On January 5, 2023, the European Commission published the Corporate Sustainability Reporting Directive (CSRD), replacing the Non-Financial Reporting Directive (NFRD). Companies meeting two of the following criteria fall under the scope of the CSRD:
- Having an annual turnover exceeding 40 million Euros,
- A balance sheet total over 20 million Euros,
- Having an average of more than 250 employees annually.
With CSRD, companies within its scope are required to integrate the duty of care into their company policies. This entails the obligation for companies to identify the social and environmental impacts of their operations, prevent and mitigate possible adverse effects, eliminate existing negative impacts, and report them.
Non-EU companies that generate more than 150 million Euros in net turnover and have a subsidiary or branch in the EU will also be subject to sustainability reporting obligations.
The International Sustainability Standards Board (ISSB), established within the International Financial Reporting Standards Foundation (IFRS), published two international standards in June 2023 regarding sustainability reporting: “IFRS S1-General Requirements for Disclosure of Sustainability-related Financial Information” and “IFRS S2-Climate-related Disclosures.” The main elements of general sustainability reporting and climate-related reporting are anticipated as management of risks and opportunities, strategy, risk management, metrics, and targets.
Recently, France became the first country to incorporate CSRD into its national law. Although the scope of the legal regulation introduced by France has not yet been finalized, it has been made mandatory for CSRD reports to be assured by external auditors, with penalties of up to 30,000 Euros and imprisonment of up to 2 years for not appointing an auditor or independent third-party organization, and up to 75,000 Euros and imprisonment of up to 5 years for obstructing the audit activity.
Other EU member states have until July 6, 2024, to transpose CSRD into their national laws. Currently, the Netherlands and Spain have developed draft laws related to the process but have not yet officially entered an adaptation process.
For information regarding the regulation of corporate sustainability reporting in Türkiye, you can refer to our article titled “Corporate Sustainability Reporting Practices in Türkiye.”
