Irish firms must ensure transparent ESG reporting as CSRD comes into effect

The EU Corporate Sustainability Reporting Directive (CSRD) (66 pages / 1.1 MB), has now been implemented in Irish law through the European Union (Corporate Sustainability Reporting) Regulations, 2024 which came into effect on 6 July .  

It requires all large companies as defined in the CSRD and all listed companies, except listed micro-companies, to report on all impacts, risks and opportunities that concern environmental, social and governance related matters. The CSRD applies primarily within the EU, having emerged from the ideals of the European Green Deal that aimed to reach a market economy with zero net greenhouse gas emissions by 2050.

The CSRD expands the scope of existing EU rules for non-financial reporting by large public interest entities to include large companies, and listed small and medium sized enterprises on a main EU stock market. Micro companies are excluded from the reporting obligations under the CSRD.

The regulations amend various provisions of the Irish Companies Act 2014 to reflect the requirements of the CSRD and impose important new obligations on company directors, statutory auditors and accountancy regulatory bodies. The regulations also introduce new filing obligations around the sustainability report which must now be included with the annual returns of those companies which are in scope.

“CSRD reporting is now embedded in Irish company law for those entities that are in scope and therefore must be treated with the same importance as the company’s financial statements,” said Neil Keenan, Dublin based corporate law expert at Pinsent Masons.  

The report must be included in the annual director’s report and be accompanied by a statutory auditor’s opinion,. It must be produced in single electronic format by digitally tagging the information, making it more amenable to digital analysis.

The CSRD requires that companies report sustainability information in accordance with the European sustainability reporting standards (ESRS). Under the ESRS, companies will need to make sustainability assessments based on double materiality. This compulsory method of assessment identifies the most material impacts that sustainability has on the company and their stakeholders by investigating how their activities affect the environment and society - the inside-out perspective. Then, the company must report on how their business is affected by sustainability related factors, such as climate change or flooding, which allows investors to assess potential risks – the outside-in perspective. 

The ESRS will govern precisely what information should be included in the report, which is broken down into three categories: social, environmental, and governance. The reporting standards provide detailed and comprehensive standards with disclosures obliged to follow a structure of governance and strategy before setting out impact, risk and opportunity management and the future related metrics and targets.

Keenan said: “Although the CSRD applies to larger entities and listed entities in reality it is also going to impact on many businesses not in scope of the CSRD itself as they will still have to provide information to the entities which are in scope if they are part of the value chain. To prepare for this, businesses are encouraged to avail of Irish government supports such as the green transition fund and the climate toolkit for businesses.”

Pinsent Masons has developed an online tool to help businesses understand the reporting requirements and deadlines under the CSRD.

In Ireland, a company which is listed will only qualify as a micro-company and therefore be excluded from the remit of the CSRD if it qualifies for the small companies regime or has a net turnover not exceeding €700,000, balance sheet not exceeding €350,000, or an average number of employees not exceeding within one financial year.

Companies that are investment undertakings, financial holding undertakings, or holding companies that prepare group financial statements, do not qualify as micro-companies. Where a company does qualify as a micro company, different rules will apply in respect of reporting obligations.

The European Union (Adjustments of Size Criteria for Certain Companies and Groups) Regulations 2024 (5 pages / 136 KB) were also recently signed into law in Ireland. This increases the balance sheet turnover thresholds for micro, small, medium and large companies and groups under the Companies Act 2014 by 25% to account for inflation.

Keenan said: “This change also means that more Irish companies will move into the micro and small enterprise categories and will therefore benefit from abridged reporting and audit exemptions. This will reduce the regulatory and administrative burden on firms. The changes may also result in more companies falling outside the scope of the CSRD”

Separately, the Irish government is currently considering the member state option to introduce independent assurance service providers as regards to the CSRD and is seeking views from company stakeholders and other interested parties. The consultation, open until 19 July, is seeking opinions on whether Ireland should adopt the option to recognise, accredit, regulate and monitor independent assurance services providers in the future.