Corporate Sustainability Reporting Directive Update

While the transposition process of Directive (EU) 2022/2464 as regards corporate sustainability reporting (“CSRD”) is still ongoing in Luxembourg, the following is worthwhile noting for companies preparing to comply with the new framework.

• EU Commission’s FAQs

On 7 August 2024, the European Commission published a draft notice including a set of FAQs on the interpretation of certain legal provisions introduced by the CSRD with the aim of facilitating their implementation by in-scope entities (“FAQs”). The FAQs also clarify certain provisions of the Sustainable Finance Disclosures Regulation as well as the interpretation of certain provisions of the first set of European Sustainability Reporting Standards (ESRS).

The FAQs are meant to serve as guidance for in-scope entities navigating the new sustainability reporting obligations introduced by the CSRD and are structured to address a broad range of practical questions. They provide further clarity on, inter alia, the following aspects:

- Clarification of the scope: the FAQs offer detailed explanations on how the CSRD’s scope applies to different types of companies, also elaborating on the phased implementation timeline. A detailed flowchart is provided, illustrating how to determine whether and when an entity is subject to sustainability reporting requirements under the CSRD. 

- Guidance on reporting requirements: the FAQs provide practical examples and more precise definitions to assist in-scope entities in understanding what information needs to be reported as regards the individual or consolidated sustainability statement and how this should be drawn up. Exemption rules are also further detailed.

- Insight on the assurance of sustainability reporting: the FAQs provide additional guidance on the approval/accreditation of, inter alia, statutory auditors and independent assurance services providers, what is expected from auditors and assurance providers, how in-scope entities should prepare for this assessment, and the standards that statutory auditors and assurance providers will use. It is to be noted that Luxembourg has not exercised the option of allowing independent service providers to perform the limited assurance engagement on sustainability information at this stage in the pending transposition bill.

- Confirmation of the requirements applicable to third-country issuers/third-country parent undertakings: the FAQs clarify the sustainability reporting obligations of third-country undertakings issuing securities admitted to trading on an EU regulated market, while confirming the availability of the opt-out regime (decision not to report sustainability information for FY starting before January 2028) for third-country issuers which are SMEs. In addition, the FAQs also detail the scope, requirements and exemption rules applicable to third-country parent undertakings and their EU subsidiaries.

• Luxembourg Council of State’s opinion on CSRD Bill 

At Luxembourg level, the Council of State issued on 12 August 2024 its opinion on Bill of Law 8370 transposing the CSRD into national law (“Bill”). 

Overall, the Council of State insists that the transposition should be accurate to maintain the integrity of the CSRD and requires a few amendments to the Bill to ensure clarity and legal certainty for in-scope entities.

Among a rather limited number of formal objections, one can note in particular the Council of State’s concerns about the obligation to produce consolidated sustainability information for entities exempted from preparing consolidated financial statements in Article 24 of the Bill. As this could lead to legal uncertainty, the Council of State requires the amendment of this provision to ensure that sustainability reporting obligations are consistent with financial reporting exemptions. Also, the Council of State requests that the CSRD provisions relating to the role and competencies of the Commission de Surveillance du Secteur Financier (CSSF) in overseeing sustainability reporting be fully transposed.

Insofar as the amendments required essentially concern inaccurate or unfaithful transpositions of the CSRD, their implementation should not significantly delay the progress of the legislative process. 

In-scope entities should closely monitor any developments as regards the implementation of CSRD to ensure their full compliance with the upcoming sustainability reporting requirements in due course.

For further details on the Bill, please read our newsflash of 26 April 2024 or contact one of our experts on our ESG team.