The NFRD - The Backbone of European Green Business

The European Green Deal applies to many different businesses, and one of the mechanisms it uses for reporting on the success or failure of its measures is the Non-Financial Reporting Directive, or NFRD. NFRD’s can be helpful for stakeholders seeking to better understand the green credentials of the businesses they operate or invest in. NFRD’s can also help in provide insight and forward thinking strategies, and provide feedback to management teams and investors.

For any organization or company, an NFRD is an initial, basic measure of the environmental impact of an enterprise. audited or not. Open full corporate carbon and energy accounting (or lack thereof) is seen as a really valuable tool to quantify and understand how firms might be complying with EU reporting requirements such as the provision of an NFRD.

An NFRD (amongst other things) demonstrates a simple view of how a company uses energy, and could be operating in an energy efficient manner (or not). To help understand the merits of such audited energy accounting principles (the point of Localization of carbon and energy accounting) one also needs to consider the current requirements of EU regulation in this area. A reporting framework developed by the EU's statistical registrar, Eurostat, focuses on measuring a company's efficiency in resource and energy usage. This suggests that an Energy Performance Number (EPN) can be regarded as the most important indicator of energy efficiency, and that carbon reporting would be a significant contribution to understanding its business efficiency and the effectiveness of its carbon objectives.

The progress made in atmospheric science have helped us to understand the complexity of energy efficiency and carbon emissions, while adding a new dimension to energy reporting and the NFRD. There have been several other tool sets available to assist with the maintenance of policies and efficient use of energy too. In this particular case, financial incentives for investments in "green technologies" may be presented as an additional critical measurement tool that measures business efficiency and compliance with the rules. The benefit in this is that firms start to realize that with investments in green technologies, the efficiency and effectiveness of their business activities can be improved.

The Continuing Partnership - NFRD Becomes CSRD

A recent development in the EU Taxonomy programme is the transition from the NFRD to the CSRD, a new way of reporting things such as energy saving, sustainability, recycling and greenhouse gas reduction. The interests of the programme and the underlying technology is effectively linked to the NFRD which it succeeds, and the EU's effort to help the environment.

The next few years will also see a significant change in the business environment. For the first time, the environmental balance of power is no longer a regular feature of the politicians' agenda.

The inescapable demand for greener financial practices among the financial institutions has led to such a real change of direction for at least one of the EU's regulatory agencies, the Industry steam to 'protect its membership from environmental protection initiatives brought about by the Investor Enhancement Initiative (IEI) and changes in the EU's attribution calculation process.

What the Future Holds

To face the arrival of this future legal framework, the "old" business processes will have to change substantially. One such necessary change will be corporation tax. Whether carbon or energy accounting are used as the base for introducing corporate tax, the new corporate tax, relying on "spin" rather than substance to communicate emissions information, will be pivotal in measuring the attributes of the corporate circulation. A key step will be the introduction of a separate carbon price. Emissions subject to emissions taxation will come back into the spotlight.

While things like NFRD’s and the CSRD aim to provide a compass to guide a future generation of business owners, carbon accounting technologies could also help. You may reduce emissions based on current cost- quo policies, or possibly in response to future demand. Alternatively, businesses may decide to build a portfolio of greenhouse gas farm & development projects, to meet future European government mandates.