Delays of New EU Reporting Rules Causing Compliance Challenges, Law Firm Says
Most EU member states missed a July deadline to implement the EU’s new corporate sustainability reporting rules into national law, causing uncertainty for businesses that want to ready their compliance procedures before the rules take effect beginning next year, a major European law firm said.
As of early August, Travers Smith said only 10 of the 23 member states had finalized and brought into force national laws implementing the Corporate Sustainability Reporting Directive, which, along with the EU’s Corporate Sustainability Due Diligence Directive, will introduce new reporting requirements and other rules designed to root out negative human rights and environmental-related issues in supply and value chains, including forced labor (see 2405240031). Travers, which surveyed lawyers in each EU country, also said four nations hadn’t yet published “any form of consultation or draft text” for the new rules, and the other states had prepared only a draft law and are still “at various stages of the law-making process.”
Although the European Commission issued guidance earlier this month to outline how member states should implement the new rules (see 2408070033), Travers stressed that the versions passed by each EU state won’t be identical. “Generally Member States do transpose the provisions of Directives quite faithfully, though differences can emerge, particularly in the case” of the CSRD, the firm said, which sets a “floor but not a ceiling for the standards to be set by national law.”
For example, some European companies may be captured by their country’s national law even though they may fall outside the scope of the European Commission’s directive, Travers said. The rules apply to companies with a minimum number of employees and annual turnover, but Travers noted that some member states may use their own currency to determine company size thresholds, resulting in small changes. This could lead to “an unwelcome yo-yo effect for companies close to the thresholds who thought that the amendment took them out of scope.”
The firm said differences in scope across member states “is one of the most disruptive change[s] that latecomer jurisdictions can make,” and it would “require companies with potentially in-scope entities in that jurisdiction to revisit their scoping exercises and ensure that none are newly caught.”
EU companies also may face different rules across member states that outline what kind of “commercially sensitive information” they must submit, the firm said, including about their value chains. Countries also have discretion to decide penalties for violators, Travers said, adding that France’s law “made headlines for its draconian penalties,” which include prison sentences for directors.
But Travers said France likely will save prison penalties for “exceptionally egregious and repeat breaches of the sustainability reporting requirements.” Germany and the Netherlands also “envisage the possibility” of prison sentences for directors in serious cases, the firm said.
The differences across the EU would be easier to navigate if nations had implemented their laws by the July deadline, Travers said, adding that the delays “do not help businesses who are well prepared and looking to ensure that implementation in their main reporting jurisdiction does not impact their first report.” Although member states so far appear to be following the text of the directive, there are “a few both major and minor divergences” that could challenge companies’ compliance programs.
“Navigating CSRD is challenging in and of itself, but negotiating 27 different implementations of it would test even the most seasoned” compliance professional, Travers said.