Ireland transposes the Corporate Sustainability Reporting Directive by 6 July 2024

In a recent article, we explored:

• the Corporate Sustainability Reporting Directive (the 'CSRD');
• the companies which fall within its scope;
• the European Sustainability Reporting Standards (the 'ESRS'), which specify the data points that an undertaking shall disclose about its material impacts, risks and opportunities in relation to ESG matters;
• the concept of 'double materiality', assessing a company's outward and inward impact as regards sustainability matters;
• penalties for failure to comply, for which each Member State is responsible for determining and which we will explore in Ireland's case below; and
• how to prepare.

 

Ireland's transposition of the Corporate Sustainability Reporting Directive
 

The European Union (Corporate Sustainability Reporting) Regulations 2024 (S.I. No. 336 of 2024) (the 'CSRD Regulations') were signed into law by Minister for Enterprise, Trade and Employment, Peter Burke TD, on the 5 July 2024, and came into effect on 6 July. The Regulations transpose the CSRD by way of amendments to the Companies Act 2014 (as amended) ('the Companies Act') and require that all large companies and all listed companies (except listed micro-enterprises) report sustainability information in accordance with the ESRS as part of their directors’ report. Sustainability reporting must be provided with an auditor’s opinion with limited assurance and reported digitally.

According to the Minister, "[t]he signing of these important Regulations today marks a significant step the Government is taking in the context of the European Green Deal and the EU’s Action Plan for Financing Sustainable Growth. These Regulations provide a helpful structure to companies for preparing sustainability reporting in a clear and consistent way, that gives the relevant information to investors, consumers, and other stakeholders, whilst minimising unnecessary burdens on companies." [1]

Following on from our previous article, we now outline some of the features of transposition following the publication of the CSRD Regulations.

 

What is sustainability reporting?

Chapter 2 of the CSRD Regulations is instructive in describing what is meant by sustainability reporting in Ireland.

Section 1589 of the CSRD Regulations: The directors of an applicable company shall include in their directors’ report:

• information on the key intangible resources in relation to the applicable company; and
• an explanation of how the business model of the applicable company fundamentally depends on such resources and how such resources are a source of value creation for the applicable company.

Double materiality (Section 1590(1) of the CSRD Regulations)

All sustainability topics must undergo a 'Double Materiality Assessment' to see what issues should be reported on.

The directors of an applicable company shall, for each financial year, include in a clearly identifiable dedicated section of the directors’ report, the following:

• Outward materiality: information necessary to understand the company’s impacts on sustainability matters; and
• Inward materiality: information necessary to understand how the sustainability matters affect the company’s development, performance and position.

Data points (Section 1590 of the CSRD Regulations)

The sustainability report forming part of the directors' report shall contain the following:

• a brief description of the applicable company’s short-term, medium-term and long-term business model and strategy, including:

• the resilience of the applicable company’s business model and strategy in relation to risks related to sustainability matters;
• the opportunities for the applicable company related to sustainability matters;
• the plans of the applicable company, including implementing actions and related financial and investment plans, to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement, and, where relevant, the exposure of the applicable company to coal-related, oil-related and gas-related activities;
• how the applicable company’s business model and strategy take account of the interests of the applicable company’s stakeholders and of the impacts of the applicable company on sustainability matters; and
• how the applicable company’s strategy has been implemented with regard to sustainability matters.

• a description of the time-bound targets related to sustainability matters set by the applicable company, including, where appropriate, absolute greenhouse gas emission reduction targets at least for 2030 and 2050, a description of the progress the applicable company has made towards achieving those targets, and a statement of whether the applicable company’s targets related to environmental factors are based on conclusive scientific evidence;
• a description of the role of the administrative, management and supervisory bodies in the applicable company with regard to sustainability matters, and of their expertise and skills in relation to fulfilling that role or the access such bodies have to such expertise and skills;
• a description of the applicable company’s policies in relation to sustainability matters;
• information about the existence of incentive schemes linked to sustainability matters which are offered to members of the administrative, management and supervisory bodies in the applicable company;
• a description of:

• the due diligence process implemented by the applicable company with regard to sustainability matters, and, where applicable, in line with the requirements of EU law on applicable companies to conduct a due diligence process;
• the principal actual or potential adverse impacts connected with the applicable company’s own operations and with its value chain, including its products and services, its business relationships and its supply chain, actions taken to identify and monitor those impacts, and other adverse impacts which the applicable company is required to identify pursuant to other requirements of EU law on applicable companies to conduct a due diligence process; and
• any actions taken by the applicable company to prevent, mitigate, remediate or bring an end to actual or potential adverse impacts, and the result of such actions.

• a description of the principal risks to the applicable company related to sustainability matters, including a description of the applicable company’s principal dependencies on those matters, and how the applicable company manages those risks; and
• indicators relevant to the disclosures referred to above.

For the first three financial years of the application of the CSRD Regulations, and in the event that not all the necessary information regarding its value chain is available, the directors of the applicable company shall explain the efforts made to obtain the necessary information about its value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain the necessary information in the future.

The ESRS are to be adhered to in reporting on the above.

Consolidated sustainability reporting (Section 1596 and 1958 of the CSRD Regulations)

The directors of an applicable company that is the holding company of a group shall include in a clearly identifiable dedicated section of the group directors’ report, the following:

• information necessary to understand the group’s impacts on sustainability matters; and
• information necessary to understand how sustainability matters affect the group’s development, performance and position.

It follows that certain subsidiaries are exempt from the obligation to produce their own reports.

Single electronic reporting format (Section 1600 of the CSRD Regulations)

There are prescribed formats for electronic reporting which must be used.

 

Applicable companies

Applicable companies are set out in s. 1586 of the CSRD Regulations and include:

• a company that, in relation to a financial year, qualifies as a large company. These include companies that do not qualify as a small company, micro company or medium company pursuant to the Companies Act 2014; or
• a company that, in relation to a financial year:

• qualifies as a small company or a medium company pursuant to the Companies Act 2014, excluding a company which qualifies as a micro company; and
• has transferable securities admitted to trading on a regulated market of any Member State.

 

Section 1587 of the CSRD Regulations details the years for which sustainability reporting will apply to different sizes of applicable companies, starting with large companies[2]  or groups with >500 employees that are public-interest entities reporting on FY2024, other large companies or groups reporting on FY2025, and other small[3] or medium[4] companies (excluding micro[5] companies) reporting on FY2026. Interestingly there is a derogation under section 1592 of the CSRD Regulations whereby the directors of small or medium companies may limit the sustainability reporting to inter alia a brief description of the applicable company’s business model and strategy, policies in relation to sustainability matters, the principal actual or potential adverse impacts and risks of the applicable company on sustainability matters, and any actions taken/management of those risks, and key indicators necessary for such disclosures, which arguably places a lighter reporting burden on such companies.

 

Who is the regulator?
 

The Irish Auditing and Accounting Supervisory Authority (the 'IAASA') now has the power to:

• regulate the sustainability reporting of entities under IAASA’s remit as accounting enforcer;
• adopt a sustainability assurance standard pending the adoption of an EU-wide standard by the European Commission; and
• regulate the provision of sustainability assurance to companies in scope, which will be split between IAASA for public-interest entities and recognised accountancy bodies ('RABs') for other companies.[6]

 

IAASA

RABs

Regulates the provision of sustainability assurance to companies which are in-scope public-interest entities, including entities that: have transferable securities admitted to trading on a regulated market of any Member State; are credit institutions; are insurance undertakings; or are undertakings that are otherwise designated, by or under any other enactment, to be entities referred to in point (d) of Article 2(1) of the Accounting Directive.

Regulate the provision of sustainability assurance to companies which are in scope but not public-interest entities.

 

The CSRD Regulations also provide for the power for recognised accountancy bodies to approve and register sustainability assurance service providers to regulate those companies that are not public interest entities. There are currently three RABs in Ireland:

• ACCA – Association of Chartered Certified Accountants;
• CAI – Institute of Chartered Accountants in Ireland; and
• CPA – Institute of Certified Public Accountants in Ireland.[7]

 

According to section 1645 of the CSRD Regulations, a RAB shall have the right to take disciplinary actions or impose sanctions in respect of statutory auditors and audit firms who carry out the assurance of sustainability reporting and shall have procedures in place to facilitate the taking or imposition of such action or sanctions.

 

What are the consequences?

 

There are many offences under the Companies Act, which impose different sanctions for various infringements. We note that monetary sanctions are imposed by the Supervisory Authority for breaches of standards of prescribed accountancy bodies by a statutory auditor[8] which includes a client or former client (who can be an individual, a body corporate, an unincorporated body or a partnership), and these may not (according to section 934C(2)(g) of the Companies Act 2014) exceed:

• €100,000 in the case of an individual; or
• in the case of an audit firm, €100,000 multiplied by the number of statutory auditors in the firm at the time that the relevant contravention occurred (and irrespective of whether any particular statutory auditor was or was not a party to the relevant contravention).

However, according to section 934G of the Companies Act 2014, an amount shall not be imposed:

• that would be likely to cause a person to cease business, or
• that would, in the case of an individual, be likely to cause the person to be adjudicated bankrupt.

Additionally, if the conduct gives rise to two or more relevant contraventions, more than one fine shall not be imposed on the person in respect of the same conduct.

 

Exempted micro enterprises

The definition of micro enterprises was recently updated on 1 July 2024 by the European Union (Adjustments of Size Criteria for Certain Companies and Groups) Regulations 2024 (S.I. No. 301 of 2024). A company can qualify as a micro enterprise if, in relation to a financial year, it:

• qualifies for the small companies regime;
• fulfils 2 or more of the following requirements:

• the amount of turnover of the company does not exceed €900,000;
• the balance sheet total of the company does not exceed €450,000; and/or
• the average number of employees does not exceed 10.

 

Equality between financial reporting and sustainability reporting
 

A goal of the CSRD is to "ensure consistent equivalence regimes for sustainability reporting requirements and for financial reporting requirements regarding the annual financial report". Ireland achieves just that by expanding the mandate of bodies which supervise financial reporting so that they are now additionally charged with regulating and supervising reporting under the CSRD Regulations. Additionally, this brings with it the same rules as regards fines and other sanctions under the Companies Act. All of this is to be welcomed as giving importance to sustainability reporting for the green transition.

Another feature of the convergence of financial and sustainability reporting is the Department of Enterprise, Trade and Employment's recently opened Public Consultation on the Member State option to recognise, accredit, regulate and monitor independent assurance services providers (‘IASPs’). This is a result of the CSRD's insertion of a new paragraph 4 into Article 34 of the Accounting Directive, allowing Member States the option to introduce IASPs to provide an opinion on the sustainability reporting of undertakings that fall within its scope. IASPs must be accredited to give the opinion and must be subject to equivalent requirements as statutory auditors. The deadline for submissions from stakeholders and interested parties closed on 19 July 2024. [JM1] 

Details of Fieldfisher's specialised ESG team can be found here[JM2] .

Written by: Jonathan Moore and Adam Winston