The European Union’s plan to achieve carbon neutrality by 2050 has been delayed due to major adverse events in recent years. As a result, EU leadership is seeking new ways to make up for lost ground in the fight against climate change. From disposable paper cutlery to criminalizing environmental crimes with imprisonment, it’s clear that advancing the Green Deal is a priority for the EU. One of the latest measures set to become legally binding is the Corporate Sustainability Reporting Directive (CSRD), which will have major consequences across the continent.
What is CSRD, and Who Does it Target?
The directive, a major EU regulation aimed at improving transparency and accountability in corporate sustainability practices, came into force on January 5, 2023. Mandatory reporting will begin in 2025 for certain types of organizations, using data collected in the fiscal year 2024. The procedures will follow detailed standards in the European Sustainability Reporting Standards (ESRS), which the European Commission has adopted to guide CSRD adoption. It is important to note that CSRD builds on previous regulations, replacing the Non-Financial Reporting Directive (NFRD), initially adopted by the EU in 2014.
But what exactly does CSRD require, and whom does it affect? The directive requires companies to provide information on the social and environmental aspects of their activities in annual reports, allowing stakeholders to accurately assess their impact. Starting in 2025, EU companies with over 500 employees will have to report data collected in 2024. In the following year, other companies that exceed certain economic thresholds will follow suit. However, the EU amended CSRD on February 14, 2024, allowing for a two-year delay in reporting sector-specific ESRS data. Sector-specific reporting is tailored to each company’s activities, meaning companies will analyze only a few additional standards on top of the mandatory ones.
According to the published schedule, SMEs will begin data collection in 2026 and report in 2027, although, under certain circumstances, this process may be deferred by two years. This flexibility accounts for the limited financial resources of these firms, intended to prevent excessive strain and enable easier adaptation to new regulations. Additionally, non-EU companies generating over €150 million in the EU market will need to start reporting in 2029.
There are also exemptions for certain entities. Alternative Investment Funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS) are not required to report, likely due to their strict existing regulations. However, the managers of these funds are not exempt and must comply with CSRD. It is unclear, however, if auxiliary products or services related to AIFs and UCITS are exempt. Furthermore, subsidiaries and intermediate holding companies are exempt if their data is already included in the CSRD reports of the parent company. This exemption applies as long as these subsidiaries or holdings do not qualify as large enterprises and do not have securities listed on a regulated market in the European Economic Area (EEA).
Transposing the Directive into National European Legislation
Sanctions for non-compliance are still under discussion at the EU level, as no set system or specific minimum or maximum fines and penalties have been established. Currently, each country must integrate CSRD into national legislation. However, sanctions are expected to largely follow existing NFRD regulations. Generally, previous sanctions ranged from fines of €25,000 to five years’ imprisonment for individuals. Companies could face fines of up to €10 million or 5% of their annual revenue.
The July 2024 deadline for transposing CSRD-related directives into EU and EEA national laws has passed. However, to date, only 40% of countries have completed the transposition. Twelve member states, including France, Finland, Denmark, and Romania, have fully or partially adopted the directive. For example, France and Finland have expanded the directive’s scope to include additional entities, and non-compliance penalties are under development. Another 47% of countries, such as Germany, the Netherlands, and Italy, are in the drafting or consultation phase. However, 13% of countries, including Austria, Malta, Iceland, and Portugal, have not yet presented drafts or opened consultations. These developments indicate varied progress within the EU and EEA, with further advancements expected in the coming months as more countries complete their transposition efforts.
CSRD in Romanian Legislation
Romania has decided to amend its existing legislation, initially created for NFRD. Specifically, Romania updated the Accounting Regulations on individual and consolidated annual financial statements, approved by Order of the Minister of Public Finance No. 1802/2014, with Order MF 85/2024, which introduces new chapters for sustainability reporting in the company administrator’s report, annexed to the annual financial reporting.
According to the updated legislation, companies will be subject to sustainability reporting if they meet at least two of the following three criteria: revenues of at least 35 million RON, assets worth at least 17.5 million RON, or at least 50 employees, thereby extending requirements to include large and medium-sized entities exceeding the specified thresholds in the coming period. The legislation also aligns with the EU’s phased implementation schedule, with initial reporting obligations starting on January 1, 2024, for certain public interest entities and gradually expanding to other entities by January 1, 2028. Notably, micro-enterprises and small businesses are exempt from these requirements. The order also specifies that administrator reports must follow a specified electronic format and include detailed sustainability information in compliance with ESRS.
While reporting will not be mandatory for SMEs in the early years, these entities are likely to face the greatest challenges in implementing the new regulations. The time and personnel dedicated to data collection may be a greater burden for small and medium-sized firms than for large enterprises, which already have dedicated departments for such activities. Furthermore, the EU’s decision not to impose a standardized law across all member states, leaving national governments to implement the directive as they see fit, could lead to a complex and inconsistent system. If one of CSRD’s main goals is to provide better information for interested investors, finding a way to harmonize the process would be a significant advantage.
Green eDIH Creates Tools to Support Companies
To help companies, especially small and medium-sized ones, comply with sustainability reporting measures without feeling the bureaucratic burden imposed by legal obligations, Green eDIH collaborates with its partners to develop a tool designed for entities needing to simplify the CSRD reporting process in Romania, with potential for extended application in other EU countries in the future.
Through this tool, Green eDIH aims to address CSRD complexities by guiding companies through the convoluted legal framework, offering a standardized way to generate necessary reports based on documents provided by businesses that wish to benefit from it. Green eDIH will thus assist companies, especially SMEs, in navigating the legal system, simplifying the reporting process, and ensuring compliance with ESRS.
By providing a standardized approach for generating required reports, Green eDIH’s tool will minimize the administrative burden on companies, especially those with limited resources available to implement the measures imposed by the directive’s transposition into national legislation. This will allow companies to focus more on implementing sustainable practices rather than being overwhelmed by compliance complexities.
As the tool evolves, Green eDIH plans to expand its functionality to support cross-border reporting, making it a valuable asset not only for Romanian enterprises but also for companies operating in multiple EU jurisdictions. Additionally, Green eDIH intends to integrate educational resources and support modules within the tool to help companies understand the nuances of CSRD and the broader framework of sustainability reporting.