The EU 2014 Non-financial Reporting Directive (NFRD) requires large public-interest entities in the EU to publish non-financial information on an annual basis. Although it represents a milestone in non-financial reporting (NFR), the Directive has not been strong enough to guarantee that companies provide the information that stakeholders expect and need. One reason is that there is no requirement to include trade unions and worker representatives in the non-financial reporting process. The current consensus on the need to revise the Directive represents an opportunity to strengthen the involvement of trade unions and worker representatives in NFR and improve the relevance, quality, trustworthiness and comparability of information provided in non-financial reports.
The Non-financial Reporting Directive (NFRD)
The Non-financial Reporting Directive 2014/95/EU represents a milestone at the EU level in terms of requiring "large public-interest companies" to provide non-financial information. The Commission estimates that about 6,000 companies are covered, as the Directive applies to the following types of companies and groups with more than 500 employees:
listed companies
banks
insurance companies
other companies designated by national authorities as public-interest entities
Under the NFRD, large companies have to publish reports on the policies they implement in relation to:
environmental protection
social responsibility and treatment of employees
respect for human rights
anti-corruption and bribery
diversity on company boards
Starting with the 2018 reporting cycle, companies are required to publish a non-financial statement which includes:
a brief description of the undertaking's business model
a description of the policies pursued by the undertaking in relation to the matters listed above, including due diligence processes implemented
the outcome of those policies
the principal risks related to those matters linked to the undertaking's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks
non-financial key performance indicators relevant to the particular business
Companies are free to choose between existing national or international reporting frameworks for specific guidance on how exactly to report, and are also given the option to "report or explain". The European Commission provided voluntary guidance for environmental and social reporting in 2017 and guidance on climate-change related reporting in 2019.
Shortcomings of the 2014 NFRD and the revision process
A number of studies, such as the Alliance for Corporate Transparency's 2019 report on the top 1000 listed European companies and its 2020 report on 300 companies in Central, Eastern and Southern Europe, have pointed out that many of the companies covered by the NFRD are not providing basic information on environmental and social impacts and governance needed by stakeholders.
These shortcomings were confirmed by the large majority of participants in the European Commission's public consultation on Non-financial reporting by large companies. The summary document on the consultation pointed out in particular that:
Users say NFR lacks comparability (84%) reliability (74%) relevance (70%)
82% say there should be a common EU NFR standard
67% say there should be (stronger) audit requirements
70% want large non-listed companies covered by NFRD
69% want environmental disclosures by the Financial Taxonomy
In part based on this consultation, the European Commission announced that it would publish a proposal for revising the NFRD in 1Q of 2021. At the same time it commissioned two key reports for the development of a comment set of EU NFR standards:
The EFRAG Project Task Force on Preparatory work for the elaboration of possible EU non-financial reporting standards, and
A report on Potential Need for Changes to the Governance and Funding of EFRAG were it to receive a mandate to develop NFR standards
European Trade Union Confederation (ETUC) demands
The European Trade Union Confederation (ETUC) has made a number of demands which relate to non-financial reporting:
Feedback on the European Commission's consultation on revising the NFRD
ETUC Position for a European directive on mandatory Human Rights due diligence and responsible business conduct
A demand for an EU framework on information, consultation and board-level representation for European company forms and for companies making use of EU company law instruments enabling company mobility