Last year, the European Commission implemented the Corporate Sustainability Reporting Directive (CSRD), bringing a swath of changes to ESG reporting. The hefty regulation has caused teething problems across the EU, but why is this the case?
The European Commission recently initiated infringement procedures against 17 EU member states, signalling serious enforcement of the new CSRD. It stated that these countries, which include Belgium, Germany, Spain, and the Netherlands, have failed to comply. The governing body has issued them each with formal notices.
Despite the potential issues caused by failing to comply in a timely manner, Quentin Henneaux, Sustainability Analyst at Greenomy, doesn’t see this situation as surprising.
He said, “This delay in transposition isn’t entirely surprising, given the CSRD’s detailed requirements, combined with the need for alignment across diverse national regulations and limited resources in some countries, creating significant implementation challenges. However, some countries have managed to meet the deadline, suggesting that ambition and prioritisation are also key factors regarding a timely compliance.”
Given the complexity of the regulation, the French prime minister Michel Barnier called for a moratorium, which could last a couple of years, to stall the implementation of CSRD in France and potentially shrink its scope. Similarly, Germany is pushing to change the implementation timeline and reporting requirements. These changes include a call to delay obligations for small companies by two years and the removal of sector-specific reporting requirements. There is a growing call for changes to CSRD, with Bloomberg recently suggesting changes could be on the horizon.
As to why it is posing such a challenge for countries to implement, Henneaux pointed to a handful of key reasons. These include complex requirements, resource demands and national-specific enhancements. He added, “Differences in regulatory structures and expertise gaps further complicate harmonised implementation across the EU. A clear commitment from government leaders would make a significant difference too.”
On the back of the warnings, they have two months to submit detailed responses. If they are found insufficient, Henneaux explained, the European Commission could escalate the matter through the issuance of a reasoned opinion and could even refer the case to the Court of Justice, which could lead to penalties.
Not only does the delay in compliance bring the potential of penalties, but it can also create challenges for financial institutions trying to adhere to regulatory requirements.
Henneaux explained, “This creates a significant challenge for businesses and FIs, as they must closely monitor new CSRD requirements to evaluate necessary adjustments to existing compliance and reporting practices, directors’ duties, and penalties impacting their global operations during this period of rapid change.
“Beyond financial penalties, non-compliance can pose substantial reputational risks. Therefore, tracking each EU member state’s progress in transposing the directive is crucial, as companies with operations across multiple EU countries may face differing reporting obligations. Staying informed on national developments will help ensure timely compliance with each jurisdiction’s specific legal requirements.”
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