The growing query for transparency and sustainable practices within the European business landscape culminated in the adoption of the Corporate Sustainability Reporting Directive (CSRD). This directive overhauls non-financial reporting obligations, significantly expanding the scope of companies subject to stringent disclosure requirements on environmental, social, and governance (ESG) factors. With a significant impact on compliance practices, this directive introduces more detailed and harmonized formalities, requiring adaptation.

Scope of Application and Implementation Deadlines

The CSRD significantly expands the entities subject to sustainability reporting, replacing the previous Non-Financial Reporting Directive (NFRD). The new regime will be implemented progressively, depending on the type of entity:

1. Companies previously covered by the NFRD (with more than 500 employees) – reporting is mandatory from the 2024 financial year, with the first report published in 2025.

2. Other large companies (meeting at least two of the three criteria: more than 250 employees, €40 million in net turnover, or €20 million in total balance sheet) – reporting required from the 2025 financial year, with publication in 2026.

3. Small and medium-sized listed companies (excluding micro-enterprises) – reporting mandatory from the 2026 financial year, with the first publication in 2027. A transitional regime allows for an exemption until 2028.

4. Non-EU entities listed on a regulated market in the EU (with a turnover exceeding €150 million in the EU, or with a subsidiary/branch in the EU generating more than €40 million in turnover) – subject to reporting from the 2028 financial year, with publication in 2029.

Main Obligations and Impact on Compliance

The CSRD strengthens reporting obligations through European Sustainability Reporting Standards (ESRS). The first delegated act concerning the first set of standards is already available, consisting of 12 standards. These ESRS establish strict and uniform criteria for disclosing environmental, social, and governance information. Among the main compliance challenges are:

• Integration of sustainability requirements into the business strategy, requiring a cross-cutting approach to risk management and corporate governance, which must be properly reflected in the management report.

• Mandatory verification of information through a limited assurance audit of the company’s sustainability report, including compliance with the reporting standards and the process implemented by the company to identify the reported information, in order to enhance reliability and transparency.

• Adoption of the double materiality principle, implying analysis of both the financial impact on the entity and the impact on the environment and society.

• Digitalization and interoperability of reports, with obligations for digital publication to facilitate access and comparability of information. Here, data and technology-related issues take center stage, which will be considered in the implementation of the CSRD, such as data collection, applied methodologies, processes and analysis, credibility and transparency, and IT systems and infrastructure.

The complexity and rigor of this new regulatory framework require careful preparation, making it essential for the entities affected to invest in internal capacity building and the development of effective mechanisms to ensure compliance. Transparency and sustainability have ceased to be mere guiding principles and have become central elements of modern corporate governance.

At we have a and lawyers specialized in these matters. We are attentive to new regulatory requirements, and based on our experience, we believe companies should prepare in a timely and proactive manner, establishing effective internal processes and ensuring compliance.