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New Sustainability Reporting Requirements

Corporate Sustainability Reporting Directive enters into force

The Corporate Sustainability Reporting Directive 2022/2464 (CSRD) was published in the Official Journal of the European Union on 16th December 2022. Member States are required to give force to the laws, regulations and administrative provisions to comply with Articles 1 to 3 of the CSRD by the 6th of July 2024. According to the Law Society of Ireland, it is expected that the mandatory aspects of the CSRD will be transposed into Irish law by means of a statutory instrument.

The implementation of this Directive means that companies will soon be required to publish detailed information on sustainability matters which will increase corporate accountability, prevent divergent sustainability standards and therefore ease the transition to a sustainable economy.

Companies will be required to report on how their business model affects their sustainability and how external sustainability factors (i.e., climate change or human rights issues) influence their activities. It is hoped that this will aid investors and other stakeholders in making informed decisions on sustainability issues.

The CSRD will strengthen the existing rules related to non-financial reporting which was introduced in the Accounting Directive by the 2014 Non-Financial Reporting Directive (NFRD). The CSRD will:

• Introduce more detailed reporting requirements in respect of sustainability issues such as environmental rights, social rights, human rights and governance factors. The CSRD will oblige in scope companies to disclose information on their societal and environmental impact connected with their own operations and with their value chain;

• Apply to all large companies and to all companies listed on regulated markets except listed micro undertakings. These companies are also responsible for assessing the information applicable to their subsidiaries;

• For non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds. These companies must provide a report on their environmental, social and governance (ESG) impacts, as defined in this Directive.

It is expected that the application of the Directive will take place in four stages:

• Large public interest companies (> 500 employees) that are already subject to the Non-Financial Reporting Directive will be subject to the CSRD from 1st January 2024 with reports on the 2024 financial year due to be provided in 2025.

• Large companies (> 250 employees/ > €40m turnover/ > €20m total assets) that are not currently subject to the Non-Financial Reporting Directive will be subject to the CSRD from 1st January 2025 with reports on the 2025 financial year due to be provided in 2026;

• Small and medium-sized companies (<250 employees/ <€40 m turnover/ <€20 m in total assets) will be subject to the CSRD from 1st January 2026 with reports on the 2026 financial year due to be provided in 2027;

• Third-country companies with a net turnover in excess of €150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.

Companies subject to the CSRD will be required to report annually in accordance with the European Sustainability Reporting Standards. The draft standards were developed by the European Financial Reporting Advisory Group (EFRAG) in November 2022. It is expected that the European Commission will adopt the first set of CSRD reporting standards, which will be based on the EFRAG draft standards, in June 2023. These standards will be adopted in line with EU policies, while building on and contributing to international standardisation initiatives. The implementation of the CSRD will also mean that it will be mandatory for companies to have an audit of the sustainability information that is reported.

More information on the Corporate Sustainability Reporting Directive 2022/2464 can be found here.

June 2023