What is CSRD?
The Corporate Sustainability Reporting Directive (“CSRD”) is part of the EU’s ambition to harmonise sustainability reporting standards and ensure greater transparency by companies within the European Union. It introduced robust obligations for large and listed companies to disclose information regarding both their environmental, social, and governance (ESG) impacts as well as the corresponding risks and opportunities.
Who Must Comply?
The CSRD applies to (i) large companies, being companies that meet at least two of the following criteria: (a) an average of 250 employees, (b) net turnover of €40 million; (c) a balance sheet total of €20 million and (ii) medium and small enterprises listed on EU-regulated markets albeit with scaled-down requirements. Small and medium-sized undertakings are those that exceed the following three criteria: (a) an average of 10 employees, (b) net turnover of €700.000; (c) a balance sheet total of €350.000.
The CSRD also applies to certain companies from non-Member States (iii). This is the case for (a) subsidiaries listed on a regulated market in the European Union and that can be qualified as a small, medium or large undertaking or (b) if the subsidiary has a net turnover of €40 million and the parent company has a net turnover of more than €150 million.
When does the CSRD become applicable?
The CSRD was adopted on the 14th of December 2022 and entered into force on the 5th of January 2023.
The CSRD will be applied progressively. In a first phase and as from 2025, large companies that were already subject to the previous regulation on non-financial information (the NFRD) will have to publish a sustainability report for the 2024 accounting year. As from 2026, large companies that were not subject to the NFRD will also have to start publishing a sustainability report. Subsequently, small and medium-sized listed companies will have to publish a sustainability report as from 2027. Finally, companies from non-Member States that subject to the CSRD will have to publish this information as from 2029.
What level of sustainability disclosure is required?
Under the CSRD, sustainability disclosures must be audited. Initially, companies may submit their sustainability reports under a “limited assurance” framework, progressing to a “reasonable assurance” framework. This phased approach balances the need for a rigorous review while allowing companies to adapt to enhanced scrutiny.
The EU Commission should establish assurance standards for limited assurance by 2026 and for reasonable assurance and by 2028. These standards will establish the procedures to be followed in drawing conclusions related to assurance, including the planning of tasks, the consideration of risks and the measures to be taken as a result, and the type of conclusions to be included in the sustainability report. Until then, Member States can apply their own national standards, ensuring that companies have a transitional framework to operate within.
How will Belgium ensure compliance with CSRD?
Although the CSRD should have already been transposed into national law by 6 July 2024, Belgium only very recently submitted a draft law to Parliament on 24 October 2024 outlining how the CSRD will be transposed into Belgian legislation (“Draft Law”).
Among others, the Draft Law specifies the mechanisms for ensuring compliance, the roles of auditors, and the penalties for violations.
1. Who Can Perform Assurance Reviews in Belgium?
In line with the CSRD, Belgium has designated three categories of professionals to review corporate sustainability reports:
- Statutory auditors responsible for annual accounts;
- Approved company auditors; or
- Independent Assurance Service Providers (IASPs) accredited under EU Regulation 765/2008.
Accreditation for IASPs includes stringent criteria equivalent to approved auditors such as professional independence, ethics, and rigorous training. The Belgian government is free to define national standards for accreditation by means of Royal Decrees.
Auditors and assurance providers shall be prohibited from offering non-audit services, such as tax or accounting consultancy, to the same company to safeguard objectivity.
2. Limited assurances vs. Reasonable assurance?
The Draft Law introduces a tiered assurance framework:
- Limited assurance involves a negative statement that nothing has come to light shows that a significant misstatement exists, based on sample data.
- Reasonable assurance constitutes a much higher standard, requiring comprehensive checks of internal controls and data accuracy to confirm that reports are free from material errors.
As mentioned, Belgium shall further adopt the EU Commission’s assurance standards once they are developed.
3. Breaches and sanctions?
The Draft Law incorporates a range breaches of corporate sustainability reporting obligations as well as related penalties, aiming to deter non-compliance and fraudulent behavior. These breaches include:
- Forgery of sustainability information.1
- Non-publication of a sustainability report in conformity with the binding EU standards.2
- Failure to appoint an assurance provider.3
- Violations by assurance providers: e.g. negligence or unethical engagements.4
As for sanctions, the Draft Law aligns with existing penalties in the Belgian Company Code. Forgery of sustainability information is punished by imprisonment of 5 to 10 years and fines ranging from €26 to €2,000. The three other infractions are punished by an administrative fine ranging between €50 to €10,000.
In addition, in case of fraudulent intent, board members even risk criminal charges, resulting in an imprisonment of 1 month to 1 year, in addition to the aforementioned fines.
[1] Modification of art. 3:44 Belgian Companies Code (“BCC”) dealing with forgery of annual accounts.
[2] New art. 3:45/2 CSA together with art. 3:6/3 § 1 CSA.
[3] Modification of art. 3:97, §1/1, art. 3:75/2 and art. 3:58, § 6 CSA.
[4] New Art. 3:97, §2/1 CSA.
Practical feasibility?
The CSRD and its Belgian transposition emphasise rigorous transparency in sustainability reporting. By imposing mandatory assurance reviews and imposing strict penalties, Belgium aims to foster accountability and credibility in corporate ESG disclosures. As the legislation progresses (i.e. increases), Belgian companies must prepare to meet these heightened standards, aligning their reporting practices with the EU’s broader sustainability goals.
However, it remains to be seen whether (Belgian) companies will be able to timely comply with the rapidly expanding and increasing ESG legislation and the resulting transition measures and required investments. At present and given the current economic climate, signals are that many Belgian companies lack both the expertise and the resources to (fully) comply with the ESG regulations and to make the required investments.
Do you have questions or require assistance? Reach out to Joris Beckers for insights and guidance.
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This article is not a legal advice or a legal opinion. You should seek advice from a legal counsel of your choice before acting upon any of the information in this newsletter.
