As the 5th of July was the deadline for the European Union to finalize a framework for the ESG and the policies that member states should adopt, this article aims to give an update on the situation.
The Corporate Sustainability Reporting Directive (CSRD) took effect on January 5, 2023, with the goal of broadening the scope of non-financial reporting and improving the quality, comparability, and reliability of sustainability information provided by specific EU and non-EU companies operating within the EU.
Transposition Status in Belgium, the Netherlands, and Luxembourg
EU member states are required to transpose the CSRD into their national legislation by July 6, 2024. Moreover, the status of the directive in Belgium, the Netherlands, and Luxembourg will be presented:
The Netherlands
In the Netherlands, the CSRD will be implemented through a bill (wet) and a decree (algemene maatregel van bestuur). Both the bill and the decree are still in draft form, and the exact timeline for their implementation remains unknown. The draft Implementation Bill addresses requirements for auditors and audit firms tasked with auditing sustainability reporting. The draft Implementation Decree specifies which companies will need to include sustainability information in their management board reports. Consistent with the CSRD, it allows for a phased introduction of sustainability reporting requirements from 2024 to 2028, categorizing companies accordingly.
Luxembourg
In Luxembourg, draft bill No. 8370, introduced by the Minister of Justice on March 29, 2024, aims to implement the CSRD. This bill proposes amendments to several laws governing the accounting and reporting obligations of Luxembourg companies and partnerships. Additionally, the bill suggests amendments to the law of July 23, 2016, on the audit profession, and the law of January 11, 2008, on transparency requirements for issuers. Notably, the current draft allows entities to exclude commercially sensitive information from their sustainability reports if disclosure would be detrimental to their commercial position. The precise implementation timeline remains unspecified.
Belgium
In Belgium, the process began at the end of 2023, coordinated by the SPF Economy in collaboration with the SPF Foreign Affairs and the SPF Justice. Although no public text is available yet, a draft bill is under review by the Belgian Council of State. The Belgian government aims to vote on the law in September. The National Bank of Belgium has published a list of non-financial companies subject to the CSRD reporting standard, based on data from statutory annual accounts filed by December 31, 2022. These companies are divided into three groups:
Group 1: Large listed companies and insurers exceeding at least two of the following criteria: 500 employees, net revenue of €50 million, or total assets of €25 million.
Group 2: Companies, credit institutions, and insurers exceeding at least two of the following criteria: 250 employees, net revenue of €50 million, or total assets of €25 million.
Group 3: Small and medium-sized listed companies, credit institutions, and insurers exceeding at least two of the following criteria: 10 employees, net revenue of €900,000, or total assets of €450,000.
Nonetheless, after a complex legislative journey, the ‘Corporate Sustainability Due Diligence Directive 2024/1760’ (CSDDD or CS3D) was officially published in the EU’s Official Journal on July 5, 2024. Alongside the ‘Corporate Sustainability Reporting Directive 2022/2462’ (CSRD), this directive forms a cornerstone of EU ESG law, establishing a mandatory ESG due diligence framework.
Transposition and Application Timeline
Similar to the CSRD, the CSDDD must be transposed into the national laws of EU Member States by July 26, 2026. The obligations under the CSDDD will be phased in based on the company’s turnover and number of employees for EU-based entities. For non-EU companies, the decisive factor is their EU turnover rather than global turnover. This phased approach allows companies ample time to prepare for compliance.
Overlap and Integration with CSRD
For companies subject to both the CSDDD and the CSRD, the reporting requirements under the CSRD will be interpreted as fulfilling the due diligence implementation description required by the CSDDD. Article 16 of the CSDDD exempts companies already reporting under the CSRD from publishing a separate compliance report for the CSDDD.
Additionally, Article 15 of the CSDDD mandates companies to develop a climate change reduction plan that aligns their business model and strategy with the Paris Agreement. Similar to the CSRD, Article 6a of the CSDDD allows companies to prioritize their due diligence processes based on the severity and likelihood of adverse human rights or sustainability risks.
National Transposition of the CSDDD
As an EU directive, the CSDDD requires transposition into national legislation by Member States. A comprehensive analysis of each country’s implementation laws is necessary to fully understand the CSDDD’s impact. Some Member States, like the Netherlands, had previously proposed similar legislation, which was put on hold pending the CSDDD’s adoption. It remains to be seen if these earlier proposals will be utilized. Other countries, such as Germany and France, were proactive, introducing national sustainability due diligence laws ahead of the CSDDD. These existing laws will need to be amended to align with the CSDDD, assuming they are not already fully compliant.
All in all, as the CSRD and CSDDD progress towards full implementation, companies in the EU must stay informed about their obligations to ensure compliance and benefit from enhanced sustainability reporting standards.
References
Kuipers, P., & Wagemakers, S. (2024, July 12). CSDDD is here to stay; the EU clock is ticking for mandatory supply chain due diligence. Retrieved from Bird & Bird: https://www.twobirds.com/en/insights/2024/global/csddd-is-here-to-stay-the-eu-clock-is-ticking-for-mandatory-supply-chain-due-diligence
Loyens & Loeff. (2024, July 09). Should you be ready for CSRD? Retrieved from Loyens & Loeff: https://www.loyensloeff.com/insights/news–events/news/should-you-be-ready-for-csrd/