Why has the CSRD been adopted?
The overall aim of adopting CSRD is to ensure that companies are accountable for their impact on the environment and society at large. It aims to strengthen the credibility of companies' reporting on their environmental actions and efforts, thereby minimizing greenwashing, strengthening the EU's social market economy, and laying the foundations for sustainability reporting standards on a global scale.
The CSRD will fill the gaps in the existing rules on sustainability information. Financial markets need access to environmental, social, and governance information that is reliable, relevant, and comparable if private capital is to be channeled into financing green and social transformation. Disclosure of sustainability information can attract additional investment and finance to facilitate the transition to a sustainable economy, as outlined in the Green Deal. The Green Deal is an overall roadmap for the green transformation of EU economies.
CSRD should make it easier for all stakeholders, including both potential investors and citizens, to see how a company contributes to sustainability in society and thus creates long-term value.
What changes will CSRD bring?
Current legislation in this area has long been considered inadequate and ineffective. This is one of the reasons why the rules are being extended to cover up to 50,000 companies, compared to 11,700 previously.
The new CSRD will essentially impose much greater and more detailed reporting requirements in the area known as ESG, which includes environmental, social, and governance factors and human rights.
According to the new rules, the report must be accompanied by an auditor's or adviser's certificate and information must be digitally tagged for machine reading. This should help users to search for companies' sustainability information.
In concrete terms, the reporting requirements will be translated into specific standards (European Sustainability Reporting Standards), which will specify the detailed reporting requirements. Examples could include requirements for describing strategies, value chains, structure, targets, and achievement of targets.
It is expected that there will be both industry-specific standards and more general standards that will be applicable across disciplines. It is expected that the specific standards will be fully developed and finally adopted by the European Commission in Q2 2023.
When will the new requirements come into force?
The rules under the CSRD will most likely be implemented in Danish law by updating the relevant provisions of the Danish Annual Accounts Act.
The CSRD will enter into force progressively from 2024 onwards, with a gradual extension of the companies covered:
- From 1 January 2024 and reporting from 2025: Public interest entities with more than 500 employees. This will primarily involve listed companies, banks, and insurance companies.
- From 1 January 2025 and reporting from 2026: Other large companies with more than 250 employees and/or EUR 40 million in net turnover and/or EUR 20 million in balance sheet total.
- From 1 January 2026 and reporting from 2027: listed SMEs, small and non-complex credit institutions and captive insurance companies.
- From 1 January 2028 and reporting from 2029: Third country companies with a net turnover exceeding €150 million in the EU, if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
You can read the adopted CSRD proposal here.
You can read the Council press release on the adoption here.
If you need help understanding the new rules or the ESG area in general, please contact our team of experts.
