The CSRD is a directive, which means it sets goals for all EU member states to achieve, but each country must create its own laws to align with the directive’s requirements. This flexibility allows each country to tailor its approach to its legal and regulatory context.

Current State of CSRD’s Regulations and Penalties

•  Transposing the CSRD into Domestic Law:

Transposing the CSRD into domestic law means each EU country must pass legislation that mirrors the CSRD’s provisions. This allows the directive’s guidelines to become enforceable within each country’s legal system.

•  Each county can set its own rule:

The CSRD does not specify particular penalties for non-compliance. Instead, it leaves the determination of penalties and enforcement measures up to each member state. As a result, each country can set its own rules and consequences for companies that do not comply with the CSRD.

• Varying Enforcement Across EU Countries:

Since only a few countries have transposed the CSRD into their national laws, there is currently no consistent approach to penalties across the EU. Each country is developing its methods and penalties for enforcing compliance, which can lead to variation in how the CSRD is enforced.

• France as a Leading Example:

France has fully integrated the CSRD into its national laws, setting clear penalties for non-compliance. The French regulations include:

   – Monetary Fines: Up to €18,750 for not publishing the required sustainability report.

   – Additional Penalties: Exclusion from public procurement contracts for failing to comply.

   – Criminal Penalties: Fines up to €375,000 and imprisonment for up to five years for failing to appoint an accredited independent third party to verify the sustainability report or obstructing the auditing process.

Possible Repercussions

The penalties for non-compliance with the CSRD are expected to vary widely across EU countries due to different national legal frameworks and enforcement mechanisms. However, several common types of penalties are likely to emerge:

•  Fines and Monetary Penalties:

Companies may face substantial fines for failing to meet the CSRD reporting requirements. For example, France imposes fines of up to €18,750 for non-compliance, and Germany could fine companies up to €10 million, 5% of total annual turnover, or twice the total profits made, or losses avoided due to the breach.

•  Exclusion from Public Contracts:

Non-compliance can lead to exclusion from public procurement contracts, which could significantly impact companies that rely on government contracts.

•  Criminal Penalties:

For example, France have introduced criminal penalties for obstructing audits or failing to comply with CSRD regulations, including imprisonment and hefty fines.

• Reputational Damage:

Companies failing to comply with CSRD requirements may suffer reputational harm, affecting relationships with customers, investors, and other stakeholders. This could lead to a loss of trust and credibility in the market.

• Legal and Regulatory Actions:

Regulatory bodies may take legal action against companies that do not comply with the CSRD, potentially leading to lawsuits and further financial penalties.

• Operational and Strategic Disadvantages:

Non-compliance could result in operational difficulties, such as challenges accessing capital markets, maintaining supply chain relationships, or losing competitive advantage in markets that value sustainability.

•  Increased Costs:

Beyond direct penalties, companies may face increased costs from legal fees, auditing expenses, and the need to implement corrective measures quickly.

Whom does the CSRD apply to

The CSRD more than quadruples the number of companies required to report on sustainability, from the 11,000 covered by the NFRD to the nearly 50,000 that will be covered by the CSRD.

Large companies – even ones based outside of the EU

Companies meeting two of the following three conditions will have to comply with the CSRD:

€50+ million in net turnover

€25+ million in assets

250+ employees

In addition, non-EU companies that have a turnover of above €150 million in the EU will also have to comply.

Small and medium enterprises (SMEs)

The CSRD will apply to small and medium-sized enterprises (SMEs) that are listed on European markets and meet at least two of the following three conditions

€8+ million in net turnover

€4+ million assets

50+ employees

The first reports for SMEs will be due in 2027, though they can be opted out of until 2028

What should be reported under the CSRD?

Companies will need to disclose the sustainability information in their management reports, which means that financial and sustainability information will be published at the same time.  

This sustainability data will have to be submitted in a standardised digital format, to allow for easier checking and comparison in the European single access point database.

The submitted data will then be subject to “limited third-party assurance,” meaning that an auditor will need to evaluate the data.

Starting in 2025, CSRD will mandate that businesses have a Paris Agreement-aligned emissions reduction plan to reach net-zero by 2050.

The first reports for SMEs will be due in 2027, though they can be opted out of until 2028.

Countries Advancing on CSRD Implementation:

Nine EU member states have implemented the CSRD: Denmark, Finland, France, Hungary, Ireland, Lithuania, Romania, Slovakia, and Sweden. In the EEA EFTA, Liechtenstein and Norway have as well. Some countries, like Romania and Hungary, have weaker enforcement mechanisms with minimal penalties, while others, like the Czech Republic, have set more stringent fines, including penalties of up to 3% of the total value of the company’s assets for failing to submit a sustainability report. These differences in enforcement strategies across countries could create challenges in achieving a consistent reporting framework throughout the EU.

Conclusion

The Corporate Sustainability Reporting Directive (CSRD) marks a major step towards enhancing corporate transparency and accountability across the EU by requiring extensive sustainability disclosures from a wide range of companies. However, the directive’s impact will depend on how effectively each member state transposes it into national law and enforces compliance.

Currently, there is variation in enforcement strategies, with some countries like France already imposing strict penalties, while others are still developing their regulations. These differences could create challenges in achieving a uniform reporting framework across the EU.

To avoid potential penalties and maintain competitive advantage, companies must stay informed about national regulations and ensure compliance with the CSRD’s requirements, contributing to a more sustainable and transparent business environment in Europe.