The European Union’s Corporate Sustainability Reporting Directive established a standard for companies to reporting climate impacts, including greenhouse gas emissions, and other environmental policies. The first phase of the CSRD requires reporting to begin in 2025. However, implementation of the directive must first occur at the national level. The deadline for implementation was July 6, but 17 of the 27 EU member states have yet to implement the CSRD. Now, the European Commission has given those countries two months to comply or face penalties.
Initially proposed in April 2021, the CSRD increases existing reporting requirements for businesses operating in the EU. The proposed directive replaced the existing Non-Financial Reporting Directive, greatly expanding the scope of the reporting and the number of impacted businesses. The new reporting requirements go beyond traditional financial reporting to include environmental, social, and governance actions of businesses.
The drafting of the actual reporting requirements to be used by businesses under the CSRD was delegated to the European Financial Reporting Advisory Group. EFRAG completed the first set of the European Sustainability Reporting Standards from June 2021 to April 2022. The proposed ESRS were open to public comment from April to August 2022. The first round of ESRS were adopted by the European Commission in July 2023, going into effect January 1, 2024, for reports filed in 2025.
While the CSRD was adopted at the EU level, enactment takes place through legislation adopted by member states. When a directive is entered into the the official journal, it begins a ticking clock. Member states then have a set amount of time to pass legislation. For the CSRD, that deadline was July 6.
When the deadline passed, only eight of the 27 EU member states had fully implemented the CSRD into national law: Denmark, France, Hungary, Ireland, Italy, Lithuania, Slovakia, and Sweden. Bulgaria and Croatia implemented it soon after.
That leaves 17 members states in various stages of implementation: Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, and Finland. Notably, Finland was originally considered fully implemented according to trackers, yet was deemed out of compliance by the European Commission. It is unclear why.
On September 26, the European Commission released a series of infringement decisions relating to five directives, including the CSRD. In a release, titled “Commission takes action to ensure complete and timely transposition of EU directives”, the Commission stated:
“The CSRD introduces new rules on sustainability reporting. It requires large companies and listed companies (excluding micro-undertakings) to disclose information on the social and environmental risks they face, and on how their activities impact people and the environment. This helps investors and other stakeholders to evaluate the sustainability performance of companies. The new sustainability reporting rules apply from financial years beginning on or after 1 January 2024.
“In the absence of transposition of these new rules it will not be possible to achieve the necessary level of harmonisation of sustainability reporting in the EU and investors will not be in a position to take into account the sustainability performance of companies when making investment decisions.”
The European Commission will now send “letters of formal notice to the concerned Member States, which now have two months to respond and complete their transposition. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.”
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