In recent years, the European Union has been working towards ambitious sustainability goals through the European Green Deal. The Corporate Sustainability Reporting Directive (CSRD) plays a key role in this initiative, requiring companies to provide detailed reports on their environmental, social, and governance (ESG) impacts. While the CSRD and related legislation, such as the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy Regulation, represent significant steps towards a more sustainable economy, the finalisation of the CSRD is currently facing considerable challenges. This article explores three pressing developments:
The CSRD came into force in the EU on 5 January 2023. Member states were given until 6 July 2024 to transpose this European directive into national legislation. However, many countries, including the Netherlands, failed to meet this deadline. To enforce implementation, the European Commission (EC) has initiated infringement proceedings against 17 (!) member states for failing to implement EU legislation on time.
Until a member state implements the directive, CSRD obligations do not formally apply to companies within that state, meaning reporting under the CSRD would be voluntary. This delay creates inequality between companies across the EU and generates uncertainty about the exact reporting requirements and deadlines. As of now, it remains unclear when the CSRD will be implemented in the Netherlands. The latest step in the implementation process was the submission of the draft legislation on CSRD implementation to the Dutch House of Representatives on 13 January of this year.
Complicating the swift national implementation is the growing lobbying effort to reduce CSRD obligations. This lobbying comes from parts of the private sector, EU member states, and the European Parliament (EP). Some businesses argue that implementing the CSRD imposes significant costs (e.g., for data collection, auditing, and reporting). At the same time, others advocate maintaining the current rules, warning that changes would create legal uncertainty, which they deem undesirable.
Additionally, resistance to CSRD obligations is mounting among several EU member states. Recent examples include letters from the German and French governments advocating for more proportionality and reduced reporting requirements, particularly for small and medium-sized enterprises (SMEs). They also proposed raising the thresholds for ‘large’ companies subject to reporting obligations.
The EP has also echoed calls for easing obligations. For instance, in a letter dated 17 January of this year, the European People’s Party (EPP), the largest political group in the EP, made demands similar to those of the German government. A document leaked from the European Commission at the end of January indeed suggests a greater focus on proportionality, particularly for companies larger than SMEs but smaller than large enterprises.
Momentum for this lobbying effort has further increased with proposals to simplify sustainability regulations through an Omnibus Directive. The EC is currently developing this directive to harmonise and simplify the CSRD, CSDDD, and the EU Taxonomy. However, we believe the potential for significant benefits here is limited, as these three types of sustainability legislation are fundamentally different. For example:
The Omnibus Directive appears more likely to revise and relax sustainability obligations than to provide true simplification.
Notably, significant relief has already been implemented, with the scope of companies subject to the CSRD being reduced early last year. The thresholds for inclusion were raised to €50 million in turnover and €25 million in total assets, from €40 million and €20 million, respectively. This change excluded approximately 10,000 companies that would otherwise have been subject to CSRD reporting obligations.
Another obstacle is the incompleteness of the CSRD reporting standards. The CSRD requires companies to report according to the European Sustainability Reporting Standards (ESRS), developed by EFRAG. While the first set of general standards was published in December 2023, sector-specific standards remain incomplete.
These sector-specific standards will address sustainability issues unique to specific industries (e.g., financial services, real estate, and energy). This delay leaves companies dependent on general standards, which are less tailored to sector-specific risks and impacts. This situation leads to:
Moreover, key standards, such as the LSME standards (for listed small and medium-sized enterprises) and the VSME standards (voluntary standards for very small companies), are still pending finalisation.
The CSRD is a cornerstone of the European Green Deal, yet businesses are facing significant obstacles, including slow and challenging national implementation, growing lobbying efforts to ease obligations, and the directive’s incompleteness. These delays and uncertainties create ambiguity and inequality for companies across different EU member states.
Despite these challenges, businesses are advised to proactively prepare for the upcoming reporting obligations under the CSRD. While the exact requirements remain uncertain, one thing is clear: sustainability reporting for larger European companies is here to stay. We are ready to assist in navigating this complex legislation and managing internal compliance. Feel free to contact us for guidance and advice to ensure timely and comprehensive compliance with CSRD requirements.