The implementation of the CSRD is in full swing, but policies are also still evolving. These were the key developments in the first half of 2024, and this is still on the cards.
This should actually have been ready on 6 July, but our country missed that deadline. European member states had to transpose the European CSRD reporting directive into national legislation or a delegated act this summer. Belgium, meanwhile, does have a draft law. The transposition law will probably be voted on in autumn 2024.
Note that the possibilities for deviation from European legislation are quite limited. For instance, the timing does not change: large companies have to file their first compliant report for the 2025 fiscal year regardless. Nevertheless, it is certainly possible that slight changes could still be made. Specifically, our ministers should agree on the following topics:
1. Scope: it is possible that Belgium will tighten the rules on who has to report under the CSRD. The chances seem slim, but Belgium could, in principle, make the thresholds stricter (50 million turnover, 25 million balance sheet, 250 employees), or include additional legal forms (such as non-profit organizations).
2. Enforcement: each member state may determine which judicial and/or administrative bodies will be in charge of enforcing the CSRD. These may include financial regulatory authorities and other administrative bodies.
3. Sanctions: Belgium may also decide for itself how compliance with the law is handled. For example, a country like France has laid down fines and additional penalties (such as exclusion from public contracts) for non-compliance.
4. Assurance: it remains to be seen which actors will be allowed to carry out the mandatory external audit. Auditors may perform this task in the first period of ‘limited assurance’ anyway. After that, there is a chance that other parties, for instance accountants, may also be engaged.
Read more about the audit of the sustainability report.
By the end of July 2024, eight member states (France, Denmark, Finland, Slovakia, Sweden, Romania, Ireland and Lithuania) and EEA country Norway have already transposed the CSRD directive into national legislation. Hungary and the Czech Republic have already partially transposed the directive; in Belgium we expect the legislation only this autumn. The remaining countries are still in the draft or consultation phase, or have not yet shared updates.
SMEs also feel the CSRD coming closer due to questions from their supply chain or from lenders and investors. Therefore, reporting standards are also being worked out to suit them.
In late 2023, EFRAG released two reporting standards for SMEs: a mandatory standard for listed SMEs (Listed SME, hence the abbreviation LSME) and a voluntary variant for those not listed (Voluntary SME, or VSME). As with the ESRSs, the standards have gone through a long process. For those who want to know more about the timeline of the LSME and VSME, we created a handy visual below. The current versions are not yet final, but already give a good idea of what the final texts will look like. Here is the gist:
The LSME largely retains the same structure, content and obligations that we are already familiar with from reporting standards for large companies. We explained the LSME in more detail in a previous insight.
To summarize:
The VSME consists of several ‘building blocks’ or modules: a basic module, narrative module and business partners module. If you follow the VSME, you should always start with the basic module. After that, you can supplement with modules 2 and/or 3.
1. Basic module: this start-up module was kept ‘light’ to give micro companies the opportunity to file a compliant report as well. Twelve disclosures are described: ESG metrics as we already know them from the ESRSs (think greenhouse gases, energy, biodiversity, etc.). Each of these themes must be addressed in the report, unless they are not applicable to the company. Interestingly, no materiality analysis is mandatory: a self-assessment will suffice.
2. Narrative module: also called the PAT (Policies, Actions and Targets) module. This module is intended for SMEs that have already determined their ‘PAT’. After a simplified materiality analysis, the SME needs to determine which ESG topics from the basic module are material to them. They then combine those requirements with 5 disclosure requirements, including their policies, actions and targets, and a limited number of metrics.
3. Business partners module: with this third module, an SME addresses specific questions that can be expected from stakeholders in the financial sector (such as lenders and investors). Again, a simplified materiality analysis determines the themes in the report. There are also a number of metrics and a total of 11 disclosure requirements (such as scope 3 CO2 emissions, the climate transition plan, or gender diversity within management).
The VSME explicitly aims to provide guidance for companies that are not directly covered by the CSRD but still pick up reporting. This will make it clear to everyone – themselves, lenders and the CSRD companies that request their data – what content and level of detail are feasible. It essentially represents another step in standardizing European sustainability reporting.
The CSRD and associated reporting standards (ESRS) form the core of ESG reporting. Flanking regulations – such as sector-specific reporting standards or the XBRL Taxonomy – are still under development. In parallel, EFRAG is providing practical guidance on implementing the CSRD and ESRS through a series of guidance documents.
These guidance documents have already been released:
• Materiality assessment: double materiality underpins every sustainability strategy and report. Yet the approach to materiality assessment was not specifically described in the reporting standards. The new guidelines set you on your way. We already summarized them in an earlier insight.
• Value chain: a large part of your impacts, risks and opportunities are not within your company walls, but along your value chain with your business relations. However, reporting on what happens at other parties requires a new mindset for many companies. Once again, you will find a handy step-by-step plan created by us to get you started.
• ESRS data points: the third implementation guidance contains all the requirements from the first set of ESRSs, in an Excel file. The file contains addition guidance, such as whether the information should be quantitative or qualitative. Transitional provisions are also reported. While this is useful for those starting their gap analysis, you should not consider it a replacement for the reporting standards! For example, the list does not include company-specific data points or the conceptual principles of ESRS 1.
• ESRS Q&A platform: not pure implementation guidance, but very useful for those getting started with the reporting standards. This Q&A publishes answers to all kinds of technical questions that EFRAG has already received regarding the implementation of the ESRS. E-, S- and G-topics, as well as cross-cutting topics are all covered.
And even more guidance is on its way:
• EFRAG is preparing guidelines on the public disclosure of transition plans.
• In parallel, interoperability exercises are under way with other commonly used reporting frameworks such as GRI, IFRS, TNFD, ISSB, etc. Exposing where the ESRSs match with – as well as differ from – those frameworks avoids double reporting (and ambiguities). The correspondence between the ESRS and the GRI requirements, for example, is very high. EFRAG will publish implementation support in coordination with the other organizations.
By now, we all know the 12 overarching ESRSs: 2 cross-cutting standards and 10 thematic/topical standards covering different ESG themes. Today, they form the guideline for those reporting: depending on your materiality analysis, you determine which standards and data points are material for the report.
A new set of standards is expected in 2026: sector-specific standards that will offer additional guidance for specific sectors. Initially, the sector-specific standards had been expected as early as 2024, but that timing was adjusted to allow the cross-cutting and topical standards to be implemented in reporting practices first.
Nevertheless, sector-specific standards remain to be looked forward to, as they will provide an overview of the impacts, risks and opportunities that are expected to be material in a given sector. The first sectors that can expect their own standard are those of mining, quarrying and coal extraction, those of oil and gas, those of road transport, and finally those of agriculture and fisheries.
ESG obviously goes much further than the reporting required by the CSRD. An integrated approach also incorporates many other concepts that can be found in other European legislation. Contact us if you are looking for more information about:
• ESRS Set 1 XBRL Taxonomy: Following public consultation, the final ESRS XBRL taxonomy was submitted for approval in July. This is another important step in the process towards standardizing CSRD reports. The final version will be handed over to the European Commission and the European Securities and Market Authority (ESMA) later this summer. On this basis, ESMA will start working on the rules around tagging, which will eventually be turned into a delegated act. It is expected to be used for the first time in 2026, for reports on fiscal year 2025.
• EUDR (European Deforestation Regulation): The deforestation law is one of the hot topics of today for any company active in timber, rubber, cattle, cocoa, coffee, palm and soya. As early as 30 December 2024, large companies must have fully implemented the obligations. In Belgium, enforcement of the EUDR is the responsibility of the FPS Public Health. Meanwhile, our country has already amended the Product Standards Act, with additions of corrective measures and penalties for violations of the EUDR.
• CSDDD (Corporate Sustainability Due Diligence Directive): The law on duty of care was formally adopted in May, and appeared in the Official Journal of the European Union on 5 July 2024. European member states now have two years to incorporate the CSDDD into national legislation. Read the essence of the CSDDD at your leisure in our news update.
• FLR (Forced Labour Regulation): Still new as of spring 2024: the Forced Labour Regulation. Parliament already gave its final approval, with the next authority being the Council. The regulation will come into effect three years after its entry into force, i.e. in mid 2027. Unlike the CSDDD, the FLR is not transposed into national legislation; it is – like all European Regulations – directly applicable in all EU and EEA member states. In practice, the FLR is likely to place additional emphasis on due diligence processes to identify risks of forced labour in value chains.
• ESPR (Ecodesign for Sustainable Products Regulation): On 18 July 2024, the ESPR also entered into force. In a nutshell, it forms Europe’s cornerstone for making products more sustainable and circular. The ESPR is a framework legislation, meaning that concrete product rules will be adopted over time.
Companies are facing an increasing number of (reporting) obligations. Pantarein helps you with every step towards CSRD compliance, as well as your internal and external ESG trajectory.
Need more help with a specific topic? Let us know.
