In force since January 5th, 2023, is the long-awaited Corporate Sustainability Reporting Directive (‘CSRD’). The CSRD aims to enhance the regulations initially established by the Non-Financial Reporting Directive (‘NFRD’), which remains in force until the CSRD starts to be applied. For this improvement to be achieved, a uniform framework for reporting sustainability information is introduced, aligning it with financial reporting standards. The information that needs to be provided aims to aid investors, civil societies, consumers, and other stakeholders in assessing the sustainability impact of companies, encouraging transparency, as part of the European green deal.
Through this Directive, the EU requires large and listed companies, with the exclusion of listed micro-companies, to regularly disclose information through reports on the social and environmental risks they come across, and the impact that their activities have on people and the environment. Therefore, the directive only applies for EU-based companies and if they meet at least two of the following criteria: (i) employing over 250 employees, (ii) having a net turnover exceeding €40 million, (iii) possessing assets exceeding €20 million. As for third-country undertakings, they are included in the scope of application of the Directive only if they have significant activity in the territory of the EU. This means that if they generate a net turnover within the EU surpassing €150 million, and they have substantial EU subsidiaries or significant EU branches, that generate revenues exceeding €40 million, they are required to provide the aforementioned information. The number of companies that fall under this Directive is estimated to be 50 000 in total.
As for the reports, they should be made in accordance with the European Sustainability Reporting Standards (‘ESRS’), which will be specifically tailored to align with the EU policies, while simultaneously building on and contributing to international standardisation initiatives. The European Commission, which is responsible for developing these standards, is expected to adopt them by June 30th, 2023. It should be noted that the harmonization of the information required for reporting will gradually lead to a reduction in the reporting costs.
Member States are now required to incorporate the CSRD provisions into their national legislation within a timeframe of 18 months. The initial implementation of the new rules will require their first application by companies to be during the 2024 financial year. This means that the reports reflecting the application of the new rules will be published in 2025.
At Christys & Co LLC, we provide our clients with advice and support on all aspects of corporate and commercial law, including all the new standards that your company needs to comply with. By keeping up to date with all the new developments and taking into consideration this new Directive, we can effectively tailor our approach to each client’s needs, making sure that your company complies with the current legal framework.
