What is Non-Financial Reporting?

Rafael Perez Medina
February 2, 2023

Financial reports have been the golden rule to understanding the value of a company and a fundamental aspect for investors to decide whether their funds and trust are in one or another corporation or business. With the new requirements of the Paris agreement and especially since the signing of the European Green Deal this definition of how to analyze the value of a company, market or sector has been expanded. Factors such as how the business and activity influence the environment, society in general, and its own employees and managers.

One of the most important consequences of the European Green Deal is the incorporation of non-financial reporting for companies living within the EU. These reports are aimed at providing information on environmental, social, and governance (ESG) aspects, in line with the decarbonization strategy of the Paris Agreement and is a formalization of the United Nations 2030 Agenda. These reports follow the so-called Corporate Sustainability Reporting Directive (CSRD), coming into force in 3 phases:

January 1, 2024, for companies already subject to the Non-Financial Reporting Directive.

January 1, 2025, for large companies that are not currently subject to the Non-Financial Reporting Directive

January 1, 2026, for listed SMEs, small and non-complex credit institutions, and captive insurance companies (1).

By 2024, some 50,000 companies must submit their non-financial reports on a mandatory basis. For this, they must be certified and audited to comply with the correct measurement of social, environmental, and governance impacts and risks. This first group of companies must have more than 250 employees and an annual turnover of 40 million euros, whether or not they are listed on the stock exchange. These requirements are also extended to listed SMEs, although an opt-out will be possible during a transitional period that may last until 2028. Finally, non-European companies will be required to submit a sustainability report only if they generate a net turnover of EUR 150 million per year within the EU and have a subsidiary or branch at least within the EU territory.

The CRD rules will apply to the above-mentioned groups of companies, while other companies will be subject to less stringent rules. Some SMEs will be able to wait until 2026 and others until 2028 (2). Non-financial statement (NFS) reports have to focus on different analyses such as:

1. material analysis information,

2. strategic plans for investors,

3. active involvement of the companies management boards in sustainability issues,

4. the integration of non-financial boards in CEO remuneration policies,

5. The obligation of non-financial reporting can be traced back to three stages: Awareness, capability, and participation (3).

These reports serve investors and stakeholders to learn about the real impact of the company on social, environmental, human rights, and overall internal governance factors of this group of companies. This report should be included as a chapter of the Operations Report: A single document with the annual financial statements, corresponding annexes, and this ESG report.

Currently, less than 32% of all companies are required to comply with the Directive report on the strategy being addressed to meet the companies' ESG objectives and challenges. While 23% of this group of companies address specific climate risks.


(1) (https://it.andersen.com/en/green-deal-e-nuovi-obblighi-di-rendicontazione-non-finanziaria/)

(2) (https://esgnews.it/environmental/ue-nuove-regole-sulla-rendicontazione-non-finanziaria/)

(3) (https://www.fiscoetasse.com/approfondimenti/14261-la-rendicontazione-non-finanziaria-e-il-modello-di-business-sostenibile-delle-pmi.html)