TransitionX Europe

What CSRD transposition entails for business

By Jaime Santisteban, CEO & Co-Founder of TransitionX Europe  |

The recent warning from the European Commission highlights the urgency for 17 Member States, including Spain, Czech Republic, Romania and Poland to fully transpose the Corporate Sustainability Reporting Directive (CSRD) into national law. This delay (deadline was July 6, 2024) adds uncertainty but doesn’t change the clear recommendation: businesses must prepare for ESG disclosure regulations and value chain demands.

The European Union’s Corporate Sustainability Reporting Directive (CSRD), which came into effect earlier this year, marks a significant shift in the landscape of corporate sustainability. In-scope companies are now required to monitor and report on the risks and opportunities related to sustainability issues, as well as the impact of their activities on people and the environment. 

While some countries have swiftly adopted the CSRD, others have faced delays or uncertainties in their implementation processes. This inconsistency creates a complex regulatory landscape for businesses, especially those operating across multiple jurisdictions.

The CSRD establishes a phased timeline for compliance based on company size and status: large public-interest entities (PIEs) must comply from January 1, 2024; other large companies from January 1, 2025; and listed SMEs, small and non-complex financial institutions, and captive insurance companies from January 1, 2026. Member states had until July 6, 2024, to incorporate the CSRD into their national laws. As of July 31, 2024, 12 countries had adopted legislation implementing the CSRD (at least in part), according to law firm Ropes & Gray, another ten had proposed legislation and two additional countries had held consultations.

France led the way by integrating the CSRD into its national law as early as December 2023, enforcing strict penalties for non-compliance, including fines up to €75,000 and up to five years in prison. Other countries, such as Norway, have also made strides, despite not being EU members, by pushing for mandatory sustainability reports for major companies. However, some of the EU’s largest economies, including Germany, Italy, Spain, and the Netherlands, have lagged, either by delaying the introduction of legislation or by only recently proposing it.

Business implications and need for certainty

This slow domestic implementation process is creating uncertainty for entities that need to prepare for the new requirements. The lack of clarity around the timing and scope of national legislation also poses risks for businesses, potentially leading to a complex and fragmented regulatory landscape across Europe. As transposition continues, the visibility of Europe’s sustainability reporting framework will improve, but the current delays may hinder the effectiveness of the CSRD, the development of a unified European market for sustainable investments and challenge the ability of businesses to comply in a timely manner.

“The CSRD needs to be transposed in national law to be effective to the companies in that country. From a legal perspective, if there is no CSRD effective in a certain country, the old NFRD remains in force,” explains Jona Basha, senior advisor at TransitionX Europe and Head of Reporting at Accountancy Europe. “On the other hand, the ESRS as delegated acts do not need to be transposed, but are indeed a result of the CSRD. If a company wants, they may use the ESRS as per the delegated act to prepare their report. And indeed this is what we know many companies will do.”

This approach is already being seen in practice, with many companies beginning to align their systems and processes with the European Sustainability Reporting Standards (ESRS), anticipating the inevitable shift from the NFRD to the CSRD framework. Additionally, even without local transposition, the CSRD framework offers clear guidance on sustainability reporting that helps companies define their sustainability priorities and actions in a structured and strategic manner. This proactive alignment is not only beneficial for long-term compliance but also strengthens a company’s position in a market where sustainable practices are increasingly demanded.

However, Basha cautions that while the ESRS may be used as a standard under the NFRD, other elements such as assurance and localization, which are not covered by the NFRD, will remain open until the CSRD is fully effective.

Coordination between European countries and their national authorities is essential for successful implementation, and businesses must stay alert and proactive as the CSRD is fully implemented. The CSRD and ESRS frameworks provide an invaluable opportunity for companies to enhance their sustainability reporting practices, strengthen market trust, and position themselves as leaders in a more sustainability-conscious market. The process of integrating the CSRD into national laws is complex but crucial for improving corporate transparency and accountability in sustainability matters.

Source: ESGbook