Legal development

The Corporate Sustainability Reporting Directive - An overview

08 February 2023

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    The Corporate Sustainability Reporting Directive (CSRD) waspublishedin the Official Journal of the European Union on 16 December 2022, and entered into force on 5 January 2023. Member States must transpose it into domestic law by 6 July 2024.

    As discussed in ourAGC update, Issue 26, the CSRD enhances the reporting requirements under the Non-Financial Reporting Directive 2014/95/EU (NFRD) by requiring in scope companies to report annually on a number of sustainability matters in their management reports.

    The CSRD constitutes a significant expansion of the non-financial reporting requirements on companies, with the CSRDestimated to catch around 50,000 companies从大约11700家公司,坏蛋rently report under the NFRD.

    Which companies are in scope and when?

    criteria when is reporting required
    1. Large EU incorporated undertakings and parent undertakings of a large group

    The undertaking must:

    • be a public interest entity (PIE)1;
    • 至少超过以下两个标准之一:
      • balance sheet total of €20 million;
      • net turnover of €40 million;
    • have on average 500 employees during the financial year.
    		 Financial periods beginning on or after 1 January 2024, which means the first reports will be produced by Category 1 undertakings in 2025.
    2. Large EU incorporated undertakings and parent undertakings of a large group (that are not caught in Category 1)

    The undertaking must exceed at least two of the following three criteria:

    • balance sheet total of €20 million;
    • net turnover of €40 million;
    • has on average 250 employees during the financial year.
    		 Financial periods beginning on or after 1 January 2025, which means the first reports will be produced by Category 2 undertakings in 2026.
    3. EU incorporated small and medium-sized undertakings (SME) listed on EU regulated markets

    The undertaking must:

    • be a PIE;
    • not bemicro undertakings2;
    • not exceed the limits of at least two of the following three criteria:
      • a balance sheet total of €20 million;
      • a net turnover of €40 million;
      • has on average 250 employees during the financial year.
    		 Financial periods beginning on or after 1 January 2026, which means the first reports will be produced by Category 3 undertakings in 2027. However, SMEs can opt-out until 2028.
    4. Undertakings not incorporated in the EU with a subsidiary or branch in the EU

    The undertaking must:

    • have a net turnover of more than €150 million in the EU for each of the last two consecutive financial years; and
    • have an EU incorporated subsidiary undertaking that is a large undertaking (meeting Category 2 criteria) or a PIE SME (meeting Category 3 criteria); or
    • have a branch in an EU Member State with a net turnover of more than €40m.
    		 Financial periods beginning on or after 1 January 2028, which means the first report will be produced by Category 4 undertakings in 2029.

    What will need to be disclosed?

    As discussed in ourAGC update, Issue 30, relevant undertakings will need to report on sustainability matters according to the European Sustainability Reporting Standards (ESRS) adopted by the European Commission. These have "double materiality", meaning that an in-scope company will be required to report on the sustainability-related financial risks impacting the company as well as the impacts of the company on the environment and society.

    A first set of draft ESRSs have been published setting out standards covering the following areas:

    • Environment– (i) climate change, (ii) pollution, (iii) water and marine resources, (iv) biodiversity and ecosystems and (v) resources and circular economy;
    • Social– (i) own workforce, (ii) workers in the value chain, (iii) affected communities and (iv) customers and end-users; and
    • Governance– (i) business conduct.

    The European Financial Reporting Advisory Group (EFRAG) will now focus on drafting sector-specific reporting standards which it is expected to publish in mid-2023. These are expected to cover:

    • five sectors covered by Global Reporting Initiative standards: agriculture, coal mining, mining, oil and gas (upstream), oil and gas (mid-to downstream); and
    • five high-impact sectors: energy production, road transport, motor vehicle production, food/beverages, textiles.

    The ESRS are set to be adopted by 30 June 2024.

    If you have any questions or if you would like to discuss the CSRD and its prospective implications for your business, please reach out to a member of the team.

    We would like to thank Christopher Phillips for his assistance with this article.

    1. 'Public-interest entities' are defined in Directive 2013/34/EU under Article 2(1) as undertakings which are "(a) governed by the law of a Member State and whose transferable securities are admitted to trading on a regulated market of any Member State, or (b) credit institutions; or (c) insurance undertakings; or (d) undertakings designated by Member States as public-interest entities".
    2. 'Micro-undertakings' are defined in Directive 2013/34/EU under Article 3(1) as "undertakings which on their balance sheet dates do not exceed the limits of at least two of the three following criteria (a) balance sheet total: EUR 350 000; (b) net turnover: EUR 700 000; (c) average number of employees during the financial year: 10."

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