European Commission Opens Infringement Procedures Regarding Sustainability Reporting Rules

The EU Corporate Sustainability Reporting Directive (CSRD, or the Directive) took effect beginning 2024 and requires mandatory sustainability reporting by a first set of companies in 2025. Under the terms of the CSRD, the deadline for the Member States to transpose the Directive into national law was set for 6 July 2024.

On 26 September 2024, the European Commission (Commission) adopted a package of infringement decisions concerning untimely transposition of certain EU Directives.Accordant to the EU treaties, the Commission may take legal action against an EU country that fails to implement EU law. See here for more information on the formal procedure. As part of the package, 17 Member States that have failed to notify full transposition of the CSRD have been called to transpose the Directive into national law, representing the first step of the EU infringement procedure.

Background to the CSRD

The CSRD introduces new rules on sustainability reporting, amending the existing reporting requirements under the Non-Financial Reporting Directive (NFRD). The Directive significantly broadens the scope and depth of ESG information that must be reported, requiring detailed disclosures on ESG impacts, risks, and opportunities. Moreover, the CSRD will have a widespread impact globally, covering not only EU companies, but also many corporate groups with non-EU parent companies.

The CSRD started to apply beginning of 2024 for large companies previously subject to the NFRD, with phased implementation for other large companies (including private companies), listed small and medium enterprises, and non-EU parents in subsequent years. The European Sustainability Reporting Standards (ESRS) adopted in July 2023 set out the specific requirements for sustainability disclosures under the CSRD.

For more information on the new sustainability reporting requirements under the CSRD, refer to Latham & Watkins’ recent article on FAQs released by the Commission, and our previous summary article covering the CSRD and the ESRS.

Infringement Decisions and Impact for Companies

The Commission has sent letters of formal notice to the following Member States that have not yet fully transposed the CSRD into national law: Austria, Belgium, Cyprus, Czechia, Estonia, Finland, Germany, Greece, Latvia, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovenia, and Spain. These letters formally open an EU infringement procedure.

Though the Commission’s actions do not directly affect companies, they may serve to expedite the CSRD implementation process in these Member States. Companies should monitor these developments carefully, as Member States might “gold-plate” the CSRD in their domestic laws. Member States can therefore extend the scope of companies required to report under the CSRD, or impose additional or more extensive ESG reporting requirements.

Next Steps

The Member States now have two months (until 26 November 2024) to respond and complete their transposition into national law. If they fail to do so, the Commission may take further steps in the infringement procedure to ensure implementation of the CSRD.

Latham & Watkins will continue to monitor developments relating to the CSRD and ESG reporting globally.

The authors would like to thank Toon Dictus for his contribution to this article.