “the  interaction  of  climate-related  risks  with  other  macroeconomic 
vulnerabilities  could  increase  risks  to  financial  stability”.  The  report  goes  on  to  point  out  that, 
“even  where  individual  financial  firms  take  actions  to  mitigate  risks,  climate-related  risks  to 
financial  stability  might  be  sustained  by  a  lack  of  disclosure  by  financial  firms  of  their  own 
financial exposures to climate-related risks and risk management processes.”   

The  financial  risks  at  stake  from  sustainability  issues  are  considerable,  and  are  by  no  means 
limited  to  climate  change.  The  Netherlands  National  Bank  estimates  that  the  Dutch  financial 
sector’s exposure to the most water-scarce regions in the world is EUR 97 billion, and highlights 
significant  financial risks arising from human rights  issues and biodiversity loss.162 The World 
Economic Forum has concluded that USD 44 trillion of economic value generation (over half of 
global  GDP)  “is  moderately  or  highly  dependent  on  nature  and  its  services  and  is  therefore 
exposed to nature loss”.163  

Building  on  the  experience  of  the  TCFD  in  the  climate  field,  the  creation  of  Taskforce  for 
Nature-related Financial Disclosures (TNFD) is now being considered, with the aim of creating a 
framework  for  the  reporting  of  financial  risks  that  result  from  biodiversity  loss  and  from 
companies’ dependencies on natural capital.164 The fact that a number of major banks and asset 
managers have joined the TNFD is further evidence that the demand from financial markets for 
better  information  extends  beyond  just  climate-related  risks  to  encompass  the  broader 
sustainability agenda. In a speech to the One Planet Summit in December 2020, the chair of the 
NGFS indicated that the network will increasingly consider the implications of biodiversity loss 
in its future work.165 

The  evidence  shows  that  most  individual  companies  fail  to  report  adequately  on  their 
sustainability-related  risks,  including  on  their  dependencies  on  natural  capital  (see  section  (a) 
above,  “Specific  problems  from  a  user  perspective”).  This  means  that  individual  investment 
decisions  cannot  take  such  risks  into  account.  The  potential  for  systemic  risks  across  the 
financial  system  is  accentuated  by  the  accumulation  of  individual  investments  that  are  made 
without  adequate  regard  for  sustainability-related  financial  risks.  The  lack  of  adequate 
information on intangible assets further limits the ability of investors to make judgements about 
risks and opportunities. According the European Financial Reporting Advisory Group (EFRAG) 
this lack of information can have adverse economic impacts in terms of: the level of information 
asymmetry concerning a firm (volatility of share prices and insider trading); the accountability of 

162 Values at risk: Sustainability risks and goals in the Dutch  financial sector, De Nederlandsche Bank (Dutch National Bank), 
2019 
163 Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy, World Economic Forum, 2020 
164 https://tnfd.info/  
165 Source “Environmental Finance”, subscription required.  

168 

 
 
                                                           
management  for  actions/decisions  in  managing  the  firm’s  resources;  and  the  lack  of  data  for 
analysis  and  rational  external  resource  allocation  and  investment  decisions.166  Investment  in 
intangible assets currently represents the majority of investment carried out by the private sector 
in advanced economies.167 Intangible assets to some extent help to explain the widely recognised 
gap between the accounting book value of many companies and their market valuation. In many 
sectors  of  the  economy,  for  example  information  technologies,  this  gap  is  widening.168  Since 
traditional  financial  accounting  cannot  adequately  reflect  all  intangible  assets,  it  becomes  ever 
more important that companies include information about intangible assets in their non-financial 
reporting.  

In  addition  to  contributing  to  systemic  financial  risks,  the  lack  of  adequate  non-financial 
information from companies hinders the ability of the financial system to channel more financial 
resources  to  companies  and  economic  activities  that  address  and  do  not  exacerbate  social  and 
environmental  problems.169  If  investors  do  not  have  adequate  information  about  the  social  and 
environmental impacts of investee companies then by definition they cannot make decisions that 
take  such  impacts  into  account.  Recently  agreed  legislation,  in  particular  the  SFDR  and  the 
Taxonomy  Regulation,  aims  to  address  this  problem,  but  depends  for  its  success  on  more  and 
better non-financial information from companies.  

The overall consequence is that the financial system cannot play the positive role that it needs to 
play  in  the  urgent  transition  to  a  sustainable  economic  system.  The  lack  of  adequate  non-
financial  information  from  investee  companies  contributes  to  a  misallocation  of  capital:  too 
many resources flow to economic activities that have negative social and environmental impacts, 
while  too  few  resources  flow  to  activities  that  have  positive  impacts.    This  will  significantly 
constrain  the  ability of the EU  as a whole to  meet  the objectives of the  European  Green Deal, 
including a just transition, and to achieve the UN Sustainable Development Goals.  

ii.  Consequences of inadequate information for NGOs, trade unions and others. 

Civil society organisations and trade unions want non-financial information from companies to 
be able to better hold companies accountable for their impacts on society and the environment. 
Inadequate transparency from companies can therefore create an accountability deficit. It reduces 
the  pressure  on  companies  to  identify,  prevent  and  mitigate  any  negative  impacts  they  have, 

166 Academic Report: a Literature Review on the Reporting of Intangibles, EFRAG, February 2020 
167 Productivity and secular stagnation in the intangible economy, Jonathan Haskel, Stian Westlake, 31 May 2018  
168 Ensuring the relevance and reliability of non-financial corporate information: an ambition and a competitive advantage for a 
sustainable Europe, Patrick de Cambourg, May 2019 
169  The High Level Group on Sustainable Finance (2018) identified two imperatives for sustainable finance: “The first is to 
improve the contribution of finance to sustainable and inclusive growth as well as the mitigation of climate change. The second is 
to strengthen financial stability by incorporating environmental, social and governance (ESG) factors into investment decision-
making.” 

169 

 
 
 
                                                           
since  the  reputational  risks  of  such  impacts  are  less.  The  accountability  deficit  created  by 
inadequate  transparency  may  also  undermine  citizen  trust  in  business,  especially  in  larger 
companies. In this sense, it may be a contributory factor in the weakening of the social contract 
between  business  and  citizens,  with  effects  on  the  efficient  functioning  of  the  social  market 
economy.  

Consequences of problems from a user perspective 

e.  Implications of Covid-19 pandemic for the problem definition 

The  Covid-19  pandemic  directly  underlines  the  exposure  of  companies  to  non-financial  risks. 
This  is  especially  the  case  of  companies  who  business  models  are  dependent  on  the  global 
movement of goods and persons. Companies can expect that investors and supervisors will now 
require significantly enhanced reporting about such risks. This change will materialise at the very 
least from the 2021 reporting cycles, and for many companies it is already a reality. 

Some observers predict that the pandemic will in particular lead to a greater demand for social 
and  worker-related  information.    To  date  the  investment  community  has  tended  to  pay  more 
attention to environmental information, and especially climate-related information, than to social 
information.  It  is  notable  that  the  European  Investment  Bank  and  the  European  Bank  for 
Reconstruction  and  Development  have  published  new  guidelines  regarding  the  sustainability 
risks of investments in the context the pandemic, and both have a strong emphasis on the social 
and worker-related issues, including workers in supply chains.   

A  number  of  recent  analyses  have  suggested  that  the  pandemic  will  drive  the  growth  of  ESG 
investing. For example, a JP Morgan survey of investors found that 55% see the pandemic as a 
positive  catalyst  for  ESG  investing  in  the  next  three  years,  while  only  about  a  quarter  (27%) 
expect a negative impact and 18% believe it will be neutral.  A study published by the European 
Capital  Markets  Institute  finds  that  “companies  integrating  an  ESG  approach  recognised  by 

170 

 
 
 
investors  and  ESG  funds  have  been  more  resilient  in  the  crisis”,  and  goes  on  to  conclude  that 
“investors’ taste for ESG has not lessened during this crisis – quite the opposite, in fact.”   

More generally, the pandemic may contribute to a greater awareness of the complex interactions 
between  environmental  degradation,  social  problems  and  the  health  of  the  economy.    One 
informed analyst has stated that “the pandemic and the health crisis now ravaging all continents 
has put the spotlight on vulnerabilities and our dependence on the natural environment. It drives 
home the message that markets do not operate in isolation, but instead are embedded in societies 
and  the  natural  environment.  This  realization  will  fundamentally  change  our  long-term  risk 
perspective and the way we prepare for the looming climate crisis.”   

If the pandemic indeed contributes to a further growth in ESG investing and to an acceleration of 
the paradigm  shift  towards a sustainable economy, then it will further accelerate the  growth  in 
demand  for  more  and  better  non-financial  information  from  companies  on  the  part  of  the 
investors and other stakeholders. 

2.  Problems and consequences from the perspective of preparers (reporting companies) 

a.  Problems from a preparer perspective 

The problems from a preparer perspective are: 

i. 
ii. 

iii. 

Preparers face difficulty and complexity when deciding what information to report. 
Preparers find it difficult to  get  the non-financial information  they need from suppliers, 
clients and investee companies to report adequately.   
Preparers  receive  information  requests  from  stakeholders  in  addition  to  the  information 
they report to fulfil their legal requirements. 

These specific problems are described in more detail below. 

i. 

Specific  problem:  Preparers  face  difficulty  and  complexity  when  deciding  what 
information to report. 

Companies  frequently  state  that  they  find  it  difficult  to  decide  what  information  they  should 
report.  The  reporting  requirements  of  the  NFRD,  as  transposed  into  national  law,  remain  high 
level  and  principles-based,  meaning  that  companies  must  decide  what  information  to  report  in 
their particular  circumstances. Companies invest considerable time  and resources in  consulting 
multiple different standards and sets of guidance, and have to make difficult judgements about 
whether and to what extent they should use each one. Many companies pay consultants to assist 
with this task. 

171 

 
 
 
 
 
The CEPS survey of companies under the scope of the NFRD  found that  for about  half of the 
companies,  the  selection  of  material  information  to  disclose  does  not  pose  any  particular 
difficulty,  and  for  about  20%  of  the  companies,  choosing  the  information  to  disclose  is  easy 
(easy  and  very  easy).  For  one-third  it  is  considered  difficult  (difficult  and  very  difficult).  In 
response  to  the  open  public  consultation,  38%  of  preparers  said  that  they  face  uncertainty  and 
complexity when deciding what non-financial information to report. 

This  problem  appears  to  be  more  problematic  for  smaller  companies  under  the  scope  of  the 
NFRD,  which  have  relatively  less  internal  capacity  and  expertise  in  the  field  of  non-financial 
reporting.  In  the  CEPS  survey,  the  share  of  smaller  listed  companies  having  difficulties  in 
choosing  information  was  almost  twice  as  high  as  that  of  bigger  listed  companies.  The  CEPS 
study  also  found  that  as  companies  gain  more  years  of  experience  in  non-financial  reporting, 
fewer of them experience difficulties in choosing what information to report.   

This  problem  appears  to  have  worsened  in  recent  years,  as  users  and  supervisors  pay  more 
attention  to  the  content  of  non-financial  reports,  and  as  the  number  of  existing  standards, 
frameworks and other guidelines has grown.  

At  the  same  time,  many  companies  state  that  they  appreciate  the  flexibility  of  the  reporting 
requirements  in  the  NFRD.  They  support  the  fact  that  the  NFRD  does  not  impose  a  detailed 
their  particular 
“one-size-fits-all”  reporting  obligation  on  all  companies  regardless  of 
circumstances. They stress the importance of only being obliged to report material information, 
and  they  defend  the  principle  that  reporting  companies  themselves  should  make  the  initial 
judgement about what information is or is not material.  

These problems  were observed in the responses  of the open public  consultation where 69% of 
preparers of non-financial information indicate that there is a need to streamline different pieces 
of legislation, 44% indicate there are gaps and 22% indicate there is an overlap between different 
legislations.  

Examples  of  evidence  that  preparers  face  difficulty  and  complexity  when  deciding  what 
information to report. 

  A  survey  of  55  listed  Polish  companies  showed  that  55%  find  it  rather  difficult  or  very 
difficult to decide what non-financial information to report. Results of survey conducted by the 
Polish  Association  of  Listed  Companies,  data  gathered  and  analysed  by  the  Foundation  for 
Reporting Standards, September 2019, Author: Piotr Biernacki 

 

“Companies struggle to provide consistent, comparable and reliable non-financial information 
as  hundreds  of  frameworks  have  emerged  and  none  of  them  covers  the  full  width  of  non-
financial reporting. Many of the frameworks overlap and it remains unclear how meaningful 

172 

 
 
 
 
 
the differences between the frameworks are. This poses a major challenge for companies that 
want to report nonfinancial information.” “Green paper: Towards a global standard setter for 
non-financial reporting”, EUMEDION (Dutch Corporate Governance Forum), October 2019. 

  One of the principle conclusions of an extensive consultation process carried out by the World 
Economic  Forum  concerns  the  complexity  and  burden  of  ESG  reporting,  in  particular  that 
companies face hurdles in navigating reporting standards. “Seeking Return on ESG Advancing 
the  Reporting  Ecosystem  to  Unlock  Impact  for  Business  and  Society”,  World  Economic 
Forum, 2019. 

ii.  Preparers find it difficult to  get the non-financial information they need from suppliers, 

clients and investee companies to report adequately.   

To  adequately  report  on  their  material  risks  and impacts,  many  companies  need  corresponding 
information  from  other  companies  with  whom  they  do  business.  For  example,  a  food  retailer 
might need information from its suppliers about the social conditions and environmental impacts 
of  the  agricultural  production.  Banks  and  other  investors  might  need  information  about  the 
impacts of the companies and activities they finance.  

The CEPS survey of companies under the scope of the NFRD found that just over one third of 
companies requested additional information from their suppliers and/or clients as a result of the 
NFRD disclosure obligations.  

The extent to which a company’s business partners (suppliers, clients, investee companies) do or 
do not collect and publish relevant non-financial information therefore has a significant impact 
on the costs and burden of non-financial reporting. In response to the open public consultation, 
about  half  of  preparers  stated  that  they  experienced  significant  difficulties  in  finding  relevant 
information from business partners. Only 2% of preparers responding to the consultation stated 
that this was not at all a problem. 

iii.  Preparers receive information requests from stakeholders in addition to the information 

they report to fulfil their legal requirements. 

European companies often have to dedicate significant time and resources to answering specific 
request for non-financial information, independently of any information they may disclose as a 
result  of  obligations  under  the  NFRD.170  These  requests  come  principally  from  those 
sustainability rating agencies, data providers and research providers who do not exclusively rely 

170  These  requests  may  come  in  the  form  of  questionnaires,  requests  for  feedback  or  formalised  engagement  (meetings/calls). 
Many data providers have formal systems set up for companies to share updates, or point out inaccuracies in their data. 

173 

 
 
 
 
 
 
 
 
                                                           
on public data,171 who then usually sell this information  on to  investors.172 Some requests also 
come  from  civil  society  organisations  and  platforms.  Companies  that  do  not  respond  to  such 
requests  run  the  risk  of  exclusion  from  certain  indices  or  ratings,  or  research,  with  possible 
consequences  in  terms  of  access  to  capital.  They  also  run  the  risk  of  being  rated  poorly,  or 
labelled as not sustainable and/or not transparent.173 

The number and complexity of these additional information requests has grown considerably in 
recent  years. Anecdotal evidence from one business association suggests that responding to the 
most demanding questionnaire from one sustainability rating agency can take up to 100 days for 
a  full-time  employee.  Some  sustainability  rating  agencies  send  pre-filled  questionnaires, 
reducing burden on the companies. However, the format and precise nature of the data requested 
by each request  tends to vary, meaning that companies must respond to  each one individually, 
which  further  adds  to  the  burden.174  Companies  have  also  problems  understanding  which 
requests come from the sustainability rating agencies and which come from other entities. 

Responses  to  the  open  public  consultation  indicate  that  64%  of  preparers  of  non-financial 
information  agree  that  they  are  under  pressure  to  respond  to  individual  demands  for  non-
financial  information  from  different  stakeholders  (including  sustainability  rating  agencies,  data 
providers, and civil society organisations).  

Evidence  that  preparers  receive  many  information  requests  from  stakeholders  in  addition  to  the 
information they report. 

  Listed European companies “are confronted with numerous questionnaires and ratings, based 
on  different  methodologies  and  definitions.”  EuropeanIssuers,  feedback  to  Inception  Impact 
Assessment, February 2020 

 

“Issuers need to devote considerable time and expense to providing responsive data for these 
surveys  [from  sustainability  rating  agencies  and  data  providers],  checking  for  accuracy  and 
follow-up.”  Towards  a  Common  language  for  Sustainable  Investing”,  BlackRock,  January 
2020 

171 Preliminary results of SustainAbility study show that only two notable data providers do not engage with companies. Research 
by Environmental Finance states that “companies complain about the growing number of questionnaires they are being asked to 
respond”, June 2019.  
172 Investors in its broader sense, includes as well asset managers. In particular, asset managers who actively manage portfolios 
need data from companies rather than from intermediaries, as it allows them to  better understand the specificities of companies 
and  carry  out  their  own  analysis.  It  is  crucial  that  they  have  access  to  reliable,  comparable  and  granular  data  published  by 
companies as active managers lead the changes in the capital allocation and therefore (SustainAbility study). 
173 As larger companies have larger resources, this leads to the assumption that larger companies have an advantage in providing 
more or better ESG data.  This is strengthened by research that shows that large-cap  companies have significantly higher ESG 
disclosure scores than mid-cap companies, Drempetic, S., Klein, C. & Zwergel, B. The Influence of Firm Size on the ESG Score: 
Corporate Sustainability Ratings Under Review. J Bus Ethics (2019).  
174  Estimated  costs  from  filling  in  these  questionnaires  amount  to  EUR  170  –  290  million  per  year  for  the  current  NFRD 
population (including national transposition), EUR 25 000 per company per year. This calculations are based on the replies to the 
survey carried out by SustainAbility. See annex 17 for a detailed cost analysis. 

174 

 
 
 
 
 
                                                           
  A  survey  found  that  46  out  of  55  listed  Polish  companies  received  direct  requests  for  non-
financial information in addition to any information they published further to their obligations 
under the NFRD. Results of survey conducted by the Polish Association of Listed Companies, 
data  gathered  and  analysed  by  the  Foundation  for  Reporting  Standards,  September  2019, 
Author: Piotr Biernacki 

b.  Consequences of problems from a preparer perspective 

The consequence of the problems from a preparer perspective described in section (a) above is 
that companies face unnecessary costs.   

Problems from a preparer perspective 

175 

 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 13: DESCRIPTION OF PRINCIPAL PRIVATE INTERNATIONAL NON-FINANCIAL REPORTING 
FRAMEWORKS AND STANDARDS 

This  annex  presents  some  of  the  most  used  standards  or  frameworks  to  report  ESG  matters.  It 
includes  a  detailed  description  of:  the  Global  Reporting  Initiative  (GRI);  the  Sustainability 
Accounting Standards Board (SASB); the International Integrated Reporting Council (IIRC); the 
CDP  (formerly  Carbon  Disclosure  Project);  and  the  Task  Force  of  Climate-related  Financial 
Disclosures (TCFD). In 2020, the IIRC and SASB announced their intention to merge, creating a 
new body that will be called the Value Reporting Foundation.  

Other important  initiatives not  described in  detail  in  this annex include the Climate Disclosure 
Standards  Board  (CDSB)  and  the  UN  Guiding  Principles  Reporting  Framework  (for  the  UN 
Guiding Principles on Business and Human Rights). Examples of national standards include the 
Standard Informacji Niefinansowych (SIN), which is widely used by listed companies in Poland, 
and the Sustainability Code of the German Council for Sustainable Development (RNE). 

The domain of non-financial reporting standards and frameworks is dynamic, and new initiatives 
continue  to  emerge.  For  example,  in  January  2020  the  World  Economic  Forum  launched  a 
consultation to develop a common, core set of metrics and recommended disclosures. In March 
2021 the IFRS (International Financial Reporting Standards) Foundation, further to the results of 
a public consultation, announced its intention to establish a sustainability standards board (SSB). 
The  plans  of  the  IFRS  Foundation  are  supported  by  the  Financial  Stability  Board  and  by  the 
International  Organisation  of  Securities  Commissions  (IOSCO),  amongst  others.  The  initial 
focus of the SSB is expected to be on climate reporting from a financial materiality perspective, 
building on the recommendations of the TCFD.   

The  GRI,  SASB,  IIRC,  CDP  and  CDSB  have  sought  to  enhance  their  cooperation  through  the 
publication  in  September  2020  of  a  shared  vision  for  a  comprehensive  corporate  reporting 
system.  In  December  2020  they  published  a  prototype  climate-related  financial  disclosure 
standard that illustrates this shared vision could be applied in practice to climate reporting.  

This  annex  is  structured  in  a  way  to  show  an  overall  description  of  the  standard/framework 
(including general information on establishment, location, objective, etc.); their scope (e.g. what 
issues each covers); the materiality and their target audience; and the estimated number of users. 
Figure a. shows a summary of the main attributes each of the frameworks and standards that are 
reviewed in this annex has, facilitating a comparison among them. A similar table containing a 
more extensive list of reporting initiatives and different attributes was developed by the TCFD 

176 

 
 
 
 
 
 
and may be found under the Appendix 4 of the Recommendations of the Task Force on Climate-
related Financial Disclosures.175 

175 “Recommendations of the Task Force on Climate-related Financial Disclosures.” 54. Task Force on Climate-related Financial 
Disclosures. 2017.  

177 

 
 
                                                           
Figure 1 - Summary of Frameworks 

Framework/Standard 

Attribute                                           . 

GRI Standards 

IIRC Framework 

TFCD Recommendations 

CDP System 

SASB Standards 

Any company, 
organisation, or 
public authority. 

Public listed 
companies. 

Any company (specially 
owning public 
debt/equity). 

Any company, 
organisation, or public 
authority. 

Any company. 

Target reporter 

Target Audience 

Materiality 

ESG Scope 

Investors, customers, 
governments, other 
providers of 
financial capital, and 
NGOs. 

Mainly social & 
Environmental 
(inside-out) 

ESG 

Providers of financial 
capital. Also addresses 
the preparers of 
information. 

Institutional Investors, 
lenders, insurance 
underwriters, and preparers 
of information. 

Financial, business, 
academic, and policy 
communities and civil 
society. 

Investors and 
consumers 

Financial (outside-in) 
and some elements of 
Social & 
Environmental 
materiality 

Financial (outside-in) 

Financial (outside-in) 
and Environmental 
(inside-out)  

Financial (outside-
in) 

Climate 

ESG topics and other 
non-financial 
information (e.g. 
manufactured, social, 
intellectual capitals) 

Environmental (Climate 
change, water issues, 
and deforestation) 

ESG issues 
(Industry specific) 

Estimated percentage of users in 
CEPS study survey* 
*The CEPS survey was addressed to all companies under the scope of the NFRD. 188 companies responded to the survey. The percentage shown 
in this table is the percentage of respondents who said they used the standard or framework in question to a full or to a high extent.  

64% 

11% 

15% 

29% 

3% 

178 

 
 
 
 
As it may be observed in Figure a., the five most used initiatives to report non-financial 
information vary regarding the target audience they are trying to reach. Additionally, the 
materiality  concept  for  each  initiative  is  not  always  the  same  and  none  of  the  five 
initiatives,  standing-alone,  fully  applies  a  double-materiality  persepctive.  Lastly,  the 
scope these five initiatives have regarding sustainability  and non-financial topics varies 
largely:  from  the  most  narrow  and  specific  (TCFD  and  CDP)  covering  a  limited  set  of 
environmental  issues,  to  a  framework  (IIRC)  that  widens  the  scope  of  non-financial 
issues to include social and relationship, manufactured, and intellectual capitals.  

1.  Global Reporting Initiative (GRI) Standards 

1.1 Description of framework 

The GRI is a private initiative organisation formed in 1997 in Boston, USA and was part 
of the Coalition for Environmentally Responsible Economies (CERES). In 2001, the GRI 
was  formed  into  a  separate,  independent  non-profit  organisation.  In  2002,  the  GRI 
relocated to  Amsterdam  and since then has  served a growing international  audience.  In 
the  past  13  years,  the  GRI  was  “eager  to  start  establishing  a  regional  presence  in  key 
territories  […]”  and  opened  “Focal  Points”  (i.e.  regional  offices)  in  Brazil,  Australia, 
China, India, USA, South Africa, and Colombia.176177 The objective of these Focal Points 
is  to  facilitate  and  promote  the  active  engagement  of  local  organisations  and  to  make 
sustainability reporting regionally and globally a standard practice. 

The  main  objective  of  the  GRI  is  to  help  “businesses  and  governments  worldwide 
understand and communicate their impact on critical sustainability issues such as climate 
change, human rights, governance and social well-being.”178 The GRI identified 4 main 
focus areas to reach such objective, being: 1) creating standards and guidance to advance 
sustainability  development,  2)  harmonise  the  sustainability  landscape,  3)  lead  efficient 
and  effective  sustainability  reporting,  and  4)  drive  effective  use  of  sustainability 
information  to  improve  performance.179  Also  through  a  common  set  of  standards,  the 
GRI  enhances  the  global  comparability  and  quality  of  the  impacts  companies  have  on 
ESG topics across regions. 

From  year  2000  through  2013  the  GRI  has  published  4  generations  of  guidelines  (G1, 
G2, G3, and G4). Subsequently, in 2016, the GRI “launched the first global standard for 
sustainability reporting”.180 

176 GRI . 2020. GRI'S History.  
177 GRI. 2020. About GRI.. 
178 Ibid. 
179 Ibid. 
180 GRI . 2020. GRI'S History.  

179 

 
 
 
 
 
                                                           
1.2 Scope in content 

The  GRI  standards  are  grouped  into  four  series:  one  universal  series  including 
foundations,  general  disclosures,  and  management  approach;  and  three  separate  and 
specific standards series, including i) economic, ii) environmental, and iii) social topics. 
In total, the GRI has developed 37 individual standards intended to work together to help 
organisations prepare a sustainability report based on the GRI’s reporting principles for 
material topics.181 

By having a standardised and comparable way of reporting material topics, the GRI aims 
to allow comparison between companies from different sectors (e.g. biodiversity, human 
rights, occupational safety, etc.).  

1.3 Materiality and target audience 

The  GRI  standards  are  intended  for  organisations  to  report  about  their  impacts  on 
environment,  society,  and/or  the  economy,182  i.e.  social  and  environmental  materiality. 
The  GRI  standards  do  not  directly  consider  financial  materiality  (i.e.  the  impact  the 
environment, economic, or social matters may have on the financial performance of the 
organisation).  The  GRI  acknowledges,  however,  that  social  and  environmental  impacts 
may already be financially material at the time of reporting, or may become financially 
material over time.183 

The  target  audience  of  the  GRI  reports  is  deliberately  wide,  and  includes  investors, 
customers and consumers, governments, other providers of financial capital, and NGOs. 

1.4 Number of users 

According to the survey of companies under the scope of the NFRD carried out by CEPS 
as part of its study, it was determined that of 188 respondents, 64% use the GRI to the 
full or a high extent, while 19% either use GRI to a limited extent or do not use GRI at 
all. 

In  2017,  KMPG  estimated  that  89%  of  the  largest  250  companies  in  the  world  report 
sustainability  using  some  guidance  from  the  GRI  (either  guidelines  or  standards)184185. 
According  to  Accountancy  Europe  companies  in  some  countries  of  the  EU  (Belgium, 
Italy,  and  Spain),  use  the  GRI  standards  as  the  preferred  framework  to  report 
sustainability  information  as  required  by  the  NFRD  transposition  in  their  local 
legislations.186   

181 "GRI 101: FOUNDATION 2016." 3. GRI Standards. 2018. 
182 Ibid., 10. 
183  https://www.globalreporting.org/information/news-and-press-center/Pages/Promoting-clarity-and-compatibility-in-
the-sustainability-landscape.aspx  
184 “The KPMG Survey of Corporate Responsibility Reporting 2017.” 28. KPMG. 2017. 
185 "Global Standards Media." 3. GRI. 2018.  
186 “Towards Reliable Non-financial Information Accross Europe.” Accountancy Europe. 2020. 

180 

 
 
                                                           
The  GRI  discloses  in  its  database  that  2.171  organisations  in  Europe  (not  just  the  EU) 
disclosed 2.192 reports using the GRI standards in 2017.187 

2  International Integrated Reporting Council (IIRC) – Framework 

2.1 Description 

The IIRC was founded in 2010 as a non-profit organisation formed by “global coalition 
of regulators, investors, companies, standard setters, the accounting profession, academia 
and  NGOs.”  188  In  its  constitution,  the  IIRC  declared  its  main  objectives  to  be:  “1) 
improve  communication  about  value  creation,  2)  advance  the  evolution  of  corporate 
reporting,  and  3)  make  lasting  contributions  to  financial  stability  and  sustainability 
reporting.”189 The IIRC was established and continues to be based in London. 

According to the Constitution of the IIRC, its mission is to “establish integrated reporting 
and thinking within mainstream business practice as the norm in the public and private 
sectors.”  190 Also in the Constitution of the IIRC Part II Article 46.1(b), it is stated that 
the  objective  is  “To  create  a  globally  accepted  integrated  reporting  framework  which 
brings  together  financial,  environmental,  social  and  governance  information  in  a  clear, 
concise, consistent and comparable format with the aim of helping with the development 
of more comprehensive and comprehensible information about organizations, prospective 
as well as retrospective, to meet the needs of a more sustainable, global economy.”191 

“Integrated  Reporting”  (<IR>)  intends  to  improve  the  quality  of  information  supplied 
from organisations to providers of financial capital through the production of integrated 
reports.192 

In 2013 the IIRC released the <IR> Framework, which is the structure organisations use 
when  preparing  integrated  reports.  The  IIRC  conducted  international  consultation  and 
testing prior the publication of the Framework.193 

2.2 Scope in content 

The  <IR>  Framework  proposes  “that  disclosures  should  include  information  about  the 
business  model,  strategy  and  resource  allocation,  performance  and  governance.”194  The 
Framework establishes Guiding Principles and Content Elements that govern the overall 
content of an integrated report. The focus on value creation takes into consideration the 

187 Sustainability Disclosure Database. GRI. 2020. 
188 The IIRC. International Integrated Reporting Council. n.d. 
189 "Constitution of the International Integrated Reporting Council." 3. International Integrated Reporting Council. 
2015. 
190 Ibid., 1. 
191 Ibid., 34. 
192 Why the need for change? International Integrated Reporting Council. n.d. 
193 Frequently Asked Questions. International Integrated Reporting Council. n.d. 
194 Frequently Asked Questions. International Integrated Reporting Council. n.d. 

181 

 
 
 
                                                           
resources and relationships used and affected by an organisation, which are categorised 
in  six  types  of  capitals:  financial,  manufactured,  intellectual,  human,  social  and 
relationship, and environmental.195  

integrated  reporting.  It  acknowledges 

As the name indicates, the <IR> Framework gives organisations the layout and concepts 
individuality  of  different 
to  prepare 
organisations  and  aims  to  remain  as  flexible  as  possible  while  ensuring  a  sufficient 
degree  of  comparability  across  organisations  based  on  the  interactions  between  the 
capitals.  The  six  capitals,  as  defined  by  the  Framework,  cover  the  basic  sustainability 
topics  (i.e.  environment,  social  and  governance)  and  other  non-financial  information 
subjects  not  explicitly  covered  by  other  initiatives  reviewed  in  this  annex  (e.g. 
manufactured, intellectual, or social and relationship capitals).  

the 

The  <IR>  Framework  intends  that  organisations  disclose  any  material  interactions, 
activities, and relationships that may influence their creation of value over time, through 
the integrated report. This includes accounting to what extent the capitals are externalised 
and the positive or negative impact externalities may have in the organisation’s ability to 
create  value  by  itself.196  Additionally,  the  report  should  be  detailed  enough  to  allow 
understanding  of  an  organisation’s  strategy,  governance,  performance  and  prospects 
while remaining concise and avoiding less relevant information.197 

2.3 Materiality and target audience 

The <IR> Framework states that “a matter is material if it could substantively affect the 
organization’s ability to create value in the short, medium or long term.”198 This points 
mainly  towards  financial  materiality,  but  can  also  be  considered  to  integrate  social  and 
environmental materiality, to the extent that the creation of value refers to value for all 
company stakeholders, not just shareholders.  

The principal target audience of IIRS reports is the community of providers of financial 
capital (including investors).  

The  Framework  has  a  secondary  target  audience:  reporting  companies.  The  <IR> 
proposes the reporting companies to incorporate “Integrated Thinking” (i.e. the ability for 
organisations  to  consider  the  relationships  between  their  operating  and  functional  units 
and  the  capitals  the  organisation  affects.)199  For  reporting  organisations,  the  aim  of 
adopting  integrated  thinking  is  to  increase  cohesion  and  efficiency  in  their  reporting 

195 “The International <IR> Framework.” 10-12. International Integrated Reporting Council. 2013. 
196 Loc. cit. 
197 Ibid., 21. 
198  “Materiality  in  <IR>:  Guidance  for  the  preparation  of  integrated  reports.”  November  2015.  4.    International 
Integrated Reporting Council. 2015. 
199 Frequently Asked Questions. International Integrated Reporting Council. n.d. 

182 

 
 
                                                           
processes to reduce organisational segregation and focus on value creation; consequently 
contributing towards a more financially stable economy.200  

2.4 Number of users 

Responses to survey of companies under the scope of NFRD carried out by CEPS as part 
of its study, it was determined that of 188 respondents, 11% use the IIRC framework to 
the full or a high extent, and 66% do not use IIRC at all. 

3  Task Force on Climate-related Financial Disclosure (TCFD) - Recommendations 

3.1 Description 

The TCFD was established by the Financial Stability Board (FSB) in December 2015 to 
develop  a  set  of  voluntary  and  consistent  disclosure  recommendations  related  to 
organisations’ climate-related financial risks.201 Through the creation of the Task Force, 
the  FSB  intended  to  coordinate  an  overwhelming  amount  of  climate-related  disclosure 
provisions (over 400)202 that affect companies disclosing such information. 

Part  of  the  mission  of  the  TCFD  is  to  develop  recommendations  that  “will  help 
companies understand what financial markets want from disclosure in order to measure 
and respond to climate change risks, and encourage firms to align their disclosures with 
investors’ needs.”203 

The  31  members  of  the  Task  Force  are  elected  by  the  FSB  and  come  from  different 
industries  (preparers  of  climate  disclosures)  and  countries  in  order  to  define  a  set  of 
recommendations for financial reporting reflecting what is relevant to evaluate financial 
risks  of  climate  impact  and  bringing  “the  challenges  and  opportunities  surrounding 
climate reporting […] in the spotlight.”204  

3.2 Scope in content 

The  TCFD  published  its  recommendations  in  June  2017  after  public  engagement  and 
included  11  key  climate-related  financial 
consultation.  These  recommendations 
disclosures  (also  known  as  recommended  disclosures)  grouped  around  four  areas:  1) 
governance  around  climate-related  risks  and  opportunities;  2)  strategy  and  financial 
planning  aligned  to  actual  and  potential  climate-related  risks;  3)  risk  management  to 
identify,  assess,  and  manage  climate-related  risks;  and  4)  metrics  and  targets,  used  to 
risks  and  opportunities.205  These 
assess  and  manage 

relevant  climate-related 

200 International <IR> Framework. International Integrated Reporting Council. 2013. 
201 TCFD report finds encouraging progress on climate-related financial disclosure, but also need for further progress 
to consider financial risks. FSB. 2019. 
202 Everything you need to know about the Task Force on Climate-related Financial Disclosures. CDSB. 2016. 
203 About the Task Force. Task Force on Climate-related Financial Disclosures. n.d. 
204 Everything you need to know about the Task Force on Climate-related Financial Disclosures. CDSB. 2016. 
205 Everything you need to know about the Task Force on Climate-related Financial Disclosures. CDSB. 2016. 

183 

 
 
 
                                                           
recommendations  aim  to  promote  better  decision-making,  enhanced  market  resilience 
and more sustainable economic growth.206 

The  TCFD  focuses  on  climate-related  information  only.  The  TCFD  recognises  that 
industries and organisations’ have different needs and are affected differently by climate 
change,  therefore  the  TCFD  developed  supplemental  guidance  for  financial  and  non-
financial sectors. These guidelines provide more clarity for organisations to know which 
recommended disclosures better suit their operations, if any, depending on their activity 
sector.207 The TCFD recommends that organisations holding public debt or equity should 
adopt its recommendations. It also recommends to include the climate-related disclosure 
within the public financial filings.  

3.3 Materiality and target audience 

As  stated  in  the  TCFD’s  mission,  the  recommendations  are  made  on  the  disclosure  of 
financial  risks  related  to  climate  change.  They  therefore  consider  the  outside-in  impact 
(i.e. financial materiality).  

The primary target audience of reports issues  according to the TCFD recommendations 
are  providers  of  financial  capital  (institutional  investors  lenders,  and  insurance 
underwriters).208  

3.4 Number of users 

According to the survey of companies under the scope of the NFRD carried out by CEPS 
as part of its study, the proportion of respondents that use the TCFD to the full or a high 
extent is of 16%. 10% uses TCFD to a limited extent, and 55% do not use the TCFD at 
all. 

By February 2020, the TCFD had received the support from over 1.027 organisations.209 

4  CDP – Environmental Disclosure System 

4.1  Description 

The CDP was founded in 2000, formerly known as the “Carbon Disclosure Project”. The 
CDP  is  an  international  non-profit  organisation210  that  runs  a  global  environmental 
disclosure  system;  it  supports  companies  and  governments  to  complete  environmental 

206 How the new EU guidelines on reporting climate-related information will impact your business webinar. Corporate 
Disclosure Standards Board. 2019. 
207 “Recommendations of the Task Force on Climate-related Financial Disclosures.” 15. Task Force on Climate-related 
Financial Disclosures. 2017. 
208 TCFD report finds encouraging progress on climate-related financial disclosure, but also need for further progress 
to consider financial risks. FSB. 2019. 
209 TCFD Supporters 
210 Who we are. CDP. n.d. 

184 

 
 
 
                                                           
disclosure,  managing  their  risks  and  opportunities  on  environmental  issues.  The  “CDP 
was the first platform to link environmental integrity and fiduciary duty.” 211 

The CDP’s mission and vision is “to see a thriving economy that works for people and 
planet  in  the  long  term.  We  focus  investors,  companies  and  cities  on  taking  action  to 
build a truly  sustainable economy by measuring and understanding their environmental 
impact.”212  CDP’s  strategy  to  reach  this  includes  a  scoring  system  for  companies  and 
cities, through which “CDP aims to incentivise and guide them […] towards becoming a 
leader on environmental transparency and action.”213   

With presence in more than 50 countries, the CDP has become “the world’s largest, most 
investors, 
comprehensive  dataset  on  environmental  action”,  and 
companies, cities, and national and regional governments to make the right choices today 
to  build  a  thriving  economy  that  works  for  people  and  planet  in  the  long  term.”214  In 
order  to  reach  this  stage,  CDP  has  established  regional  offices  and  local  partners  in 
countries  including  India,  China,  Japan,  Taiwan,  USA,  Turkey,  South  Africa,  Brazil, 
Germany, Belgium, and Switzerland. 

it,  “empowers 

4.2 Scope in content 

The  CDP  system  focuses  on  organisations’  disclosure  of  environmental  issues  that  are 
divided in three sub-categories: climate change, water security, and forest security. Other 
environmental, social and governance issues are not considered under CDP.  

The CDP system takes into consideration not only the direct impact a given organisation 
may  have,  but  also  the  whole  extent  of  its  business  model.  For  instance,  the  CDP 
guidelines  recommend  companies  to  disclose  their  scope  3  emissions,215  therefore 
including the organisations’ whole value chain (upstream and downstream).  

The  CDP  helps  organisations  disclose  some  of  their  environmental  risks  and 
opportunities  through  recommendations  and  Key  Performance  Indicators  (KPIs).  The 
CDP  scores  companies  using  a  letter-grade  system  resulting  from  the  answers  they 
provide to a detailed online questionnaire. 

For  companies,  the  reporting  process  through  CDP  begins  with  the  requests  for 
environmental  information  from  investors  and  customers.  Companies  then  collect  such 
data  and  use  the  CDP’s  questionnaire  to  report,  assess,  and  find  areas  of  opportunity 
about environmental risks. The resulting data and CDP findings are provided to investors 

211 About us: What we do. CDP. n.d. 
212 Who we are. CDP. n.d. 
213 CDP Scores. CDP. 2020. 
214 Ibid. 
215 CDP, Mirjam Wolfrum, and Nico Fettes. 2019. The new EU guidelines on non-financial reporting: Setting the scene 
for a review of the EU corporate reporting framework. 06 27. https://www.cdp.net/en/articles/governments/the-new-eu-
guidelines-on-non-financial-reporting. 

185 

 
 
                                                           
for  them  to  take  informed  decisions,  as  well  as  published  to  the  market  via  reports, 
analysis, and company score.216    

4.3 Materiality and target audience 

The  CDP  system  allows  companies  to  disclose  environmental  information  on  a  double 
materiality  basis.  For  instance,  the  CDP  system  takes  into  consideration  the  impact 
organisations  have 
issues,  or  deforestation  (i.e.  
environmental  materiality).  Likewise,  the  CDP  system  requests  companies  to  disclose 
environmental  information  that  may  affect  their  ability  to  create  value  (i.e.  financial 
materiality).217  

towards  climate-change,  water 

The CDP’s results are targeted principally towards the financial, business, academic, and 
policy communities as well as to civil society.218 

4.4 Number of users 

Results of the survey to  companies under the scope of the NFRD  carried  out  by CEPS 
show that of 188 respondents,  29% follow the CDP  standard  fully  or to  a  great  extent, 
16% follow CDP to some extent, and 45% do not apply the CDP standards at all. 

CDP’s 2019 annual report219 shows over 1 800 European companies (representing 75% 
of  Europe’s  market  capitalisation)  used  the  CDP  to  respond  to  inquiries  made  by 
investors. More than 8 400 companies worldwide used the CDP. Additionally, in Europe, 
more  than  200  cities,  states,  and  regions  used  the  CDP  to  disclose  environmental 
information. 

5  Sustainability Accounting Standards Board (SASB) - Standards 

5.1 Description 

The SASB Foundation is an independent non-profit organisation established in the USA 
in  2011.  It  aims  to  “enable  corporations  and  investors  to  assess  key  risks  and 
opportunities that materially contribute to an organization’s sustained success […]”, and 
recognises that disclosures of ESG in corporate reports are inconsistent from company to 
company and there is a need for, “integration of sustainability metrics into standardized 
disclosure.”220  

216  CDP.  2020.  How  to  disclose  as  a  company.  https://www.cdp.net/en/companies-discloser/how-to-disclose-as-a-
company. 
217 CDP. 2018. “CDP Disclosure.” 11. https://6fefcbb86e61af1b2fc4-
c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/comfy/cms/files/files/000/002/942/original/CSC-Benefits-
Slides-Nov-2019.zip. 
218 Ibid., 31. 
219 "CDP." CDP Europe Annual Report 2018-2019. CDP. 2019. 
220 “Industry Working Group Orientation Materials.” 10. Sustainability Accounting Standards Board. 2014. 

186 

 
 
 
                                                           
SASB  has  the  mission  “to  establish  industry-specific  disclosure  standards  across 
environmental,  social,  and  governance  topics  that  facilitate  communication  between 
companies  and  investors  about  financially  material,  decision-useful  information.  Such 
information  should  be  relevant,  reliable  and  comparable  across  companies  on  a  global 
basis.”221  

To  achieve  this  mission,  the  SASB  Foundation  created  an  independent  standard-setting 
arm named Sustainability Accounting Standards Board (SASB).  

The Standards Board is accountable for the due process, outcomes, and ratification of the 
SASB standards (industry-specific sustainability disclosure standards tied to the concept 
of materiality to investors).222  

5.2 Scope in content 

SASB  Standards  were  first  made  public  in  2018,  after  over  six  years  of  research  and 
continuous consultation. The Standard covers 77 industry-specific standards (grouped in 
11  sectors)  that  help  companies  identify  environmental,  social  and  governance  (ESG) 
topics  that  may  affect  their  value  creation  through  time.  Each  of  the  industry-specific 
standards  identify  a  minimal  set  of  financially  material  sustainability  topics  and  their 
associated metrics for a typical company in an industry.223 SASB has a unique tool called 
the SASB Materiality Map® 224that allows users to identify “sustainability issues that are 
likely to affect the financial condition or operating performance of companies within an 
industry,”225 in a visual way.  

5.3 Materiality and target audience 

As described in  the SASB Foundation mission, the SASB Standards  focus on financial 
materiality  and  do  not  directly  consider  social  and  environmental  materiality.226  They 
“identify the subset of sustainability-related risks and opportunities most likely to affect a 
company’s  financial  condition  (e.g.,  its  balance  sheet),  operating  performance  (e.g.,  its 
income statement) or risk profile (e.g., its market valuation and cost of capital)”.227 

The main target audience of the SASB Standards are investors.  

5.4 Number of users 

221 SASB Governance. Sustainability Accounting Standards Board. 2018. 
222 Standards Board. Sustainability Accounting Standards Board. 2018. 
223 Standards Overview. Sustainability Accounting Standards Board. 2018. 
224 SASB Materiality Map® 
225 SASB Materiality Map. The SASB Foundation. 2018. 
226 “Industry Working Group Orientation Materials.” 10. Sustainability Accounting Standards Board. 2014. 
227 https://www.sasb.org/blog/promoting-clarity-and-compatibility-in-the-sustainability-landscape-gri-and-sasb-
announce-collaboration/  

187 

 
 
                                                           
According to the results  provided from the survey to  companies under the scope of the 
NFRD conducted by CEPS, from 187 respondents, 3% applies the SASB standard to its 
full or to a high extent and 79% do not apply SASB at all. 

According  to  figures  published  in  the  SASB  website,  “Hundreds  of  companies  around 
the  world  and  across  every  sector  are  using  SASB  standards”.  According  to  SASB 
figures,  45%  of  companies  reporting  ESG  performance  to  investors  that  use  SASB 
standards are domiciled outside the USA.228 

228 https://www.sasb.org/blog/dispelling-the-top-11-sasb-myths/  

188 

 
 
 
                                                           
ANNEX 14: NON-FINANCIAL REPORTING REQUIREMENTS IN OTHER JURISDICTIONS 

This  description  of  non-financial  reporting  requirements  from  different  jurisdictions  is 
taken from the 2020 annual report of the International Platform on Sustainable Finance 
(IPSF).229 Its primary focus in on environmental disclosures.  

The  US  is  not  a  member  of  the  IPSF,  and  the  US  is  therefore  not  covered  in  this 
description.  US  policy  and  regulation  in  this  area  is  expected  to  evolve  significantly 
under  the  new  administration,  at  least  covering  climate  disclosures  and  possibly 
extending to other non-financial issues. 

The United Kingdom has joined the IPSF since the publication of the 2020 annual report, 
and the UK is therefore also not covered in this description. In November 2020 the UK 
announced its intention to mandate climate risk disclosure using TCFD recommendations 
across the UK economy by 2025. 

Extracts from the International Platform on Sustainable Finance 200 annual report 

The  majority  of  IPSF  members  have  already  set  mandatory  environmental-related 
disclosure  requirements.  These  requirements  apply  to  various  types  of  companies.  A 
group of jurisdictions (Argentina, China, EU, India, and Singapore) addresses disclosure 
obligations  to  listed  companies,  with  some  specificities.  In  the  EU,  for  instance,  large 
public-interest entities with more than 500 employees are required to disclose under the 
rules of the Non-Financial Reporting Directive (NFRD). In India, disclosure rules apply 
to the top 1000 companies based on market capitalisation. In China companies subject to 
mandatory  disclosures  are  defined  as  listed  companies  that  heavily  discharge  key 
pollutants  with  other  listed  companies  falling  under  a  “comply  or  explain”  regime.  In 
Argentina, the Securities and Exchange Board (CNV) only requires listed (non-financial 
companies)  to  disclose  sustainability  information.  In  Singapore,  the  Singapore  Stock 
Exchange requires all listed companies to disclose five components of their non-financial 
information on a comply or explain basis . 

Morocco  issued  disclosure  rules  for  issuers  of  securities.  In  Chile,  the  financial  market 
authority  has  issued  rules  for  issuers  of  securities  to  disclose  sustainability-related 
information  and  for  all  listed  corporations  to  disclose  information  on  their  corporate 
governance  practices  on  a  “comply  or  explain”  basis.    In  Canada,  provincial  securities 
legislation requires reporting issuers to disclose the material risks affecting their business 
and,  where  practicable,  the  financial  impacts  of  such  risks  in  certain  prescribed 
continuous  disclosure  documents  (e.g.  Annual  Information  Form),  including  climate-
related risks, if applicable . 

Switzerland and New Zealand have not  yet set mandatory disclosure obligations. Swiss 
financial  and  non-financial  companies  can  voluntarily  disclose  sustainability-related 
information  based  on  the  Six-exchange  regulation  (soft  law).  In  practice,  Swiss 
companies  have  widely  adopted  GRI  reporting  and  TCFD  recommendations.  In  New 

229 https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/international-
platform-sustainable-finance_en  

189 

 
 
                                                           
Zealand, the Stock Exchange, which is privately owned, issued rules for listed companies 
regarding the disclosure of non-financial information on a “comply or explain” basis. It is 
worth  noting  that  the  Swiss  Government  is  assessing  the  need  to  set  mandatory 
disclosure obligations for companies, while in New Zealand the Government has recently 
announced that it will introduce a mandatory climate-related financial disclosure in line 
with TCFD recommendations. 

International  reporting  standards  and  frameworks  are  also  widely  adopted  in  IPSF 
jurisdictions  with  mandatory  disclosure  rules.  In  Chile  and  India,  companies  generally 
disclose against the Global Reporting Initiative (GRI) standards or the framework of the 
International  Integrated  Reporting  Council  (IIRC).  In  Singapore  and  Morocco,  the 
competent  authority  either  recommends  or  requires  companies  to  adopt  recognized 
international  standards  and  frameworks  including,  where  appropriate,  the  TCFD 
recommendations,  GRI,  Climate  Disclosure  Standards  Board  (CDSB)  or  Sustainability 
Accounting  Standards  Board  (SASB).  In  the  EU,  companies  falling  under  the  scope  of 
the NFRD should state which recognised standards or frameworks they have used when 
this  is  the  case.  The  European  Commission’s  guidelines  on  climate  reporting  that 
supports  the  NFRD  incorporate  the  TCFD  recommendations.  In  Norway,  there  is  an 
expectation  for  large  companies  to  adhere  to  international  standards  such  as  the  TCFD 
recommendations.  In  Canada,  the  federal  Government  encourages  the  adoption  of  the 
TCFD  disclosure  standards  by  federal  Crown  corporations  where  appropriate  and 
relevant to their business activities. 

International  reporting  standards  and  frameworks  help  ensure  cross-border  consistency 
and contribute to global convergence. They serve different purposes. The Sustainability 
Accounting  Standards  Board  (SASB)  standards,  for  instance,  are  designed  to  provide 
investors  with  information  about  sustainability  factors  that  have  an  impact  on  financial 
performance.  The  Global  Reporting  Initiative  (GRI)  focuses  more  on  the  impact 
organisations  have  on  the  environment  and  society,  and  targets  a  wider  variety  of 
stakeholders.  The  Taskforce  on  Climate-related  Financial  Disclosures  (TCFD) 
recommendations  are  designed  to  encourage  financial  institutions  and  non-financial 
companies to disclose information on climate-related risks and opportunities. The TCFD 
recommendations  are  widely  recognised  as  authoritative  guidance  on  the  reporting  of 
financially material climate-related information. 

Furthermore, beyond the spectrum of international reporting standards and frameworks, 
international  organisations  such  as  the  OECD  have  issued  recommendations  to  help 
companies  identify,  assess  and  manage  sustainability  risks  and  adverse  impacts  on 
society and the environment. 

As  regards  content,  companies  are  required  to  provide  disclosure  on  environmental, 
social  and  governance  aspects  (the  E,  S,  and  G).  The  most  comprehensive  approaches 
have been adopted in the EU, India, Morocco, Norway, and Singapore where disclosure 
requirements  address  the  three  dimensions  of  sustainability:  environmental,  social,  and 
governance. In India, disclosure requirements cover social and environmental protection 
issues related to products and services (incorporation of social concerns, mechanisms to 
recycle products and waste, respect of resource use etc.) as well as possible action taken 

190 

 
 
by companies to protect and restore the environment. In China, the disclosure obligations 
relate  to  environmental  impacts  caused  by  dischargers  of  key  pollutants.  Their  key 
performance  indicators  focus  on,  inter  alia,  construction  and  operation,  environmental 
impact assessment of projects and administrative permits with respect to  environmental 
protection,  contingency  plans  for  unexpected  environmental  incidents,  as  well  as  self-
monitoring  plans  for  environmental  information.  In  contrast,  in  Chile,  issuers  of 
securities  are  required  to  report  on  social-related  issues  such  as  diversity  and  gender 
salary gap.  Under a separate regime, listed companies in Chile should report, as part of 
their corporate governance disclosure, on how the board of directors incorporates into the 
risk management and control process economic, social and environmental risks faced by 
the  entity.  Finally,  it  is  also  worth  noting  that  many  IPSF  jurisdictions  are  currently 
revising  their  rules  and  guidelines  to  further  strengthen  sustainability-related  disclosure 
obligations. This is the case, for instance, in the EU with the ongoing NFRD revision but 
also in Chile, China and Singapore. 

The  materiality  lens  of  information  is  also  a  key  element  of  the  approach  to  disclosure 
obligations.  Within  the  IPSF  membership,  sustainability  disclosure  rules  in  the  EU, 
China,  Morocco,  Norway  and  Singapore  have  a  double  materiality  perspective.  The 
NFRD approach, in the EU, is a typical example of double materiality approach, which 
implies that companies have to disclose not only on how sustainability issues may affect 
the company (financial  materiality) but  also  on how the company’s  activities affect  the 
environment  (environmental  materiality).  The  TCFD  recommendations  are  an  example 
of  single  materiality,  focused  on  the  financial  implications  of  climate  change  (i.e.  how 
companies’ financial performance is affected by sustainability risks and opportunities). 

191 

 
 
192 

 
 
 
 
193 

 
 
ANNEX 15. LEGAL BASIS 

In this  Impact Assessment we cumulatively consider two Articles of the TFEU as legal 
basis for the proposed initiative. 

Firstly,  Article  50  TFEU  is  the  traditional  legal  basis  for  company  law  legislation, 
mandates  the  European  Parliament  and  the  Council  to  act  by  means  of  directives  to 
ensure  freedom  of  establishment  as  regards  a  particular  activity.  The  Accounting 
Directive  and its amending  Non-financial Reporting Directive are based  on this  article. 
They set out reporting rules, as diverging approaches taken at Member State level could 
have potentially undermined the right of establishment across the Internal Market. This is 
also the case of the Audit Directive, which might also need to be amended to implement 
the preferred policy option. 

In addition, certain changes to the Transparency Directive 2004/109/EC might be needed. 
Article  114  TFEU  together  with  Article  50  is  the  legal  basis  of  the  Transparency 
Directive 2004/109/EC. This Directive is closely linked to the reporting requirements of 
the Accounting Directive, as it sets out additional reporting requirements for issuers with 
securities listed on EU regulated markets. Article 50 only refers to “companies or firms” 
as defined by Article 54 TFEU, i.e. companies or firms “incorporated in the EU”, and the 
Transparency Directive also imposes disclosure obligations on third country issuers. This 
is the reason why although Article 50 is a lex specialis, the residual legal basis of article 
114,  lex  generalis  applies  as  well  with  the  objective  of  establishing  or  ensuring  the 
functioning  of  the  internal  market  –  in  this  case,  with  reference  to  ensuring  the  free 
movement of capital.  

Therefore,  this  Impact  Assessment  considers  changes  to  the  Accounting  Directive 
2013/34/EU  (as  amended  by  the  NFRD),  the  Audit  Directive  and  the  Transparency 
Directive 2004/109/EC on the basis of Articles 50 and 114 TFEU.  

194 

 
 
 
 
ANNEX 16: ASSESSMENT OF PROPOSED POLICY OPTIONS FOR OTHER VARIABLES  

Table 1. Overview of other variables for policy options and specific objectives 

Digital 

Supervision 

Intangibles 

Location  Materiality  Subsidiaries 

Policy options 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

x 

s
e
v
i
t
c
e
j
b
o
c
i
f
i
c
e
p
S

Companies from which 
users need information 
report that information 
Companies report all 
relevant information 

Reported information is 
comparable 

Reported information is 
reliable 
Reported information is 
easy to find and exploit 

Companies have clarity 
about what to report 

Companies have better 
information from supplies, 
clients and investees 
Reduction of the burden 
created by additional 
demands for information 

1. Digitalisation  

1.1 Baseline 

x 

x 

x 

x 

The requirements  in  the NFRD would remain  the same. The EU would not  develop  an 
EU taxonomy and companies would not be required to tag their reports accordingly.230  

1.2 Proposed change: Develop EU digital taxonomy and require companies 

to tag reports 

The EU would develop a taxonomy accompanying the reporting standards231 in order to 
allow  companies  to  tag  the  information  reported.  The  standards  setter  described  in 

230 ‘Taxonomy’ is the technical term used for IT systems (categorisation system). It does not refer to the new taxonomy 
of sustainable economic activities established by the Taxonomy Regulation. 

195 

 
 
 
 
                                                           
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
section 5.2.1. i) or the EU body deemed most appropriate, would develop this taxonomy 
and set up a process to ensure its yearly maintenance. 

Companies would be  required to  tag their reports according to  this taxonomy,232 which 
would allow the information to be machine-readable. This policy option would feed into 
the  work  on  digitalisation  announced  by  the  Commission  in  its  Communication  “A 
European Strategy for Data” where it already explains its plans for “common European 
data spaces”.233 

Any  company  that  claims  to  use  the  EU  standards  on  a  voluntary  basis  (including 
simplified SME standards), would need to tag its report. 

1.3  Impacts  of  the  proposed  change:  Develop  EU  digital  taxonomy  and 

require companies to tag reports 

Effectiveness. The requirement to tag reports according to a digital EU taxonomy would 
largely  contribute  to  making  concrete  reported  matters  easier  to  find  and  compare. 
Accessibility, usability and comparability of publicly disclosed public information would 
improve, facilitating both analysis by users and reporting by financial market participants 
and other companies subject to different EU disclosure requirements. The length of the 
reports  themselves  would  no  longer  represent  a  problem  for  users  looking  for 
information, as this would be machine readable.234   

The estimated total annual costs for preparers subject to the current requirements of the 
NFRD for tagging reports according to this taxonomy would be approximately EUR 20 
million.  One-off  costs  would  amount  to  EUR  100  million.  If  the  scope  was  broadened 
according  to  the  preferred  policy  option  described  in  section  6.3.6,  these  costs  would 
increase  to  EUR  80  million  and  EUR  500  million  respectively.  The  Transparency 
Directive  already  requires  companies  listed  on  EU  regulated  markets  to  tag  their 
consolidated  financial  statements  using  a  single  electronic  format  (ESEF  Regulation). 
One  possible  way  forward  would  be  to  extend  these  tagging  requirements  to  non-
financial  information.  In  this  case,  companies  already  required  to  report  against  ESEF 
would face lower increase in costs and the actual incremental costs of this policy option 

231 This policy option is only feasible if reporting against EU non-financial standards was mandatory (preferred policy 
option for standardisation variable).  
232  The  EU  has  introduced  a  taxonomy,  the  European  Single  Electronic  Format  (ESEF)  under  the  Transparency 
Directive.  With  effect  from  1  January  2020  listed  companies  in  the  EU  shall  report  their  annual  financial  reports  in 
XHTML (audited financial statements, management report and issuer’s responsibility statements). Additionally, if the 
consolidated  financial  statements  are  prepared  in  IFRS,  the  XHTML  document  should  be  tagged  using  iXBRL 
elements specified in the ESEF taxonomy. One possible way forward would be to extent these tagging requirements to 
non-financial information. 
233The  Commission  is  exploring  opportunities  to  establish  a  single  access  point  for  public  corporate  information, 
including  non-financial  information  that  would  improve  accessibility  of  the  reported  information.  The  High-level 
Forum on CMU has formulated recommendations on this topic from the Capital Markets angle (see annex 11): 
(https://ec.europa.eu/info/sites/info/files/business_economy_euro/growth_and_investment/documents/200610-cmu-
high-level-forum-final-report_en.pdf).  
234 Improved accessibility to public corporate information, including non-financial information, would be addressed by 
a different EU initiative. See annex 11. 

196 

 
 
                                                                                                                                                                            
would be lower than the costs estimates presented. The body in charge of developing the 
taxonomy would be tasked with performing a detailed cost-benefit analysis for preparers.  

The costs associated with meeting multiple different users’ demands would be reduced in 
the  medium  term,  as  information  would  be  easier  to  find  by  users.  Preparers  would  be 
able to cope with the expected growth in users’ demands through public reporting (even 
if initially the costs incurred might be higher). 

Costs for users of non-financial information would be significantly reduced. Tagging of 
reports would make publicly available information machine readable and therefore easier 
to use.  

49%  of  respondents  to  the  public  consultation  believe  that  the  costs  of  tagging  reports 
according to a taxonomy would be proportionate to the benefits, while 22% do not.   

Costs for the EU. One-off costs of developing a taxonomy to  accompany the reporting 
standards  would  be  approximately  EUR  550  000.  Annual  maintenance  costs  would 
amount to EUR 80 000. 

Annual  costs  for member  states  from  filing  the  reports  in  the  electric  format  would  be 
approximately  EUR  5  million,  considering  the  work  of  both  officially  appointed 
mechanisms  and  business  registers  with  regard  to  reporting  of  listed  and  non-listed 
companies  respectively.  Implementation  one-off  costs  would  ascend  to  approximately 
EUR 35,5 million in total. Some synergies could be created in the case of OAMs, as they 
already have experience with financial reporting (ESEF Regulation).235 

Economic, environmental, social and fundamental rights impacts 

  Greater speed, reliability and accuracy of data handling would enable improving its 

analysis, allowing for better quality of information and decision-making. 

  Companies  would  be  held  more  accountable  for  their  impacts  on  society  and  the 
environment,  as  tagging  of  reports  against  a  taxonomy  would  allow  users  to  search 
and assess the reported non-financial information more easily.  

  Better usability of publically available information by policy makers, environmental 
authorities  and  other  public  authorities,  to  inform  policy  actions  that  could  lead  to 
environmental, social and fundamental rights impacts. 

  Competitive  advantage.  Front  runners  in  terms  of  transparency  and  in  terms  of 
performance regarding sustainability issues would be more easily identifiable, which 
could  give  them  a  competitive  advantage,  for  example  in  terms  of  reputation,  or  to 
attract capital in the context of the Sustainable Finance agenda.  

235 This policy option is only feasible if reporting against EU non-financial standards was mandatory (preferred policy 
option for standardisation variable). The costs for the EU of developing a taxonomy that would accompany reporting 
against voluntary standards would not be justifiable. 

197 

 
 
                                                           
1.4 Proposed changes compared to baseline 

The proposed changes in the area of digitalisation are effective in contributing to meeting 
the  objectives  of  making  concrete  reported  matters  easier  to  search  and  use.  Improved 
usability  of  information  can  only  granted  by  this  option,  as  only  by  tagging  reports 
according to a taxonomy can we facilitate machine readability of the information.  This 
option  is  not  too  costly  for  the  EU  either,  as  work  would  build  on  the  processes  and 
framework developed under the ESEF Regulation, and recurring costs would be marginal 
to the costs of this initiative. Although there would be immediate costs for prepares, these 
would  also  experience  costs  savings  and  other  positive  impacts  in  the  medium  term. 
Therefore, this proposed change is sufficiently efficient and coherent with the rest of EU 
initiatives in the field of digitalisation (ESEF Regulation and upcoming CMU Strategy- 
European Single Access Point for corporate information). 

2. Sanctioning regime and enforcement 

2.1 Baseline 

Sanctioning regime and enforcement of corporate reporting by listed companies  

The  enforcement  of  corporate  reporting  by  companies  with  securities  listed  in  EU 
regulated markets  is carried out  by national  supervisors, according to  the Transparency 
Directive.  However,  in  its  mandate  to  national  competent  authorities  to  supervise 
reporting  of  companies,  the  Directive  lacks  an  explicit  reference  to  the  non-financial 
statement.236 

The  majority  of  member  states  have  designated  authorities  to  supervise  this  reporting. 
However,  national  competent  authorities  of  some  member  states  consider  there  is  no 
legal  mandate  to  supervise  non-financial  reporting,  if  this  is  published  in  a  separate 
report, outside of the annual financial reports (management report).237 

Additionally,  in  some  member  states  the  designated  national  authority  that  supervises 
non-financial reporting is  not  the same as the one that supervises financial  reporting as 
mandated under the Transparency Directive. The consequence of this is that ESMA has 
no power to ensure supervisory convergence among these other national supervisors. 

236Articles 7, 24(4)h, 24(4b), 28, 28a, 28b, 28c and 29 of the Transparency Directive. 
237  Member  States  have  transposed  Articles  19a  and  29a  of  the  Accounting  Directive  with  some  differences.  As  a 
result, a limited number of enforcers can supervise and enforce non-financial information only if it is set out within the 
management  report or published together  with  it or only  have  the  power  to  check  the  existence  of  the non-financial 
information as opposed to the content or do not have any supervisory powers on non-financial information at all. For 
this reason, the priorities presented in Section 2 may be addressed differently by, or may not apply to, these enforcers. 
European common enforcement priorities for 2020 annual financial reports, ESMA October 2020.  

198 

 
 
 
 
                                                           
Sanctioning regime and enforcement of corporate reporting by not listed companies  

The enforcement of corporate reporting by companies not listed in EU regulated markets 
is carried out by Member States, according to the Accounting Directive.238 The Directive 
however does not specify how the sanctioning powers should be exercised, nor imposes 
specific  types  of  sanctions  (it  only  requires  that  sanctions  are  proportionate,  dissuasive 
and effective).  

2.2  Proposed  changes:  Clarify  and  strengthen  supervisory  regime  of  non-

financial reporting 

Sanctioning regime and enforcement of corporate reporting by listed companies  

The  mandate  to  national  competent  authorities  to  supervise  non-financial  reporting  of 
companies  with  securities  listed  in  EU  regulated  markets  would  be  clarified  in 
legislation.  The  Transparency  Directive  would  be  amended  to  explicitly  include  non-
financial  information  as  part  of  regulated  information,239  clarifying  that  national 
competent authorities should supervise it. 

National competent authorities exercise sanctioning powers specified in the Transparency 
Directive applicable to breaches of the corresponding provisions by companies listed in 
EU  regulated  markets.  With  the  mentioned  amendment  to  the  Transparency  Directive 
this sanctioning regime would also apply to infringements of the non-financial reporting 
provisions. 

Additionally,  ESMA  would  be  tasked  to  issue  guidelines  for  national  competent 
authorities to promote supervisory convergence of non-financial reporting.  

Sanctioning regime and enforcement of corporate reporting by not listed companies  

The sanctioning regime of the Accounting Directive (as amended by the NFRD) would 
be  strengthened  to  ensure  adequate  non-financial  reporting  by  non-listed  companies  in 
the  EU.  Member  States  would  have  the  ability  to  impose  equivalent  sanctions  and 
administrative  measures,  than  those  specified  in  the  sanctioning  regime  of  the 
Transparency Directive for listed companies. 

238 Article 51 of the Accounting Directive – Penalties. 
239 The Transparency Directive (Directive 2004/109/EC), sets out the publication requirements of the annual financial 
reports and mandates Member States to designate national competent authorities to supervise its legal obligations. The 
reference  to  the  content  of  the  management  report,  and  where  necessary  to  the  separately  reported  non-financial 
information would be clarified in article 4 of the directive. This is the same amendment by which third country issuers 
would be included under the scope of the reporting requirements as described in section 5.3.3 iii). 

199 

 
 
                                                           
2.3  Impacts  of  the  proposed  changes:  Clarify  and  strengthen  supervisory 

regime of non-financial reporting 

Effectiveness. This policy option would contribute to ensuring that all companies under 
the scope of the NFRD report all information that users find relevant. Additionally users 
would trust more the reported information.  

Costs  for  the  EU.  ESMA  would  incur  in  some  costs  for  the  issuance  of  guidelines  for 
national competent authorities.  

Costs  for  national  authorities  for  supervising  non-financial  reporting  by  listed 
companies that were not supervised before due to lack of coordination between the legal 
provisions  of  the  Accounting  Directive  and  the  Transparency  Directive,  would  be 
marginal. Also, no relevant costs are expected from strengthening the sanctioning regime 
of the Accounting Directive, in particular with regard to non-financial reporting by non-
listed companies.  

Cost for users would be reduced if due to the trust in the publically available information 
they need to send less ad hoc request for information or hire third party providers.  

2.4 Proposed changes compared to baseline 

The  proposed  changes  in  the  area  of  supervision  are  effective  in  ensuring  that  all 
companies  under  the  scope  of  the  NFRD  report  all  required  information  appropriately, 
and in improving the reliability of the reported information.240 This option is not costly 
for preparers and it would  bring costs savings  for users at  the same time. Costs for the 
EU and national authorities would not be significant, and therefore it can be considered a 
very efficient alternative, as it would bring many benefits  without negatively impacting 
any stakeholder group. This proposed change would as well approximate the supervision 
regimes  of  listed  and  non-listed  companies  to  a  certain  extent,  improving  the  overall 
coherence of the legal requirements in Company Law.  

3. Reporting on intangibles 

3.1 Baseline 

The  minimum  list  of  non-financial  matters  identified  in  the  NFRD  provisions  would 
remain  the  same.  No  mention  to  information  on  intangibles  would  be  included  in  the 
Accounting  Directive,  in  addition  to  the  existing  requirement  to  indicate  in  the 
management report the company’s activities in the field of research and development.241  

240 The preferred option of requiring reporting against EU standards presented in section 6.2.1.i), facilitates supervisory 
activities, which in turn would also contribute to ensuring the comparability of the information disclosed. 
241 Article 20(2)b of the Accounting Directive. 

200 

 
 
 
 
                                                           
It  is  widely  recognised  that  information  on  intangible  assets  is  underreported.  
Investments in intangible assets often do not qualify to appear in a company’s financial 
accounts,  and  this  is  rarely  compensated  by  adequate  reporting  on  such  information  in 
other  parts  of  the  annual  report,  including  the  non-financial  statement.  This  would 
difficult  the  majority  of  investment  decisions  carried  out  by  the  private  sector  in 
advanced economies and fail to explain the increasing gap between the accounting book 
value  of  many  companies  and  their  market  valuation,  in  many  sectors  of  the  economy, 
for  example  information  technologies.  Some  financial  authorities  point  out  that 
intangibles  provide  essential  information  about  an  issuer’s  value  creation  potential  and 
the lack of disclosure creates an information gap between issuers and investors. 

3.2 Proposed change: Require reporting on intangibles 

In  light  of  the  importance  of  intangibles  in  the  economy,  in  addition  to  the  current 
disclosure requirements  on other non-financial matters, undertakings  would be required 
to disclose non-financial information on intangibles (e.g. intellectual property, software, 
customer retention, human capital, etc.), apart from activities in the field of research and 
development  and  intangible  assets  in  financial  statements.  50%  of  respondents  to  the 
public consultation believe that reporting on intangibles is needed, this view is stronger 
among only users of non-financial information (59%). 

2.3 Impacts of the proposed change: Require reporting on intangibles 

Effectiveness. More information relevant to users would be disclosed. 

Costs  for  preparers  for  reporting  according  to  the  reporting  standards  described  in 
section 7 (preferred option), specifically on intangibles, would be marginal in relation to 
reporting on the other non-financial matters of the NFRD. 

Additionally, the costs associated with meeting ad hoc users’ demands for information on 
intangibles  would  be  reduced  in  the  medium  term,  as  information  would  be  publically 
available for users. Preparers would be able to cope with the expected growth in users’ 
demands through public reporting (even if initially the costs incurred might be higher). 

Costs for users of non-financial information, specifically of information on intangibles, 
would be reduced. Publicly available information on intangibles would make it easier for 
users to find and use such information.  

Economic, environmental, social and fundamental rights impacts 

-  Facilitate investments in companies with real value. 

201 

 
 
 
2.4 Proposed changes compared to baseline 

The proposed change is effective because it ensures that all companies under the scope of 
the  NFRD  are  reporting  information  on  intangibles  appropriately.242  Even  if  additional 
disclosure  requirements  could  create  greater  administrative  costs  for  companies  in  the 
short  term,  ad  hoc  demands  from  investors  would  decrease  in  the  medium  term. 
Therefore,  considering  expected  costs  saving  in  the  medium  term,  the  overall  costs  for 
companies  from  reporting  against  intangibles  are  considered  marginal  compared  to  the 
benefits, and the proposed change is an efficient option.  

4. Where to publish non-financial information?  

4.1 Baseline 

The  requirements  in  the  NFRD  would  remain  the  same.  Disclosure  of  non-financial 
information would be required by default in the management report, but Member States 
could decide to allow companies to report in a separate report subject to the criteria set 
out in the current legal provisions.243  

The  availability  of  relevant  information  that  connects  financial  and  non-financial 
information  would  not  be  improved.  Information  would  not  be  easier  to  find  by  users, 
especially investors, who are interested both in  financial and non-financial information. 
In  some  cases,  possible  different  publication  times  would  continue  to  exacerbate  this 
problem. According to the public consultation, 58% of users of non-financial information 
believe having separate reports for non-financial information creates problems to find it.  

4.2 Proposed changes: Do not allow reporting in separate report 

Companies would be required to  report the information in  the management report. The 
primary  intention  would  be  to  ensure  better  connectivity  between  financial  and  non-
financial reporting and to avoid the impression that non-financial information belongs to 
a category of less relevant information to the board of the company. Secondly, it would 
reduce the time spent by users of non-financial information searching such information in 
separate reports. 

242 The preferred option of requiring reporting against EU standards presented in section 6.2.1. i), would contribute to 
ensuring the comparability of the information disclosed on intangibles. 
243Article 19a(4) of the Accounting Directive “Where an undertaking prepares a separate report corresponding to the 
same financial year […] covering the information required for the non- financial statement […] Member States may 
exempt that undertaking from the obligation to prepare the non-financial statement […] provided that such separate 
report: (a) is published together with the management report in accordance with  Article 30; or (b) is made publicly 
available  within  a  reasonable  period  of  time,  not  exceeding  six  months  after  the  balance  sheet  date,  on  the 
undertaking's website, and is referred to in the management report.” 

202 

 
 
                                                           
4.3  Impacts  of  the  proposed  changes:  Where  to  publish  non-financial 

information 

Effectiveness. This policy option contributes to meeting several of the objectives defined 
in section 4.2: 

 

 

 

 

Improvement  of  the  availability  of  relevant  information  to  the  extent  that  this 
information  would  be  linked  to  other  financial  information.  This  is  especially 
relevant for investors, who want to know how non-financial companies affect the 
final  performance of companies (outside-in) and any link between non-financial 
and financial reporting. 
Information would be considered more reliable by users, as it would be disclosed 
in the annual financial reports of companies. 
Information  would  be  easier  to  find,  and  at  the  same  time  as  financial 
information. The timely availability of information is very important to investors. 
Information  would  be  more  comparable  if  it  is  easier  to  find,  and  if  it  can  be 
found at the same time in all companies reporting according to the NFRD. 

55%  of  respondents  to  the  open  public  consultation  consider  that  companies  should  be 
required  to  disclose  all  necessary  non-financial  information  in  the  management  report 
(61%  of  users,  47%  of  preparers),  while  32%  preferred  to  keep  the  option  of  separate 
reports.  Among  users,  financial  sector  companies’  opinion  is  divided  with  the  same 
number  of  respondents  arguing  for  each  approach,  while  the  majority  of  civil  society 
organisations  think  information  should  be  disclosed  in  the  management  report  (79%). 
Opinions  from  preparers  of  reports  are  very  balanced.  48%  of  users  and  38%  of 
preparers,  do  not  believe  that  publication  in  separate  reports  provides  an  effective 
communication with users of the reports. 

Costs for prepares as a result of EU intervention would be zero. Companies surveyed in 
CEPS study that reported non-financial information in the management report, incurred 
significantly  lower  average  incremental  costs  than  those  that  disclosed  it  in  a  separate 
report.  However,  this  difference  could  also  be  the  result  of  other  factors,  such  as  the 
complexity of the business model of the company or the sector in which it operates, and 
therefore  we  cannot  draw  up  definitive  conclusions  with  regard  to  differences  in  costs 
between reporting in management report and separate report..  

Costs  for  users  from  looking  for  non-financial  information  would  be  reduced.  These 
includes costs from looking for information in different public reports, form sending ad 
hoc demands to companies or from paying third party data providers.  

Economic, environmental, social and fundamental rights impacts 

  Raise the profile of non-financial information, both internally for the management 
and  board  members  of  the  company  and  externally  for  stakeholders.  Reporting 
non-financial  information  in  the  management  report  avoids  the  impression  that 

203 

 
 
this information belongs to a category of less relevant information, both internally 
for  the  board  members  of  the  company  and  externally  for  stakeholders.  61%  of 
respondents to the public consultation, and 70% of users, believe that publishing 
non-financial  information  in  separate  reports  creates  a  perception  that  the 
information is of secondary importance.  

4.4 Proposed changes compared to baseline 

The  proposed  change  is  effective  in  contributing  to  the  objectives  of  the  initiative.  It 
ensures  that  all  companies  under  the  scope  of  the  NFRD  report  information  in  the 
management  report,  as  part  of  the  annual  financial  report.  This  entails  cost  savings  for 
users of information, while not increasing the burden on companies. It is clearly a very 
efficient option that brings a lot of benefits while having no significant negative impacts. 
Additionally greater coherence with the financial reporting framework would be ensured, 
especially in terms of publication requirements, supervision, board responsibility on the 
reported information, etc. 

5. Materiality concept in non-financial reporting 

5.1 Baseline 

The requirements in the NFRD would remain the same. The double materiality concept 
would  derive  from  the  current  drafting  of  the  law:  companies  are  required  to  report 
information  “to  the  extent  necessary  for  an  understanding  of  [its]  development, 
performance,  position  and  impact”.  Companies  would  retain  the  current  degree  of 
flexibility  to  judge  what  information  is  in  fact  necessary  for  an  understanding  of  their 
development,  performance, position and impacts. Some stakeholders would  continue to 
interpret  the  legal  text  as  requiring  disclosure  of  information  only  when  it  is  relevant 
from both perspectives at the same time. 

5.2 Proposed change: Clarify in law when is information material 

The  legal  requirements  would  specify  in  more  detail  when  companies  should  consider 
non-financial  information  material  (double  materiality).  With  a  clearer  approach  to  the 
double  materiality  concept,  companies  would  be  given  less  discretion  to  judge  what 
information is in fact necessary for an understanding of their development, performance, 
position and impacts.244 

244  This  could  build  on  the  materiality  guidance  included  in  the  Commission’s  guidelines  (2017)  and  in  the 
Commission’s  guidelines  on  climate  related-reporting  (2019).  It  could  as  well  consider  the  definition  of  material 
information proposed by the Corporate Reporting Dialogue: “any information which is reasonably capable of making a 
difference to the conclusions stakeholders may draw when reviewing the related information”. 

204 

 
 
                                                           
5.3 Impacts of the proposed change: Clarify materiality concept 

Effectiveness. According to his policy option, the legal text would re-affirm and clarify 
the  double  materiality  perspective,  contributing  to  the  objective  of  ensuring  that 
companies report relevant information, both on the risks that sustainability and other non-
financial issues  pose to  the company, and the impacts  of the company itself on society 
and the environment. 

69%  of  respondents  to  the  consultation  agree  the  current  definition  of  materiality  is 
relevant  to  determine  a  company’s  development,  performance  and  position,  only  46% 
believe the same definition of materiality is relevant to determine a company’s impacts 
on society and the environment. This reflects the current unclarity in the understanding of 
the legal requirements. 

Costs  for  prepares.  Companies  would  have  greater  clarity  about  what  kind  of 
information to report, reducing any inefficient investment in time or resources in trying 
to understand how best to comply with EU legislation. 

Costs  for  users.  It  would  be  clear  for  users  that  reported  information  is  relevant  from 
either  of  both  of  the  materiality  perspectives,  especially  important  for  meeting  FMP’s 
needs for information due to their own disclosure obligations under the SFDR  

Economic, environmental, social and fundamental rights impacts 

-  Behavioural implications. Clearly obliging companies to look at information from 
both perspectives during their reporting exercise would help companies assessing 
the risks to the company’s performance stemming from non-financial matters, and 
also make it more aware of its impacts to the environment and society.  

-  No  risks  to  the  single  market  from  companies  interpreting  the  requirement  in 

different ways in different member states. 

5.4 Proposed change compared to baseline 

The  proposed  change  is  effective  in  contributing  to  the  objectives  of  the  initiative  of 
increasing the availability of relevant information for users. It ensures that all companies 
under the scope of the NFRD report both information that is relevant to understand the 
risks on the company that could stem form sustainability matters, and the impacts of the 
company on society and the environment. This entails cost savings for both prepares and 
users  of  information.  The  former,  would  gain  clarity  about  the  reporting  requirements. 
The latter, would get information from both materiality perspectives. It is clearly a very 
efficient option that brings a lot of benefits while having no negative impacts.  

205 

 
 
6  Exemption of subsidiaries 

6.1 Baseline 

Subsidiary  companies  are  exempted  from  the  reporting  obligations  of  the  NFRD  if  the 
parent  company  itself  reports  according  to  the  NFRD  provisions.  Additionally,  the 
NFRD  requires  parent  companies  to  publish  a  consolidated  non-financial  statement  at 
group level.  

The current requirements might not be clear enough, and might not ensure that users have 
access to particularly relevant information of subsidiary companies. 

6.2 Proposed changes: Clarify in law the exemption of subsidiaries 

Subsidiary  companies  would  only  be  exempted  from  the  reporting  obligations  of  the 
NFRD  if  the  parent  company  is  subject  to  the  NFRD  provisions  on  consolidated 
reporting.245  In  addition,  exempted  subsidiaries  would  be  required  to  publish  the 
consolidated  management  report  of  their  parent  company  containing  sustainability 
information, and to refer to it in their individual management report. This would ensure 
that  any  company  operating  in  the  EU  via  subsidiaries  reports  on  non-financial 
information either at subsidiary level or at consolidated level. 

Additionally,  as  indicated  in  section  5.2.1,  the  non-financial  reporting  standards 
described  under  the  preferred  policy  option  for  the  standardisation  variable,  would 
consider the particularities of consolidated reporting.  In this respect,  they would ensure 
that information about subsidiaries is appropriately included in consolidated reporting in 
order  to  meet  users’  needs.  The  standards  setter  would  explore  the  best  ways  to 
disaggregate subsidiaries’ information, to ensure useful, efficient reporting.246  

Therefore, information about subsidiaries would be included as necessary in consolidated 
reporting,  which  would  be  identifiable  via  a  reference  in  the  subsidiary’s  management 
report. 

6.3  Impacts  of  the  proposed  change:  Clarify  in  law  the  exemption  of 

subsidiaries 

Effectiveness. By clarifying how the exemption of subsidiaries work, this policy option 
contributes to ensuring that users of information have access to adequate information. In 
this  case  either  via  individual  reporting  or  via  consolidated  reporting  of  parent 
companies. 

245  According  to  the  preferred  option,  third  country  issuers  would  be  subject  to  the  NFRD  provisions.  Hence 
subsidiaries of such companies would be exempted from the reporting obligation. 
246 The disaggregation of subsidiaries’ information could be done at different levels (geographical, product based…). 
Specific information from certain categories of subsidiaries could be required. 

206 

 
 
                                                           
A  majority  of  respondents  to  the  open  public  consultation  think  there  is  no  need  for 
removing  this  exemption  (43%  vs.  32%).  Specifically  60%  of  respondents  in  the 
financial sector, find there is no need for removing this exemption, versus 19% that think 
there is. Likewise, 54% of prepares do not agree to the need to remove the exemption (vs. 
24% that do). On the contrary, 65% of social and environmental organisations and trade 
unions find the exemption to subsidiaries should be removed (vs. 9% that do not).  

Costs  for  prepares.  Companies  would  have  greater  clarity  about  which  reporting 
obligations  apply  to  them  or  not.  Both  subsidiaries  and  parent  companies  will  have 
clarity  about  when  reporting  can  be  done  only  at  consolidated  level  by  the  parent 
company. This would reduce time inefficiently invested in trying to understand how best 
to  comply  with  EU  legislation.  The  costs  of  referring  to  the  parent  company’s 
consolidated report are considered insignificant. 

Costs  for  users.  It  would  be  clearer  for  users  which  companies  are  reporting  which 
in 
information.  With  clear  references 
subsidiaries’ management reports, users would be able to find relevant information that 
concerns the specific subsidiary. 

to  parent  company  consolidated  reports 

Economic, environmental, social and fundamental rights impacts 

-  Competitiveness of EU companies. Non-EU companies with activities in the EU 
would  report  on  these  via  subsidiary  reporting  (or,  if  third  country  issuers  were 
brought  into  scope  as  indicated  under  the  preferred  policy  option,  via  their 
consolidated report).  

-  No  risks  to  the  single  market  from  companies  interpreting  the  requirement  in 

different ways in different member states. 

6.4 Proposed changes compared to baseline 

The  proposed  change  is  effective  in  contributing  to  the  objectives  of  the  initiative.  It 
brings  clarity  about  the  personal  scope  of  the  NFRD  and  ensures  users  get  all  relevant 
information  form  companies  they  are  interested  in.  It  benefits  both  preparers  and  users 
without increasing the burden on neither of them. Preparers would still benefit from the 
exemption for reporting at subsidiary level (a removal of the exemption would translate 
in approximately a 60% increase in the number of reporting companies according to the 
proposed scope extension presented in  section 6.3); and users would have clarity  about 
where to find the information needed. 

207 

 
 
 
 
 
 
ANNEX 17: COSTS ANALYSIS 

The purpose of the cost analysis is to assess the costs incurred by companies and other 
parties  in  undertaking  the  actions  necessary  to  comply  with  the  new  regulatory 
requirements.  The NFRD sets  out  reporting and assurance  requirements  for companies, 
hence the main cost items analysed are administrative costs and costs of assurance for the 
preparers of the non-financial statement.  In  addition,  public authorities would  also  face 
costs in relation to standard setting and digitalisation of the reports. 

Since  the  core  of  the  NFRD  is  a  public  reporting  obligation  of  companies,  the  most 
important cost element is the administrative cost of providing the required information 
by the businesses. As is customary in assessing administrative costs, the analysis follows 
the logic of the EU Standard Cost Model (SCM). Even though  assurance costs qualify 
as external costs, their analysis followed the same methodology in many respects. 

Evidence-base 

The Commission contracted a study with CEPS and worked closely to get very granular 
information  about  the  number  of  companies  under  the  scope  of  the  NFRD  and  the 
different scope options, about existing reporting and assurance patterns among different 
groups  of  companies,  and  about  the  costs  of  reporting  and  assurance  according  to  the 
current provisions of the NFRD and of applying different private reporting standards and 
frameworks.247 

First, CEPS built a database to estimate the number of companies currently subject to the 
NFRD requirements, and the number of companies that would be brought into the scope 
under the different scenarios. Secondly, CEPS surveyed companies subject to the NFRD 
in  order  to  collect  cost-related  information  among  other  information.  Over  200  large 
companies  responded  to  the  survey.  CEPS  checked  the  quality  of  the  responses 
systematically and engaged with company representatives to verify the results at different 
stages.  In  addition,  the  Commission  facilitated  an  exchange  between  CEPS,  Business 
Europe and company representatives, to discuss the costs information obtained from the 
survey.  The  results  were  also  broadly  consistent  with  the  replies  to  the  Commission’s 
open public consultation.  

In  close  cooperation  with  the  Commission,  CEPS  set  out  criteria  for  what  can  be 
considered  as  reporting  against  detailed  standards,  i.e.  the  extent  to  which  a  company 
applied one or more existing standards, and the Commission used this costs estimate for 
calculating  costs  of  reporting  against  future  EU  standards.  CEPS  also  collected 
information  about  the  current  reporting  practices  of  different  groups  of  companies 
(NFRD reporters, national transposition companies, other large companies, and SMEs).  

247 CEPS Study on the Non-Financial Reporting Directive, publication expected in Q1 2021. 

208 

 
 
                                                           
The  Commission  has  performed  a  thorough  research  for  alternative  sources  of 
information  to  allow  the  triangulation  of  CEPS’s  data,  but  virtually  no  such  data  was 
identified.  In  any  case,  on  the  Commission’s  request,  CEPS  has  performed  the 
comparison between the results of its own data collection, and some information sources 
available, such as Eurostat company data, or earlier Commission impact assessments.248 
The Commission used all literature (sources of data) available for the estimation of other 
supplementary costs, such as costs of digitalisation or various cost savings. 

Methodology 

General 

The  basic  approach  in  the  cost  analysis  is  to  take  the  number  of  companies  under  the 
different scope options,  and multiply it by the estimated unit costs to arrive at the total 
cost of different options/packages. 

Population of stakeholders 

The companies under the scope of the NFRD, preparers of non-financial statements, can 
be classified into three main groups. Firstly, there are companies that already fall under 
the scope of the NFRD requirements. Secondly, the national transposition of the NFRD 
by the Member States in certain countries not only added certain requirements (such as 
requiring  assurance),  but  also  widened  its  scope  to  additional  companies.  Finally,  the 
different scope options considered in the current IA also extend the scope of the NFRD to 
new groups of companies. 

The  CEPS  Study  allowed  the  Commission  to  assess  as  precisely  as  possible  the 
companies in the different scope options in terms of their number, turnover, and market 
capitalisation.  This  assessment  followed  the  rules  of  the  current  (and  potential  future) 
NFRD, in particular as regards consolidated reporting and the exemption of subsidiaries 
from  the  reporting  obligation.249  For  the  cost  analysis,  the  number  and  turnover  of 
companies added by each option is of a particular importance: 

248 Such as the 2013 Commission impact assessment accompanying the NFRD proposal or the 2011 Commission 
Impact Assessment accompanying the Proposal for a Directive on the annual financial statements, consolidated 
financial statements and related reports of certain types of undertakings. 
249  In  particular,  the  statistics  on  the  number  of  companies  take  the  number  of  companies  actually  reporting  (i.e. 
excluding  exempted  subsidiaries),  while  the  turnover  figures  include  the  total  turnover  of  the  companies  that  are 
covered by the report (i.e. it is calculated on a consolidated basis, including turnover of subsidiaries). 

209 

 
 
                                                           
The  population  of  companies  is  heterogeneous  as  per  their  size  (e.g.  average  turnover, 
number  of  employees),  but  also  as  per  several  other  factors,  such  as  their  sector  or  the 
Member States in which they operate. This represents a challenge for the cost calculation, 
and justifies certain segmentation in the analysis (see below).  

It is notable that by adding the different scope options to the current NFRD scope, some 
companies which are currently covered due to national transposition will also be covered 
by  the  new  NFRD  scope.250  It  was  decided  to  deduct  these  “overlaps”  from  the  new 
scope options (i.e. not considering them additional in the new scope) to better reflect the 
true additional costs as they arise by extending the scope of the NFRD. 

Cost inputs 

Administrative and assurance cost 

Administrative  costs  and  costs  of  assurance  were  quantified  in  the  CEPS  Study  on  the 
basis  of  a  survey  on  a  sample  of  companies  under  the  current  scope  of  NFRD.251  The 
survey  design  and  CEPS’s  cost  calculations  followed  the  EU  Standard  Cost  Model.252 
The administrative  and  assurance costs were calculated by CEPS for various groups of 
companies  across  several  dimensions,  such  as  sectors,  company  sizes,  country  of  the 
company headquarters, use of frameworks, the level of assurance, etc.  

CEPS Study confirmed that the cost of reporting (and assurance) is influenced by many 
factors such as the size of the company, the sector(s) in which it operates, its location(s), 
the number of material topics, the availability of resources and experience, the depth of 
reporting  chosen,  and  in  general  the  complexity  of  the  business.  Even  though  CEPS 
surveyed  only  large  companies  under  the  scope  of  the  NFRD,253  the  results  have 

250  An  implicit  assumption  here  was  that  the  new  scope  options  are  added  ceteris  paribus,  i.e.  existing  national 
transposition rules remain the same as they currently are. 
251 CEPS invited almost all companies under the current scope of the NFRD to fill out the questionnaire. Companies 
responded on a voluntary basis resulting in self-selection bias. 
252 See the CEPS Study for more details on their own methodology and limitations. 
253 Notable that while all respondents of the survey were large as per the definition of the Accounting Directive, the 
sample represented companies with a turnover between 27 million EUR and 170 billion EUR, a more than 6 000-fold 
difference. 

210 

Population of companies under the different scope optionsCompany groupsNumber of companiesTotal turnover (EUR million)Average turnover per company (EUR million)Current NFRD1,9567,565,8863,868National transposition extra9,6975,715,659589Option 1 - Large PIEs below 500 employees1,157246,138213Option 2 - Large non-EU undertakings listed in the EU86979,47111,389Option 2 - Large non-listed EU undertakings.35,1847,702,874219Option 3 - Small and medium SMEs listed in the EU1,05912,20912Option 4 - Non-listed medium SMEs160,2052,606,29716Total209,34424,828,536119 
 
 
                                                           
confirmed  the  wide  dispersion  of  costs.  For  instance,  the  average  cost  of  reporting 
according  to  standards  was  106  000  EUR  in  the  study  sample,  but  the  responses  were 
ranging  between  437  EUR  and  800  000  EUR  with  a  median  of  61  000  EUR,  and  an 
interquartile  range  (range  between  the  first  and  third  quartile)  of  25  000  EUR  and  138 
000 EUR.254  

Since the limited number of observations in the survey255 did not allow accounting for all 
the  factors  affecting  the  costs,256  it  was  decided  to  address  the  heterogeneity  of  the 
companies  by  a  stratified  (segmented)  approach  along  the  most  important  factors  of 
complexity of reporting/level of assurance and size of the company. 

First,  the  survey  sample  was  grouped  into  two  reporting  categories:  companies  1) 
reporting against a standard, 2) reporting without following a standard.257  Along the line 
of assurance, the sample was grouped into three categories: companies with 1) existence 
check  by  the  auditor  only  (no  assurance),  2)  limited  assurance,  and  3)  reasonable 
assurance. 

Second,  the  survey  sample  was  divided  into  two  groups,  with  companies  above  and 
below the median turnover, and average costs were calculated both for the entire sample, 
and  the  resulting  “smaller”  sample  separately.  In  the  subsequent  cost  calculations, 
according to the comparable average turnover of different company groups in the various 
scope options, the average costs (both administrative and assurance costs) for the entire 
survey sample were applied to the current NFRD companies, while the average costs for 
the “smaller” sample were applied for the national transposition extra companies, and for 
companies in scope options 1 and 2.258 

SMEs represent yet another scale jump in company size, hence for the estimation of SME 
costs another method was chosen.259 Namely, the CEPS survey provided cost estimates 

254  Because  extreme  values  or  outliers  in  the  distribution  do  not  affect  the  median,  it  is  sometimes  preferred  to  the 
mean. The median tells us the centre of the data set, but says nothing about how the data on either side of its value is 
spread or dispersed. That is where the quartile helps. The quartile measures the spread of values above and below the 
median by dividing the distribution into four groups. Quartiles are used to calculate the interquartile range, which is a 
measure of  variability around the  median.  The interquartile range is simply calculated as the difference between the 
first and third quartile: Q3 – Q1. In effect, it is the range of the middle 50% of the data that shows how spread out the 
data is.  Finally, the minimum and maximum values tell us about the extreme values in the data set. 
255 211 questionnaires were submitted to CEPS, furthermore, the number of observations could be lower depending on 
the response rate of particular questions. 
256  The  knowledge  about  the  characteristics  of  the  company  population  in  the  future  scopes  was  also  limited,  which 
would have limited the usability of further segmentation anyway. 
257 The CEPS survey addressed only companies under the scope of the NFRD, hence all of them were reporting non-
financial information one way or another. See CEPS Study for the rules to qualify as standard reporting, as agreed with 
the Commission services. Any other level of reporting was qualified as non-standard reporting. 
258 While the average turnover in the entire sample was around 8 billion EUR, companies in the “smaller” sample had 
an  average  turnover  of  EUR  658  million,  substantially  closer  to  the  average  turnover  of  these  company  groups  (see 
table above on the Population of companies under the different scope options). It is noticeable that the average turnover 
of both the entire and “smaller” samples is still higher than that of the target groups. Insofar as larger companies have 
higher costs, this could be considered a conservative approach leading to the overestimation of costs. 
259 Other information sources, such as the open public consultation, or the SME Panel did not result in reliable cost 
estimates, mostly due to very limited number of observations, but also as currently hardly any SME performs standard 

211 

 
 
                                                           
 
both  as  averages  of  absolute  costs,  which  is  equivalent  of  assuming  that  all  costs  are 
fixed,  and  as  averages  of  costs  as  a  percentage  of  turnover,  which  is  equivalent  of 
assuming that all costs are variable.260 Companies also gave their response as regards the 
share  of  individual  activities  in  the  total  admin  costs.  These  individual  activities  were 
than analysed in a qualitative manner to provide estimates of the fixed-variable cost part 
of  each  activity,261  which  was  then  weighted  up  to  an  aggregated  fixed-variable  split 
estimate of the total costs. The fixed-variable cost estimates applied were as follows: 

Subsequently, the average administrative costs of SMEs were estimated based on these 
ratios,  the  average  absolute  and  turnover  based  costs  (of  the  entire  sample),  and  the 
average turnover of SMEs in option groups 3 and 4:262 

Option  4 assesses  the incremental  costs of requiring a simplified standard reporting for 
all  non-listed  medium  SMEs.  No  specific  cost  estimate  was  made  for  such  “simplified 
standard”,  instead  it  was  assumed  that  its  cost  would  be  equal  to  the  estimated  cost  of 
non-standard reporting for SMEs.  

reporting.  Similarly,  SME  representatives  confirmed  the  extreme  rarity  of  SMEs  that  currently  assure  non-financial 
reports. 
260 A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced 
or sold (this is the assumption when applying the same average  cost for all companies, irrespective of their size).  A 
variable  cost  is  a  cost  that  changes  in  proportion  to  production  output  (i.e.  by  the  size  of  the  company,  in  our  case 
measured by turnover). Variable costs increase or decrease depending on a company's production volume; they rise as 
production increases and fall as production decreases. In general, companies can have two types of costs, fixed costs or 
variable costs, which together result in their total costs. 
261 By considering what kind of activities lie behind the data retrieval, data analysis, and data reporting, for instance: 
- All companies need at least one software license (fixed), however it may be that software license is charged by the 
number of workstations, e.g. when there are different subsidiaries, each has to have one (variable). 
- All companies need to print the report (fixed), but some reports may be longer, costing more to print (variable). The 
same goes for translation, editing, etc. 
- Retrieving data may depend mostly on how many locations the company has (each has at least one location). 
- All companies need someone to spend some minimum amount of time on analysing the data and prepare the report 
(fixed), but if the data were more complex, more people, or more working hours would be needed (variable). 
262 The assurance costs for SMEs were estimated by multiplying the assurance cost averages of the entire sample with 
the ratio between the estimated SME administrative costs and entire sample average administrative costs (last column 
of table). In other words, it was assumed that SME assurance costs are also proportionally lower than large company 
assurance costs, as it was the case with their administrative costs. 

212 

Fixed - variable cost distributionActivitiesShare in total costsFixedVariableRetrieve data24%10%90%Analyse information22%10%90%Report information32%30%70%Other costs22%30%70%Total100%21%79%SME administrative cost estimation (EUR)Type of reportingFixed shareFixed cost(absolute average based)Variable shareVariable cost(% of turnover based)Total SME admin cost (fixed+variable)Ratio between SME/All sample admin costsNFRD non-standard21%10,37179%61310,98322.03%NFRD Standard21%21,98079%72722,70721.49% 
 
 
 
 
                                                                                                                                                                            
The estimated recurring costs per company used in the cost analysis as per the stratified 
approach were the following:263 

One-off administrative costs 

The  EU  SCM  requires  distinguishing  between  one-off  and  recurring  obligations/costs. 
Administrative and incremental costs may vary across time and usually are higher in the 
first  year  of  compliance,  when  addressees  have  to  perform  both  one-off  and  recurring 
actions.  For  instance  the  cost  of  familiarising  with  information  obligations,  certain 
investments,  training of staff, etc. typically concentrate on the first  year of compliance, 
while other costs, such as the cost of retrieving, analysing and reporting data occur on a 
recurring  basis.264  The  CEPS  survey  took  account  of  this  issue,  and  collected  separate 
cost data for the first and the following years of compliance. 

The  cost  analysis  considered  one-off  costs  as  the  difference  between  the  first  year  and 
following year costs. Hence, companies under the different scope options would incur the 
sum  of  one-off  costs  and  recurring  costs  in  the  first  year,  while  in  the  following  years 
only  the  recurring  costs  would  occur.  The  estimated  one-off  administrative  costs  per 
company used in the cost analysis as per the stratified approach were the following:265 

263  Cost  estimates  for  the  “Smaller”  sample  non-standard  reporting  reasonable  assurance  from  CEPS  were 
unreasonably  low  (lower  than  corresponding  limited  assurance  cost  estimates  –  likely  due  to  very  low  number  of 
observations),  hence  were  replaced  by  an  estimate  based  on  the  ratio  between  the  limited  and  reasonable  assurance 
costs for standard reporting in the “smaller” sample. 
264  Due  to  certain  economies,  the  cost  of  recurring  actions  might  decrease  over  time,  for  instance  as  a  result  of 
economies of learning, relying on information already collected before, or as certain characteristics of the companies 
(e.g. business model, risks) typically do not change much from one year to another. This is partly reflected in the CEPS 
study results, as some of the respondents have already been reporting for some years. Nevertheless, the current NFRD 
reporting requirements are still relatively new; hence, there could be further grounds for such economies in the future. 
In this sense, the current estimation of recurring costs can be considered conservative (overestimating costs). 
265 The one-off administrative costs for SMEs were estimated by multiplying the one-off administrative cost averages 
of  the  entire  sample  with  the  ratio  between  the  estimated  SME  administrative  costs  and  entire  sample  average 
administrative costs. 

213 

Recurring administrative costs per company (EUR)Type of reportingAll sample meanSmaller sample meanSMEsNFRD non-standard49,86031,34010,983NFRD Standard105,67363,49722,707Assurance cost per company (EUR)Existence checkLimited assuranceReasonable assuranceExistence checkLimited assuranceReasonable assuranceExistence checkLimited assuranceReasonable assuranceNFRD non standard1,206     56,253    95,842    1,20620,93032,296na12,39221,113NFRD Standard1,206     75,181    125,046  1,20636,93957,000na16,15526,870All sample meanSmaller sample meanSMEsType of reportingOne-off administrative costs per company (EUR)Type of reportingAll sample meanSmaller sample meanSMEsNFRD non-standard24,81719,8515,467NFRD Standard43,43122,7399,333 
 
  
 
 
 
                                                           
The one-off costs calculations were based on the following further assumptions: 

- 

-  One-off costs of assurance were assumed zero. There is no reason to assume that 
the  first  year  cost  of  assurance  would  be  much  different  from  the  cost  in  the 
following years, and hence no such question was asked to the respondents of the 
CEPS survey. 
In  the  cost  calculations,  there  are  two  corresponding  columns.  “Total  one-off 
costs” is what all companies under the respective scope will have to pay extra in 
the first  year of their reporting, regardless of which is this “first  year”. Some of 
them  pay  it  only  after  the  entry  into  application  of  the  new  requirements,  some 
have  paid  it  (or  part  of  it)  already,  if  they  had  started  some  reporting  before 
(“Total one-off costs” is therefore partly backward looking). “Incremental one-off 
costs” shows only the true additional burden of the companies under the scope in 
the first year of the application of the new rules (only forward looking). 

-  Those companies that currently do not  report non-financial information  pay  full 
one-off  cost  of the standard reporting, non-standard reporters pay the difference 
between  one-off  costs  of  standard  and  non-standard,  and  already  standard 
reporters  pay  no  one-off  cost.  This  is  in  line  with  how  recurring  costs  were 
treated.266 

Costs of digitalisation (tagging) 

Preparers  of  the  non-financial  report  would  need  to  digitally  tag  the  non-financial 
information  in  order  to  facilitate  its  searchability  and  usability.  The  only  available 
information on costs that is comparable was found in an ESMA study from 2016 dealing 
with structured electronic reporting of financial statements (ESEF).267 According to this 
study, costs for companies starting digital reporting from scratch were for the first  year 
minimum: EUR 2 700; maximum:  EUR 40 000; mean:  EUR 13 000;  median: EUR 11 
500,  and  for  subsequent  years  (including  software  maintenance)  minimum:  EUR  200; 
maximum:  EUR  18  250;  mean:  EUR  4  600;  median:  EUR  1  700.268  For  the  cost 
calculation, it was decided to take the median results as benchmarks, also considering the 
heterogeneity  of  the  companies  under  the  different  scope  options.  Hence,  the  costs  for 
tagging  were  estimated  at  EUR  1  700  recurring  costs,  and  EUR  9  800  one-off  costs 
(that would only occur in the first year) per company. 

In the tagging cost estimation for preparers, the following considerations were made: 

266  The  analysis  recognised  the  synergies  created  by  previous  reporting  activities,  and  therefore  full  one-off  costs  of 
standard reporting were not applied for all reporters equally. 
267  Feedback  Statement  on  the  Consultation  Paper  on  the  Regulatory  Technical  Standard  on  the  European  Single 
Electronic Format (ESEF), ESMA, 2016 
https://www.esma.europa.eu/sites/default/files/library/2016-
1668_esma_feedback_statement_on_the_rts_on_esef_0.pdf 
268 Page 96 of ESMA report. 

214 

 
 
                                                           
-  Tagging  non-financial  reports  is  new  to  everyone,  hence  there  are  no  current 

costs, and all future costs will be incremental. 

-  Some companies already deal with tagging as regards their financial statements; 
hence  one  could  consider  certain  synergies  for  certain  types  of  companies. 
However, due to that 1) it was not straightforward which companies and to what 
extent  would  have  been  affected  as  such,  and  that  2)  the  number  of  companies 
that  could  have  been  potentially  affected  is  not  significant  for  the  costs 
calculation,  it  was  decided  not  to  apply  any  reduced  cost  estimates  on  this 
account. This could be considered as a conservative approach. 

-  For the same reason of  uncertainty of information, it was decided not  to follow 
the stratified approach  as  regards  costs of tagging;  all  company  groups’ tagging 
costs were estimated based on the same unit costs for tagging. 

The costs for other stakeholder groups stemming from this requirement, were estimated 
based  on  the  same  ESMA  study,  taking  the  ESEF  cost  estimates  as  benchmark.269  The 
entities  concerned  are  (1)  the  EU  body  that  will  be  responsible  for  developing  and 
maintaining  the  IT  taxonomy  for  the  tagging  of  reports,  (2)  Officially  Appointed 
Mechanisms  (OAMs)  per  Member  State  (altogether  27),  responsible  for  developing 
digital ad hoc processes for the filing of reports by listed companies and for maintaining 
and  updating  the  digital  registers,  and  (3)  Business  Registers  per  Member  State 
(altogether  27),  responsible  for  developing  digital  ad  hoc  processes  for  the  filing  of 
reports by non-listed companies and for maintaining and updating the digital registers. 

A cost reduction factor was added to the cost estimation of two of these bodies to take 
account for certain synergies with the already existing ESEF system. Namely, ESEF cost 
estimates were reduced by 10% in the calculation of costs for the EU body that will be 
responsible for developing and maintaining the IT taxonomy for non-financial reporting, 
and  by  80%  for  OAMs,  who  are  already  responsible  for  maintaining  and  updating  the 
digital registers for financial reports of certain listed companies, and will be responsible 
to do so for non-financial reports of listed companies according to the new provision of 
the NFRD as well. No reduction was applied for Business Registers, as these would only 
start developing digital ad hoc processes for the filing of reports by non-listed companies 
as a consequence of this new requirement for non-financial statements.270 

The resulting cost estimates for third parties are the following:271 

269 Similarly to the ESEF cost estimates, it was assumed that the costs for each body do not depend on the number of 
reporting companies (at least on a reasonably short term all costs are fixed), hence the different scope options do not 
modify the costs. 
270 These cost reductions were applied to both one-off costs and recurring costs. 
271 Cost of taxonomy development and implementation qualify as one-off costs, while cost of maintenance qualifies as 
recurring cost. 

215 

 
 
                                                           
Cost savings of preparers 

It  is  reasonable  to  assume  that  preparers’  costs  of  dealing  with  multiple  ad  hoc 
sustainability  information  requests  would  be  reduced  in  the  medium  term  by  the 
mandatory application of EU reporting standards. A recent study has inquired companies 
about the time they spend on responding to sustainability ratings and ranking providers, 
including  time  completing  questionnaires  and  correcting  data  or  reports.272  The  47 
respondents indicated 90 (median) to 155 (average) person days.273 On this basis it can be 
estimated that EU companies incur costs between EUR 24 200 and 41 700 annually on 
the  account  of  responding  to  questionnaires  or  correcting  ratings  reports274.  On  the 
assumption that the new reporting requirements on the basis of mandatory EU standards 
completely  eliminate  the  need  for  such  ad  hoc  requests,  this  translates  into  potential 
savings  of  up  to  around  EUR  280  -  490  million  for  the  current  NFRD  population 
(including national transposition).275  

It is also reasonable to assume that the enhanced clarity of the reporting obligations as a 
result of new comprehensive reporting standards, would lead to cost savings as well. The 
CEPS study shows that companies that find it easy to decide which information should 
be  included  in  the  non-financial  statement  usually  incur  around  25%  lower  cost  of 
reporting  than  those  companies  that  find  the  decision  on  the  materiality  of  information 

272  Study  on  sustainability  ratings  and  research,  by  SustainAbility  (https://op.europa.eu/en/publication-detail/-
/publication/d7d85036-509c-11eb-b59f-01aa75ed71a1/language-en/format-PDF/source-183474104). 
273 This is broadly in line with the findings of other studies indicating approximately half a full-time post for the same. 
See,  Clementino,  E.,  Perkins,  R.  How  Do  Companies  Respond  to  Environmental,  Social  and  Governance  (ESG) 
ratings?  Evidence  from  Italy.  J  Bus  Ethics  (2020).  https://doi.org/10.1007/s10551-020-04441-4  and  Häßler,  Rolf. 
(2013). The Impact of SRI – An Empirical Analysis of the Impact of Socially Responsible Investments on Companies 
by oekom research 
274 EUR 26.9 was used as hourly labour cost average for EU27 in accordance with “Labour cost levels by NACE Rev. 
2 activity” available at Eurostat (reference year 2018): 
https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lc_lci_lev&lang=en. In line with the SCM methodology (and 
the CEPS Study), the indicated EUR 26.9 labour cost was incremented by 25% to account for overheads, resulting in 
EUR 33.625 hourly cost. 
275  This  could  be  extrapolated  to  potential  savings  of  around  EUR  1  200  –  2  000  million  for  the  companies  under 
Package 3. However, it is uncertain whether these companies already have such a high burden of ad hoc sustainability 
information  requests,  in  particular  given  that  most  of  them  are  smaller  in  size  or  not  listed  (lower  interest  from 
investors and as a result sustainability ratings and ranking providers). 

216 

Costs of tagging for third parties(EUR)ESEF cost estimate per entityCost reduction factorNFRD cost estimate per entityTotal NFRD cost estimate (27 MSs)EU body / standard setter690,000        10%621,000        621,000        Development of taxonomy and implementation600,000                540,000                540,000                Annual maintenance90,000                   81,000                   81,000                   OAMs1,250,000     80%250,000        6,750,000     Implementation1,100,000             220,000                5,940,000             Annual maintenance150,000                30,000                   810,000                Business Registers1,250,000     0%1,250,000     33,750,000    Implementation1,100,000             1,100,000             29,700,000           Annual maintenance150,000                150,000                4,050,000              
 
 
                                                           
more difficult (neutral or difficult).276 Assuming that as a result of the obligation to report 
against standards, all companies would find “easy” the decision about what information 
to  disclose,  the  estimated  total  reporting  costs  would  be  reduced  by  around  20%  or 
around EUR 600 million under the preferred option.277 These estimates however must be 
treated with appropriate caution, as the requirement to report against standards may not 
alone completely ease the decision about what information to disclose. The complexity of 
the  business  might  still  play  a  role  in  deciding  what  information  to  disclose.278 
Furthermore,  the  decision  on  what  information  to  disclose  is  only  one  cost  driver  of 
many,  e.g.  in  the  costs  of  collecting  and  analysing  the  relevant  information,  the  nature 
and complexity of the business appears to be decisive. 

Business-as-usual factor 

The rationale behind splitting compliance costs of new legal obligations into business-as-
usual  (BAU)  cost  and  incremental  cost  components,  is  that  while  companies  already 
carry  out  certain  activities  on  a  voluntary  basis,  the  regulator  should  only  focus  on  the 
consequences  of  its  own  actions  by  identifying  the  true  additional  burden  of  the 
regulation  when  performing  its  cost-benefit  analysis.  Hence,  the  BAU  part  of  the 
compliance  cost  is  considered  only  as  background  information  when  comparing  the 
different  options.  In  the  field  of  administrative  costs,  the  part  of  the  costs  that  occur 
solely because of the new legal obligations is referred to as “administrative burden”, but 
the same concept is equally valid for any other type of compliance costs. 

In  order  to  identify  the  incremental  cost  component  of  the  new  measures,  it  was 
necessary  to  establish  the  current  reporting  and  assurance  patterns  of  companies  under 
the  current  NFRD  scope,  of  extra  national  transposition  companies,  and  of  companies 
under  the  different  future  scope  options.  The  reporting  and  assurance  patterns  of 
companies subject to the current NFRD scope were established by CEPS on the basis of 
its  NFRD  survey  results.  Reporting  patterns  were  differentiated  according  to  three 
categories: 1) reporting under a standard, 2) reporting without following a standard, and 
3) no reporting.279 Assurance patterns were differentiated according to three categories as 
well: 1) existence check only (or no assurance), 2) limited assurance, and 3) reasonable 
assurance.  

CEPS  carried  out  desk  research  regarding  the  reporting  patterns  of  random  samples  of 
companies  in  line  with  the  Commission’s  request,280  namely  among  extra  national 

276 See Figure 5.32 in the CEPS report. 
277 The average cost data included those companies that already find this decision easy. 
278 It is also uncertain how representative CEPS’s sample was in this respect for the current and in particular for the 
future NFRD reporting population. 
279  See  CEPS  Study  for  the  criteria  to  qualify  as  standard  reporting,  as  agreed  with  the  Commission.  Any  other 
reporting was qualified as non-standard reporting. 
280 It was possible to identify reporting patterns through a desk research, but assurance patterns could only have been 
established through directly asking the companies themselves. See CEPS Study for more details. 

217 

 
 
                                                           
transposition  companies,  large  PIEs  under  500  employees  (Option  1),  large  non-listed 
companies (Option 2), and listed SMEs281 (Options 3).282 

Finally,  the  combined  reporting  and  assurance  statistics  for  the  company  groups  other 
than the current NFRD scope were calculated based on the following assumptions: 

If there is no non-financial reporting, there is no assurance of it either; 

- 
-  within  non-standard  reporting,  assurance  patterns  follow  the  NFRD  survey 

assurance patterns for non-standard reporting companies; 

-  within standard reporting, assurance patterns follow the NFRD survey assurance 

patterns for standard reporting companies; 

-  based  on  mandatory  assurance  requirements  of  national  transposition  in  two 
countries,  the  overall  national  transposition  assurance  statistics  were  combining 
assumptions for these two countries283 with the above two assumptions; 
the  current  NFRD  sets  an  existence  check  as  a  minimum  requirement.  For  the 
new scope company groups no assurance was assumed for this assurance type.  

- 

The  resulting  combined  reporting  and  assurance  patterns  for  the  different  company 
groups were as follows: 

281 Excluding micro enterprises. 
282 In the calculations it was further assumed that 1) non-EU large companies listed in the EU follow the patterns of 
non-listed large EU companies (both in Option 2); and 2) medium SMEs follow the patterns of the sampled small and 
medium listed SMEs (Option 4 follows Option 3) 
283 In France and Spain, the national transposition requires assurance. In these two countries, it was assumed that 90% 
of companies under the NFRD applies limited assurance, 10% of companies applies reasonable assurance. 

218 

NFRDNo assurance (Existence check)Limited assuranceReasonable assuranceTotalNo reporting0%0%0%0%Non-standard17%15%6%38%Standard12%39%11%62%Total29%53%18%100%National transpositionNo assurance (Existence check)Limited assuranceReasonable assuranceTotalNo reporting0%0%0%0%Non-standard10%37%8%54%Standard8%31%7%46%Total18%68%15%100%Option 1No assurance (Existence check)Limited assuranceReasonable assuranceTotalNo reporting78%0%0%78%Non-standard7%6%2%15%Standard1%5%1%8%Total86%10%4%100% 
 
 
 
 
                                                           
In general, the incremental costs of the different options were calculated as the difference 
between the estimated future costs of the different company groups, and the current costs 
of the different company groups as estimated based on the above reporting and assurance 
patterns. 

Limitations 

Since  the  vast  majority  of  the  input  data  is  sourced  from  the  CEPS  Study,  all 
methodological limitations therein are equally affecting the results of this cost calculation 
(e.g.  representativeness  of  the  sample,  company  estimates  instead  of  hard  data,  some 
missing  information).284  Furthermore,  a  number  of  assumptions  and  estimations  were 
used in the cost calculations (all of which were described above in detail). 

Finally,  it  is  important  to  emphasize  that  while  CEPS’s  survey  results  permitted  to 
estimate  the  relative  magnitude  of  administrative  and  assurance  costs  across  different 
alternative scope options,  the per company costs  should not  be considered as a  reliable 
estimate  of  administrative  and  assurance  costs  for  any  particular  company,  which,  as 
mentioned above, is influenced by several factors. 

284 The same can be said as regards the limitations of other data sources used. 

219 

Option 2No assurance (Existence check)Limited assuranceReasonable assuranceTotalNo reporting76%0%0%76%Non-standard4%4%2%10%Standard3%9%3%14%Total83%12%4%100%Option 3-4No assurance (Existence check)Limited assuranceReasonable assuranceTotalNo reporting95%0%0%95%Non-standard1%1%0%2%Standard1%2%1%4%Total96%3%1%100% 
 
 
 
                                                           
Cost calculations 

The administrative and assurance cost calculations under the stratified approach are presented below:

ANNUAL ADMINISTRATIVE COSTS (EUR)NFRD scopeNumber of companiesNo reportingNon standardStandardNon-standard reporting costStandard reporting costTotal reporting costTotal future reporting cost(all standard)Incremental costBaseline (current NFRD)11,653       -            6,000        5,653           201,929,713409,802,878611,732,5910Baseline NFRD1,956        -           751           1,205           37,438,775127,348,759164,787,534Baseline NT9,697        -           5,249        4,448           164,490,938282,454,119446,945,057PACKAGE 0 (Option 0 Standard)11,653       -            6,000        5,653           201,929,713409,802,878611,732,591822,422,895210,690,304Package 0 NFRD1,956        -           751           1,205           37,438,775127,348,759164,787,534206,696,83241,909,298Package 0 NT9,697        -           5,249        4,448           164,490,938282,454,119446,945,057615,726,063168,781,006Option 1 (Standard)1,157        897           174           87                5,438,9875,509,91310,948,90073,465,51062,516,611Option 2 (Standard)35,270       26,948      3,435        4,888           107,636,833310,345,937417,982,7702,239,523,3831,821,540,613Option 3 (Standard)1,059        1,001        21             37                232,630841,6381,074,26824,046,79422,972,526Option 4 (Simplified Standard)160,205     151,394    3,204        5,607           35,192,109127,322,551162,514,6601,825,341,8271,662,827,167PACKAGE 1 (OPTION 1 Standard)12,810       897           6,173        5,740           207,368,700415,312,791622,681,491895,888,406273,206,915Package 1 NFRD3,113        897           924           1,292           42,877,762132,858,672175,736,434280,162,343104,425,909Package 1 NT9,697        -           5,249        4,448           164,490,938282,454,119446,945,057615,726,063168,781,006PACKAGE 2 (OPTION 2 Standard)48,080       27,845       9,608        10,628          315,005,532725,658,7281,040,664,2603,135,411,7882,094,747,528Package 2 NFRD38,383      27,845      4,359        6,179           150,514,594443,204,609593,719,2042,519,685,7251,925,966,522Package 2 NT9,697        -           5,249        4,448           164,490,938282,454,119446,945,057615,726,063168,781,006PACKAGE 3 (OPTION 3 Standard)49,139       28,845       9,629        10,665          315,238,162726,500,3661,041,738,5283,159,458,5822,117,720,055Package 3 NFRD39,442      28,845      4,380        6,217           150,747,224444,046,247594,793,4712,543,732,5191,948,939,048Package 3 NT9,697        -           5,249        4,448.34        164,490,938282,454,119446,945,057615,726,063168,781,006PACKAGE 4 (OPTION 4 Simpl. Stan.)209,344     180,239     12,833       16,272          350,430,271853,822,9171,204,253,1884,984,800,4103,780,547,222Package 3 NFRD199,647    180,239    7,584        11,824         185,939,333571,368,798757,308,1314,369,074,3473,611,766,215Package 3 NT9,697        -           5,249        4,448.34        164,490,938282,454,119446,945,057615,726,063168,781,006ACTUAL CURRENT COSTSFUTURE COSTS 
 
 
ONE-OFF ADMINISTRATIVE COSTS (EUR)NFRD scopeNumber of companiesNo reportingNon standardStandardNon-standard one-off costStandard one-off costTotal sunk one-off costTotal one-off cost(all standard)Incremental one-off costBaseline (current NFRD)11,653      -           6,000        5,653        122,825,999153,492,802276,318,8000Baseline NFRD1,956       -           751          1,205       18,634,61552,339,91170,974,527Baseline NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274PACKAGE 0 (Option 0 Standard)11,653      -           6,000        5,653        122,825,999153,492,802276,318,800305,456,43929,137,639Package 0 NFRD1,956       -           751          1,205       18,634,61552,339,91170,974,52784,951,70213,977,176Package 0 NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274220,504,73715,160,463Option 1 (Standard)1,157        897          174          87            3,445,1471,973,2185,418,36626,309,57820,891,213Option 2 (Standard)35,270      26,948      3,435       4,888       68,179,017111,141,550179,320,567802,021,457622,700,890Option 3 (Standard)1,059        1,001       21            37            115,788345,910461,6989,883,1519,421,453Option 4 (Simplified Standard)160,205    151,394    3,204       5,607       17,516,37052,329,14069,845,509897,493,969827,648,459PACKAGE 1 (OPTION 1 Standard)12,810      897           6,173        5,740        126,271,146155,466,020281,737,166331,766,01750,028,851Package 1 NFRD3,113       897          924          1,292       22,079,76354,313,13076,392,892111,261,28034,868,388Package 1 NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274220,504,73715,160,463PACKAGE 2 (OPTION 2 Standard)48,080      27,845      9,608        10,628      194,450,163266,607,571461,057,7341,133,787,475672,729,741Package 2 NFRD38,383      27,845      4,359       6,179       90,258,780165,454,680255,713,460913,282,738657,569,278Package 2 NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274220,504,73715,160,463PACKAGE 3 (OPTION 3 Standard)49,139      28,845      9,629        10,665      194,565,951266,953,481461,519,4321,143,670,626682,151,194Package 3 NFRD39,442      28,845      4,380       6,217       90,374,568165,800,590256,175,158923,165,889666,990,731Package 3 NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274220,504,73715,160,463PACKAGE 4 (OPTION 4 Simpl. Stan.)209,344    180,239    12,833      16,272      212,082,321319,282,621531,364,9412,041,164,5951,509,799,653Package 3 NFRD199,647    180,239    7,584       11,824      107,890,937218,129,730326,020,6671,820,659,8581,494,639,190Package 3 NT9,697       -           5,249       4,448       104,191,383101,152,891205,344,274220,504,73715,160,463ALREADY SUNK ONE-OFF COSTSFUTURE COSTS 
 
 
 
 
NFRD scopeNumber of companiesNo reportingNon standardStandardExistence check costsLimited assurance costReasonable assurance costTotal assurance costStandardNo assurance costsLimited assurance costReasonable assurance costTotal assurance costIncremental costPACKAGE 0 (Option 0 Standard)11,65306,0005,6532,766,817258,102,094101,388,877362,257,78811,6530426,930,453123,974,481550,904,934188,647,146Package 0 NFRD1,95607511,205687,66172,827,89039,457,583112,973,1351,9560121,164,23743,062,320164,226,55751,253,422Package 0 NT9,69705,2494,4482,079,155185,274,20461,931,294249,284,6539,6970305,766,21680,912,161386,678,377137,393,724Option 1 (Standard)1,1578971748703,396,6291,828,1665,224,7951,157041,097,4932,532,93843,630,43138,405,636Option 2 (Standard)35,27026,9483,4354,8880140,413,00269,309,190209,722,19235,27001,248,900,54083,256,5441,332,157,0841,122,434,892Option 3 (Standard)1,0591,00121370474,909256,095731,0041,059016,942,069276,14017,218,20916,487,205Option 4 (Simplified Standard)160,205151,3943,2045,607071,844,00238,741,987110,585,989160,20501,983,205,58438,741,9872,021,947,5711,911,361,582PACKAGE 1 (OPTION 1 Standard)12,8108976,1735,7402,766,817261,498,724103,217,043367,482,58412,8100468,027,946126,507,420594,535,366227,052,782Package 1 NFRD3,1138979241,292687,66176,224,52041,285,750118,197,9303,1130162,261,73045,595,258207,856,98889,659,058Package 1 NT9,69705,2494,4482,079,155185,274,20461,931,294249,284,6539,6970305,766,21680,912,161386,678,377137,393,724PACKAGE 2 (OPTION 2 Standard)48,08027,8459,60810,6282,766,817401,911,725172,526,233577,204,77548,08001,716,928,486209,763,9641,926,692,4501,349,487,674Package 2 NFRD38,38327,8454,3596,179687,661216,637,521110,594,940327,920,12238,38301,411,162,270128,851,8031,540,014,0721,212,093,950Package 2 NT9,69705,2494,4482,079,155185,274,20461,931,294249,284,6539,6970305,766,21680,912,161386,678,377137,393,724PACKAGE 3 (OPTION 3 Standard)49,13928,8459,62910,6652,766,817402,386,634172,782,329577,935,78049,13901,733,870,555210,040,1041,943,910,6591,365,974,879Package 3 NFRD39,44228,8454,3806,217687,661217,112,430110,851,035328,651,12639,44201,428,104,339129,127,9421,557,232,2811,228,581,155Package 3 NT9,69705,2494,4482,079,155185,274,20461,931,294249,284,6539,6970305,766,21680,912,161386,678,377137,393,724PACKAGE 4 (OPTION 4 Simpl. Stan.)209,344180,23912,83316,2722,766,817474,230,636211,524,316688,521,769209,34403,717,076,139248,782,0913,965,858,2303,277,336,461Package 3 NFRD199,647180,2397,58411,824687,661288,956,432149,593,022439,237,115199,64703,411,309,923167,869,9303,579,179,8533,139,942,737Package 3 NT9,69705,2494,4482,079,155185,274,20461,931,294249,284,6539,6970305,766,21680,912,161386,678,377137,393,724ANNUAL ASSURANCE COSTS (EUR)ACTUAL CURRENT COSTSFUTURE COSTS (LIMITED ASSURANCE) 
 
 
 
The summary of the cost calculations for preparers is presented below. 

Package cost estimates (million EUR)Current costsFuture costsIncremental costsIncrease vs previous packageTotal one-off costsIncremental one-off costsIncrease vs previous packageBaseline11,653974276administrative costs11,653612276assurance costs11,6533620Subtotal admin+assur.11,653974276tagging costs11,65300Package 011,6539741,393419419420143143administrative costs11,65306,0006128222112113052929assurance costs11,6532,2953,835362551189189000Subtotal admin+assur.11,6539741,3733993993052929tagging costs11,65311,6530202020114114114Package 112,8109901,51252210345717632administrative costs12,8108976,173623896273633325021assurance costs12,8103,2873,90136759522738000Subtotal admin+assur.12,8109901,4905001013325021tagging costs12,81012,81002222212612611Package 248,0801,6185,1443,5263,0041,6051,144968administrative costs48,08027,8459,6081,0413,1352,0951,8221,134673623assurance costs48,08032,7245,2195771,9271,3491,122000Subtotal admin+assur.48,0801,6185,0623,4442,9441,134673623tagging costs48,08048,0800828260471471346Package 349,1391,6205,1873,567411,6251,16420administrative costs49,13928,8459,6291,0423,1592,118231,1446829assurance costs49,13933,7425,2275781,9441,36616000Subtotal admin+assur.49,1391,6205,1033,484391,1446829tagging costs49,13949,13908484248248210Package 4209,3441,8939,3077,4143,8474,0933,5612,398administrative costs209,344180,23912,8331,2044,9853,7811,6632,0411,510828assurance costs209,344187,6586,4566893,9663,2771,911000Subtotal admin+assur.209,3441,8938,9517,0583,5742,0411,510828tagging costs209,344209,34403563562722,0522,0521,570Stratified recurring costsStratified one-off costsTotal number of companiesNumber of companies new to reporting/ assurance /taggingNumber of companies with non-standard reporting before/ with assurance that needs to be elevated 
 
ANNEX 18: DISCARDED POLICY OPTIONS 

The following options have been considered but discarded at an early stage: 

1)  General: European Transparency Benchmark. 
2)  Standardisation: Additional non-binding guidelines issued by the Commission. 
3)  Standardisation: Endorsement of an international standard. 
4)  Scope: Expanding the scope to include all SMEs. 

This annexes describes each of these options and the reasons for discarding them at an 
early stage.  

1)  General: European Transparency Benchmark  

Description of option:  

The Commission could propose the establishment of a European transparency benchmark 
which publicly rates the non-financial reporting of companies, with  the aim of creating 
an  incentive  for  companies  to  improve  the  quality  of  such  reporting.  This  could  be 
modelled  on  the  Netherlands  Transparency  Benchmark  that  the  Dutch  government  has 
supported  since  2004.285  The  Netherlands  Transparency  benchmark  aims  to  enable 
companies  to  compare  their  own  non-financial  reporting  with  other  companies,  to 
provide  a  starting  point  for  dialogue  between  the  company  and  its  stakeholders  on 
transparency, and to identify trends in non-financial reporting. 

Reasons for discarding this option: 

In  spite  of  its  experience  with  the  Transparency  Benchmark,  the  Dutch  regulatory 
supervisor has identified many of the same deficiencies in non-financial reporting in the 
Netherlands  that  exist  in  other  Member  States  of  the  European  Union.286  There  is 
therefore  significant  doubt  about  whether  such  a  scheme  at  European  level  would 
adequately resolve the identified problems. 

The  management  of  a  transparency  benchmark  at  European  level,  in  particular  the 
comparison between companies across all Member States, would be complex and costly. 
Whereas the Dutch transparency benchmark in 2019 looked at 240 companies using one 
language,  a  European  scheme  would  need  to  compare  several  thousands  of  companies 
reporting in many different languages.     

2)  Standardisation: Additional non-binding guidelines issued by the Commission 

Description of option:  

The  Commission  issued  general  non-binding  guidelines  on  non-financial  reporting  in 
2017,  as  required  by  the  NFRD.  In  2019  the  Commission  issued  supplementary 

285 https://www.transparantiebenchmark.nl/en  
286 In Balance 2019 - Survey of value creation and follow-up to the Non-Financial Information (Disclosure) Decree, 
Dutch Authority for the Financial Markets (AFM), December 2019 

 
 
                                                           
guidelines  on  how  to  report  climate-related  information.  The  Commission  could  issue 
additional non-binding guidelines on other specific topics on which corporate reporting is 
considered  to  be  inadequate.  Some  stakeholders  have  suggested  this  option,  including 
some business associations and individual companies in their comments on the Inception 
Impact Assessment for this initiative.   

Reasons for discarding this option: 

There  is  insufficient  evidence  that  the  existing  non-binding  guidelines  have  had  a 
significant impact on the quality of non-financial reporting by companies under the scope 
of the NFRD.  The problems identified in chapter 2 all exist in spite of the non-binding 
guidelines issued by the Commission in 2017.  

In  response  to  the  2018  public  consultation,  36%  of  respondents  who  expressed  an 
opinion  thought  the  guidelines  contributed  to  improve  the  quality  of  disclosures,  while 
33%  disagreed.  Many  respondents  considered  that  the  guidelines  were  most  useful  for 
companies that had never previously reported non-financial information.  

An  analysis  by  the  Carbon  Disclosures  Standards  Board  and  CDP  found  “no  direct 
evidence from companies that the Commission’s guidelines accompanying the Directive 
were being used or having a positive effect on NFRD […] disclosures”.287 A survey of 55 
Polish listed companies under the scope of the NFRD found that only 16% had used the 
guidelines.288 The CEPS survey of companies under the scope of the NFRD indicates a 
somewhat  higher  proportion  of  respondents  (44%)  who  say  that  they  apply  the  2017 
guidelines to a full extent or to a high extent. The proportion of respondents that say they 
have applied the 2019 guidelines on climate reporting to a full or to a high extent is 11%, 
while 58% of the respondents did not apply the 2019 guidelines at all. 

The  guidelines  are  comprehensive  in  the  sense  that  they  cover  the  broad  range  of  non-
financial  issues  envisaged  by  the  NFRD.  However,  they  are  not  detailed  enough  to 
address  the  specific  problems  identified  in  this  impact  assessment,  in  particular  the 
specific problems for users regarding comparability and relevance. For example, they do 
not  define  KPIs  in  any  significant  detail,  they  do  not  define  the  methodology  behind 
KPIs  and  they  do  not  define  the  non-financial  issues  that  may  be  relevant  to  particular 
sectors. The  guidelines  are significantly less  detailed than the principal  existing private 
standards  and  frameworks  used  in  the  market,  such  as  the  standards  of  the  Global 
Reporting Initiative or the Sustainability Accounting Standards Board. 

The voluntary nature of  the guidelines means that  companies are free to  apply them  or 
not as they see fit. They therefore cannot on their own resolve the problems related to the 
comparability  of  information  between  companies  or  the  non-disclosure  of  information 

287  “First  Steps:  corporate  climate  and  environmental  disclosure  under  the  EU  Non-Financial  Reporting  Directive”, 
Carbon Disclosure Standards Board and CDP, November 2018  
288  Results  of  survey  conducted  at  a  conference  on  non-financial  reporting  organized  by  the  Polish  Association  of 
Listed Companies, data gathered and analysed by the Foundation for Reporting Standards, September 2019. Author: 
PioMBiernacki.  

 
 
                                                           
that  users  believe  is  relevant.  In  this  respect,  the  non-binding  guidelines  may  even 
exacerbate  the  complexity  faced  by  preparers  if  they  are  perceived  as  additional  to  the 
various private non-financial standards and frameworks in the market, without removing 
the  pressure  on  preparers  to  consider  each  of  those  standards  and  frameworks 
individually  and  to  respond  in  any  case  to  additional  information  requests  from 
stakeholders.  

In  addition,  the  non-binding  guidelines  themselves  have  explicitly  indicated  that  they 
should  not  be  used  as  basis  for  expressing  conformity  with  the  requirements  of  the 
NFRD.  They  do  not  therefore  significantly  contribute  to  resolving  problems  related  to 
enforcement of the reporting requirements or the reliability of disclosed information.   

If  it  is  considered  that  companies  require  more  detailed  guidance,  then  this  is  best 
achieved by means of non-financial reporting standards, developed by  a standard-setter 
through  a  recognised  standard-setting  process,  rather  than  by  means  of  additional  non-
binding  guidelines  issued  by  the  Commission.  Compared  to  additional  guidelines  from 
the  Commission,  standards  are  more  likely  to  achieve  a  level  of  granularity  that  will 
successfully  address  the  identified  problems.  A  formal  standard-setting  process  also 
provides  a  more  effective  means  of  incorporating  the  views  and  expertise  of  users, 
reporting companies and other relevant stakeholders. 

3)  Standardisation: first developing voluntary EU standards before moving to a 

mandatory approach 

Description of option: 

The Commission could propose the development of EU reporting standards for use on a 
voluntary  basis  for  an  initial  period  of  time,  and  then  introduce  a  requirement  on 
companies to use those standards at a later date.   

Reasons for discarding this option: 

So long as  reporting standards are voluntary, they  will not  resolve the  critical  issues of 
relevance and comparability identified in the problem definition. Voluntary standards, as 
opposed to mandatory standards, would also seriously undermine the effectiveness of the 
preferred  options  with  regard  to  other  variables  analysed  in  this  impact  assessment, 
especially  assurance,  digitalisation,  and  supervision.  Overall,  any  period  during  which 
EU  standards  were  voluntary  would  simply  delay  the  achievement  of  the  policy 
objectives identified in this impact assessment. 

4)  Standardisation: Endorsement of an international non-financial reporting 

standard 

Description of option: 

The  Commission  could  endorse  an  international  non-financial  reporting  standard. 
Endorsement could take the form of a Commission recommendation, or it could mean a 
mandatory obligation on companies to use such an international standard. Additionally, 

 
 
this option could either comprise endorsement of an  existing international non-financial 
reporting  standard  (such  as  the  Global  Reporting  Initiative  or  the  standards  of  the 
Sustainability  Accounting  Standards  Board);  or  it  could  comprise  endorsement  of  new 
international  non-financial  reporting  standards  that  would  have  to  be  developed  in  the 
future,  such  as  the  standards  that  may  be  developed  under  the  auspices  of  the  IFRS 
Foundation. 

Reasons for discarding this option: 

The principal reason for discarding this option is that an international standard could not 
meet the specific needs of the European context. The information reported by companies 
in the EU will need to align with the information that financial market participants will 
need  to  meet  their  own  legal  requirements  under  the  Sustainable  Finance  Disclosure 
Regulation  (SFDR)  and  its  accompanying  Regulatory  Standards  where  relevant.  In 
addition,  information  specified  in  non-financial  reporting  standards  for  use  by  EU 
companies will have to align to the extent possible with the EU taxonomy on sustainable 
economic  activities.  It  will  also  need  to  be  consistent  with  relevant  EU  legislation, 
including,  for  example,  possible  future  legislation  on  due  diligence  and  sustainable 
corporate  governance.  It  is  not  reasonable  to  expect  that  any  existing  or  future 
international standard could do that at the necessary level of specificity.  

Secondly,  no  existing  international  standard  adequately  covers  the  two  materiality 
perspectives  that  companies  under  the  scope  of  the  NFRD  are  already  required  to 
consider. The two most comprehensive private international standards in existence each 
cover one materiality perspective. The SASB standards consider financial materiality but 
not necessarily the impact of the company on society and the environment. Providers of 
capital  are  the  target  audience  of  TCFD  reporting.  The  initial  plans  of  the  IFRS 
Foundation are to focus on climate reporting and from a financial materiality perspective 
only.  The  GRI  standards,  on  the  other  hand,  focus  on  the  social  and  environmental 
impacts  of  the  company  but  not  on  the  risks  to  the  reporting  company  arising  from 
sustainability  and  other  non-financial  issues.  The  target  audience  of  GRI  reports  is 
deliberately wide, and includes investors, customers and consumers, governments, other 
providers of financial capital, and NGOs.289  

If  comprising  the  endorsement  of  new  international  non-financial  reporting  standards, 
this option has also been discarded on the grounds that there would be little prospect of 
reaching  global  agreement  on  new  international  non-financial  reporting  standards  that 
cover the full range of sustainability topics within the necessary timelines. Negotiations 
could be expected to take several years, considering the different starting-points and the 
divergence of views between different jurisdictions on critical issues such as climate and 
human  rights.  However,  the  financial  market  participants  in  the  EU  will  already  need 
information  from  investee  companies  that  is  aligned  with  the  Sustainable  Finance 
Disclosure Regulation and its accompanying Regulatory Standards from March 2021.  

289  Annex  13  provides  a  description  of  the  main  existing  international  non-financial  reporting  standards  and 
frameworks.   

 
 
                                                           
A further consideration is the need for adequate political and democratic oversight of the 
content  of  any  non-financial  reporting  standard  that  the  EU  might  endorse  or  require. 
Given the political  nature of many of the issues  that such a standard would  cover (e.g. 
human  rights,  environmental  issues  including  climate),  this  kind  of  oversight  is 
increasingly  important.  It  is  probably  not  feasible  to  ensure  the  necessary  degree  of 
political and democratic oversight in the case of an international standard.  

The  open  public  consultation  carried  out  in  preparation  for  this  initiative  asked 
respondents  to  what  extent  they  believed  that  GRI,  SASB  or  the  framework  of  the 
International  Integrated  Reporting  Council  (IIRC),  would,  if  applied  on  their  own, 
resolve  the  current  problems  of  reporting  under  the  NFRD.  Respondents  had  more 
confidence  that  the  GRI  standards  could,  on  their  own,  resolve  the  identified  problems 
compared to the SASB standards and the IIRC framework. However, even in the case of 
the  GRI  standards,  only  a  fifth  of  respondents  believed  that  they  would  resolve  the 
current problems “to a very great extent.”  

5)  Scope: expand scope to all SMEs  

Description of option: 

The  Commission  could  propose  to  expand  non-financial  reporting  requirements  to  all 
SMEs. This compares to package 3 (analysed in section 6.3.4) which would expand the 
scope to include all SMEs with securities listed on EU regulated markets, and to package 
4 (analysed in section 6.3.5) which would expand the scope of the NFRD to all medium-
sized  companies  whether  listed  or  not.  The  specificity  of  this  discarded  option  is 
therefore the expansion of scope to non-listed small and micro-enterprises.  

Reasons for discarding this option: 

This option was discarded at an early stage for reasons of proportionality. The evidence 
shows  that  user  demand  for  non-information  decreases  with  the  size  of  the  company. 
According  to  the  SME  Panel  carried  out  in  preparation  for  this  initiative,  80%  of 
medium-sized companies had received at least one request for some kind of non-financial 
information, compared to 45% of small companies.   

In  response  to  the  open  public  consultation,  the  option  of  expanding  the  scope  of  the 
NFRD  to  all  limited  liability  companies  regardless  of  their  size  was  by  a  considerable 
margin the least favoured of the different scope options. Of respondents  who identified 
themselves as users of non-financial information, only 25% “mostly” or “totally” agreed 
with this option. In contrast, 45% of users explicitly opposed this option. When looking 
at responses from the financial sector, only 16% favoured this option and 60% explicitly 
opposed it.  

Given the very large number of micro- and small-sized limited liability companies in the 
EU  (over  13  million),  the  total  estimated  yearly  incremental  costs  of  requiring  such 
companies  to  report  non-financial  information  in  annual  reports  would  be  of  EUR  145 

 
 
billion.  Since  users  are  also  less  interested  in  non-financial  information  from  these 
companies, we concluded that this option should be discarded.