This article summarises the area of application of the Corporate Sustainability Reporting Directive (CSRD), the Taxonomy Regulation, the Corporate Sustainability Due Diligence obligation and the Non-Financial Reporting Directive.
Table of contents
Deadlines for implementation by companies:
- January 1, 2024 for companies already subject to the NFRD (reporting in 2025 on 2024 data);
- January 1, 2025 for large companies not currently subject to the NFRD (reporting in 2026 on 2025 data);
- January 1, 2026 for listed SMEs and small and non-complex credit institutions and captive insurance companies (reporting in 2027 on 2026 data).
- Deadline for transition to reasonable assurance regarding sustainability reporting: six years after entry into force (Article 26a of the Statutory Audit Directive).
Large corporations are those that exceed at least two of the three characteristics specified:
- 20 million euros balance sheet total;
- 40 million in revenue in the twelve months prior to the balance sheet date;
- an annual average of 250 employees.
Any undertaking required to publish non-financial information under Article 19a or Article 29a
of Directive 2013/34/EU (= CSRD scope) shall include in its non-financial statement or consolidated non-financial statement information on, how and to what extent the company’s activities are related to economic activities that are activities that qualify as environmentally sustainable economic activities (CSRD and Taxonomy in the same report).
Corporate Sustainability Due Diligence (Supply Chain) – Article 2 – Scope
1. This Directive shall apply to companies which are formed in accordance with the legislation of a Member State and which fulfil one of the following conditions:
(a) the company had more than 500 employees on average and had a net worldwide turnover of more than EUR 150 million in the last financial year for which annual financial statements have been prepared;
(b) the company did not reach the thresholds under point (a), but had more than 250 employees on average and had a net worldwide turnover of more than EUR 40 million in the last financial year for which annual financial statements have been prepared, provided that at least 50% of this net turnover was generated in one or more of the following sectors:
(i) the manufacture of textiles, leather and related products (including footwear), and the wholesale trade of textiles, clothing and footwear;
(ii) agriculture, forestry, fisheries (including aquaculture), the manufacture of food products, and the wholesale trade of agricultural raw materials, live animals, wood, food, and beverages;
(iii) the extraction of mineral resources regardless from where they are extracted (including crude petroleum, natural gas, coal, lignite, metals and metal ores, as well as all other, non-metallic minerals and quarry products), the manufacture of basic metal products, other non-metallic mineral products and fabricated metal products (except machinery and equipment), and the wholesale trade of mineral resources, basic and intermediate mineral products (including metals and metal ores, construction materials, fuels, chemicals and other intermediate products).
2. This Directive shall also apply to companies which are formed in accordance with the legislation of a third country, and fulfil one of the following conditions:
(a) generated a net turnover of more than EUR 150 million in the Union in the financial year preceding the last financial year;
(b) generated a net turnover of more than EUR 40 million but not more than EUR 150 million in the Union in the financial year preceding the last financial year, provided that at least 50% of its net worldwide turnover was generated in one or more of the sectors listed in paragraph 1, point (b).
3. For the purposes of paragraph 1, the number of part-time employees shall be calculated on a full-time equivalent basis. Temporary agency workers shall be included in the calculation of the number of employees in the same way as if they were workers employed directly for the same period of time by the company.
NFRD (is replaced by CSRD in the coming years)
Large undertakings which are public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year shall include in the management report a non-financial statement…
At EU level, sustainable corporate governance has been mainly fostered indirectly by imposing reporting requirements in the Non-Financial Reporting Directive (NFRD) on approximately 12 000 companies concerning environmental, social and human rights related risks, impacts, measures (including due diligence) and policies. The NFRD had some positive impact on improvement of responsible business operation, but has not resulted in the majority of companies taking sufficient account of their adverse impacts in their value chains.
The Commission’s recent proposal for a Corporate Sustainability Reporting Directive (CSRD), revising the NFRD, would extend the scope of the companies covered to all large and all listed companies, require the audit (assurance) of reported information and strengthen the standardisation of reported information by empowering the Commission to adopt sustainability reporting standards. This Directive will complement the current NFRD and its proposed amendments (proposal for CSRD) by adding a substantive corporate duty for some companies to perform due diligence to identify, prevent, mitigate and account for external harm resulting from adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and in the value chain. Of particular relevance of the proposal on CSRD is that it mandates disclosure of plans of an undertaking to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement.
The preparation for the CSRD and Taxonomy and the Corporate Sustainability Due Diligence obligations takes time. On average 6-12 months preparation time. If you want already to start with the implementation and redesign your processes and governance for the CSRD and Taxonomy, contact us.