CSRD: FAQ on the implementation of the EU Corporate Sustainability Reporting Rules

On August 7, 2024, the European Commission published a set of FAQs to assist companies and auditors with the implementation of the EU’s Corporate Sustainability Reporting Directive (CSRD). Please, visit the official website of the European Union for more information.  The first reports are due in 2025 for the financial year 2024. These FAQ, which incorporate feedback from companies aim to clarify regulatory requirements, reduce administrative burdens, and ensure consistent and cost-effective compliance.

The FAQs address the following topics:

1. Sustainability reporting requirements introduced by the CSRD;
2. Assurance of sustainability reporting;
3. Key intangible resources;
4. Requirements for third-country entities;
5. Sustainable Finance Disclosure Regulation (SFDR)

Here is a summary of the main points from our Regulatory Watch Team:

• Requirements and Explanations on Financial Institutions:
  • Credit institutions and insurance undertakings, including cooperatives and mutual undertakings, must prepare individual sustainability statements under Article 19a of the Accounting Directive if they are large undertakings or SMEs (excluding micro-undertakings) with securities traded on an EU regulated market. They are also required to prepare consolidated sustainability statements under Article 29a, if they are the parent of a large group. Member States may exempt certain credit institutions from these sustainability reporting requirements.
  • Financial institutions, excluding insurance undertakings and credit institutions, are required to comply with Articles 19a and 29a of the Accounting Directive, if they meet two criteria: they are incorporated as a type of undertaking listed in Annex I or II of the Directive, and they are either large undertakings or SMEs (excluding micro-undertakings) with securities traded on an EU regulated market (for Article 19a) or are parent undertakings of a large group (for Article 29a).
  • UCITS and AIFs: These entities are exempt from sustainability reporting under Articles 19a and 29a of the Accounting Directive, even if they fall under the Directive’s scope.
  • Management Companies: Entities managing UCITS and AIFs must report sustainability information if they meet the legal form and size criteria under the Directive.
  • ETFs and REITs: ETFs, as UCITS or AIFs, are exempt. REITs may also be exempt if they qualify as AIFs.
  • Pension Funds: Unlike UCITS and AIFs, Pension funds are required to report sustainability information if they meet the criteria outlined in the Directive
  • SMEs (excluding micro-undertakings) with securities on EU regulated markets can opt out of sustainability reporting for financial years before January 1, 2028. They must provide a brief explanation in their management report if they choose not to report. This opt-out also applies to small, non-complex institutions and captive insurance/reinsurance undertakings that meet the SME criteria.
• Article 8 Taxonomy Regulation: Undertakings within the scope of Articles 19a or 29a of the Accounting Directive must include Article 8 Taxonomy Regulation disclosures in their sustainability statements. However, SMEs with traded securities that opt out of sustainability reporting until 2028 are exempt form this requirement. Additionally, undertakings exempted from sustainability reporting under Articles 19a(9) or 29a(8) must still disclose Article 8 Taxonomy information if their parent company is in a third country and does not include these disclosures in its consolidated reporting.
• Language Requirements: The sustainability statement must be drafted and published in a language specified by the laws of the relevant Member State, as per the Company Law Directive. This applies to undertakings subject to Articles 19a and 29a of the Accounting Directive. Additionally, if the undertaking has securities listed on an EU regulated market, it must comply with the language requirements for “regulated information” as set out in the Transparency Directive, which is also determined by the Member State’s laws.
• Report Format and digital tagging: Undertakings required to perform sustainability reporting under Article 29d of the Accounting Directive must prepare their management reports in the electronic XHTML format and mark up their sustainability statements using a digital taxonomy specified by the ESEF Delegated Regulation. This includes disclosures required under Article 8 of the Taxonomy Regulation. However, until the European Commission adopts the specific digital taxonomy, companies are not required to mark up their sustainability statements or prepare the reports in XHTML format.
• Connection CSDR and SFDR: Financial market participants can assume that any sustainability indicator reported as non-material by an investee company under the CSRD does not contribute to the principal adverse impacts (PAIs) in SFDR disclosures. This means such indicators don’t need to be included in the numerator of the relevant SFDR PAI indicator. Companies must explicitly state when an SFDR-derived data point is non-material, and this will be reflected in their CSRD reporting, ensuring that financial market participants can rely on this information for compliance. cleversoft will make sure that this is incorporated in the SFDR logic as long as this is indicated by the data providers.
• Calculating the average number of employees: A very interesting topic, which we have emphasized in our webinars is: “How is the average number of employees calculated”: The EU legislation does not specify how to calculate the average number of employees for categorizing undertakings under the Accounting Directive. However, Member States may have national rules or guidance on this. In the absence of such guidance, companies can refer to the 2003 Commission Recommendation, which defines employee headcount, based on annual work units (AWU). This includes full-time employees, part-time and seasonal workers as fractions of AWU, and excludes apprentices or students in vocational training, as well as periods of maternity or parental leave. cleversoft will review national requirements if available and will offer the client to chose their calculation methodology.
• Visual aids:
  • Flowchart: to identify the applicable sustainability reporting requirements for each type of undertaking and the specific application date
  • Timeline: for the application of sustainability reporting requirements
  • Clarifications: Points typically clarified by the national authorities when introducing the directive into national law, such as which financial year determines when an undertaking falls into a certain size-category.

It is important to note that the FAQs are designed to help interpret and implement the relevant legal provisions. They do not introduce new legal obligations or extend the rights and obligations established by the CSRD or related legislation.

CSRD Service offering by cleversoft

At cleversoft, we closely monitor regulatory developments and studies related to the CSRD, ensuring their integration into our standard CSRD service. We maintain ongoing communication with financial industry stakeholders to understand their explicit needs.

Our comprehensive 360-degree service is designed to help financial institutions navigate the complexities of the CSRD. For more information about our CSRD Services, we invite you to explore our website or contact our dedicated sales team through our website contact form.