What Was the NFRD? Understanding the EU’s First ESG Reporting Rule

So, the EU once made a rule that said companies had to start reporting “non-financial” stuff. But like… what even is that? And why did it matter? This is the NFRD.

Key Takeaways

The Non-Financial Reporting Directive (NFRD) was introduced in 2014 and applied from 2018.
It required around 11,000 large EU companies to disclose info on environmental and social matters.
It was the EU’s first big attempt to make ESG (Environmental, Social, Governance) part of corporate transparency.
While well-intentioned, it lacked teeth — and reporting varied wildly across companies and countries.

How it fits with the rest of the EU sustainability web

We are now in Article 5 of our CSRD & Sustainability Regulations series. If you missed the previous articles, check them out here:

The NFRD fits into the broader sustainability framework of EU regulations, as illustrated below:

EU Green Deal
│
├──→ EU Taxonomy
│
├──→ SFDR (📍 You are here) │
├──→ NFRD → CSRD
│ ├──→ ESRS
│ ├──→ Global Standards (TCFD, ISSB, GRI) │
├──→ CSDDD
│
└──→ Digital Tools & ESG Software

So what even is “non-financial reporting”?

Basically: stuff that’s not money, but still matters. Things like:

What’s your company’s carbon footprint?
How do you treat your workers?
What are you doing about corruption?
Do you even have a diversity policy?

That’s what the NFRD tried to get companies to explain. Because up till then, many just… didn’t.

Who had to follow the NFRD?

NFRD applied to large public-interest entities in the EU.

That meant:

Companies with 500+ employees
That were listed, or were banks, insurance firms, etc.

That came out to about 11,000 companies. Small compared to today’s rules, but a big first step at the time.

What exactly did it require?

The NFRD wasn’t super strict — and that was kind of the issue. But here’s what it asked companies to report on:

Topics:

Environmental protection
Social responsibility
Treatment of employees
Respect for human rights
Anti-corruption and bribery
Diversity in company boards

Approach:

Talk about your policies.
Say what risks you face or create.
Explain your outcomes and show KPIs (Key Performance Indicators).

Fun fact:

It introduced the idea of double materiality — meaning:

How the world impacts you (financial materiality)
And how you impact the world (impact materiality)

But here’s the catch: each country did it their own way

NFRD let member states choose how companies complied. So:

Some countries made it stricter, some didn’t.
Some companies used GRI standards, others just winged it.
Reports were inconsistent, and data wasn’t always comparable.

One investor might read a company’s ESG report and be like: “ok cool.”
Another might read a different one and be like: “…huh?”

Why was NFRD important, though?

Even if it wasn’t perfect, the NFRD was historic. It made ESG a real, legal thing in the EU.

Before NFRD: ESG reporting was mostly voluntary
After NFRD: Thousands of companies had to start talking about these issues

It created:

Awareness — companies began paying attention
Data — even if messy, there was something to work with
A baseline — without it, there’d be no CSRD

So yeah. It walked so the CSRD could run.

NFRD + other EU regulations

The NFRD didn’t live in a vacuum. It worked alongside other rules to build out the EU’s sustainability plan.

Key connections:

EU Green Deal: The overall policy goal — NFRD was one of its tools.
EU Taxonomy: A classification system — NFRD reporters had to say how their activities aligned.
SFDR: Focused on investment — but used NFRD data to assess company impact.

NFRD FAQs

Was the NFRD legally binding?
Yes. It was a directive, so countries had to implement it into national law. But how they did it… varied.

Did companies get fined for not reporting?
Enforcement was patchy. Some countries fined companies, others didn’t really bother.

Is NFRD still active?
Technically yes — but it’s being phased out. CSRD replaces it starting with FY 2024 reporting.

What if my company was too small?
Then NFRD didn’t apply. But under CSRD, that might change soon.

SFDR is here to stay, and whether companies like it or not, they need to get serious about sustainability reporting. The days of greenwashing are numbered. Those who adapt early will be better positioned in the evolving ESG landscape.

🧭 Next up: TCFD, ISSB, GRI – Global Sustainability Reporting Standards

This article was created with the assistance of AI and carefully reviewed, edited, and refined to ensure accuracy and clarity.