Corporate sustainability reporting requirement concerns remain for Irish businesses

The EU (Corporate Sustainability Reporting) Regulations 2024 (the CSRD regulations), which transpose and give effect to Directive (EU) 2022/2464 on Corporate Sustainability Reporting (CSRD) came into force in Ireland on 6 July. The minister for enterprise, trade and employment enacted the EU (Corporate Sustainability Reporting) Regulations 2024 on that date. These regulations govern the implementation and operation of the CSRD in Ireland and amend and update the Companies Act 2014 to provide a statutory footing for the CSRD in Ireland.

The CSRD regulations were initially met with some concerns by legal advisors as it captured a number of companies within the scope of the CSRD that were previously exempt from sustainability reporting under the CSRD entirely or for an initial interim period. This has led to the EU (Corporate Sustainability Reporting (No.2) Regulations 2024 (the “Amending Regulations”) which were issued on 1 October.

The Amending Regulations have alleviated some concerns by postponing the requirement for certain subsidiaries and third country undertakings (non-EU companies with operations within the EU) to undertake consolidated sustainability reporting until January 2030.

The Amending Regulations also provide some comfort by removing small and medium sized companies, as defined under section 1586 of the Companies Act, that are “public-interest entities” which operate as credit institutions and insurance undertakings and certain entities undertaking audit activities from the scope of the CSRD. Additionally, the amendments remove the requirement for “public-interest entities” that are holding companies operating as credit institutions and insurance undertakings and certain entities undertaking audit activities to engage in consolidated sustainability reporting under the Companies Act.

Despite these welcome amendments, several issues remain. The transposition of the CSRD into Irish law places reporting requirements and accelerated timelines for reporting on certain small and medium sized entities, micro companies, unlimited companies, and financial services companies by its definition of a “applicable company”. The CSRD regulations designate certain companies which are deemed to be “ineligible entities” as “large companies” for the purposes of the CSRD under the Companies Act – even where the companies in question do not meet the criteria to be deemed a large company under the CSRD.

This section places reporting obligations on companies such as insurance undertakings, credit institutions, entities with listing on regulated EU markets, unlimited companies and Schedule 5 companies to whom it was not envisaged that the CSRD would apply. Schedule 5 companies are those meeting at least two of the following criteria: 250 or more employees during the financial year, a balance sheet total of more than €20 million, and a net turnover of more than €40 million.

The CSRD regulations also mean that companies will be obliged to meet reporting requirements at a much sooner date than previously anticipated.

Large companies that are public interest entities with an average of more than 500 employees are required to report for financial years beginning on or after 1 January, and other large companies are obliged to report from financial years on or after 1 January 2025.

From 1 January 2026, small and medium sized companies with securities listed on an EU regulated market and applicable Irish incorporated institutions, captive insurance undertakings and captive reinsurance undertakings face reporting requirements. Finally, Irish incorporated subsidiaries, where the subsidiary is an in-scope company, and branches, where the branch generated a net turnover of more than €40 million in the preceding financial year, of non-EU parent companies with a net turnover exceeding €150 million in the EU will be required to report for financial years beginning on or after 1 January 2028.

The CSRD regulations as amended by the Amending Regulations also fail to address the position of Irish incorporated subsidiaries of EU holding companies. Under the Companies Act, exemptions to reporting requirements may only be granted for subsidiaries that are included in a group director’s report of a holding company. As the requirement for directors’ reports only applies to Irish companies, there appears to be a gap in the CSRD regulations in relation to how exemptions may be availed by Irish incorporated subsidiaries of EU holding companies.

Currently, such subsidiaries would be required to prepare additional sustainability reports outside their group’s consolidated sustainability reporting even where the subsidiaries fall outside the scope of CSRD.

Additionally, Irish subsidiaries of third country undertakings are required to engage in sustainability reporting even where their parent company is an EU undertaking. This has the effect of bringing a greater number of Irish subsidiaries within the scope of the CSRD regulations where parent companies are intermediary third country undertakings, requiring such subsidiaries to also publish reports.

Co-written by Kevin Doyle of Pinsent Masons.