The European Commission has launched infringement procedures against 17 European Member States for failing to fully transpose the Corporate Sustainability Reporting Directive (CSRD) into national law.
The transposition deadline for the CSRD, which introduces new sustainability reporting obligations, expired on 6 July 2024, and the European Commission has now issued formal notices to Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, and Finland.
These Member States have not yet implemented the necessary national measures to give effect to the provisions of the CSRD. The Commission emphasises that the lack of timely transposition undermines the harmonisation of sustainability reporting across the EU, making it difficult for investors to evaluate companies’ sustainability performance.
The affected Member States now have two months to respond and complete the transposition process. Failure to do so could result in the Commission issuing a reasoned opinion and possibly escalating the matter to the Court of Justice of the European Union.
Understanding the European Commission’s Infringement Procedure
The European Commission is responsible for ensuring that EU countries fully implement EU law. When a Member State fails to comply with its legal obligations, the Commission has the authority to initiate an infringement procedure, a formal legal process that can eventually lead to financial penalties if compliance is not achieved.
The process begins when the Commission identifies a potential infringement of EU law through its own investigations or as a result of complaints from citizens, businesses, or stakeholders. First and foremost, the infringement procedure is designed to promote dialogue between the Commission and the Member State.
There are several key stages to the infringement procedure: First, the Commission sends a letter of formal notice to request information from the Member State, which has two months to respond. If the response is unsatisfactory, the Commission issues a reasoned opinion, giving the country an additional two months to comply with EU law.
If non-compliance continues, the case may be referred to the Court of Justice of the EU. Should the country still fail to act, the Court of Justice may impose financial penalties, taking in consideration the importance of the rule breached, the violation’s duration, and the country’s ability to pay.
What is the Corporate Sustainability Reporting Directive?
The CSRD, which entered into force on 5 January 2023, represents a significant overhaul of the EU’s sustainability reporting framework. It broadens the scope of companies required to report on sustainability issues, including large companies and listed small and medium-sized enterprises (SMEs).
The directive aims to provide transparency on how companies’ activities impact both the environment and society, helping investors and other stakeholders evaluate risks and opportunities arising from sustainability concerns.
Under the CSRD, companies must comply with European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG). These standards aim to harmonise sustainability reporting across the EU, making the information more comparable and reducing long-term reporting costs for businesses.
The first set of ESRS was adopted on 22 December 2023, and companies under the scope of the CSRD are expected to follow these rules starting from their 2024 financial year, with reports to be published in 2025.
The CSRD’s impact extends beyond the EU’s borders, as non-EU companies generating more than EUR 150 million in the EU market will also be subject to its requirements. Additionally, the directive introduces an assurance requirement, which ensures that the sustainability information provided by companies is accurate and reliable. It also establishes a digital taxonomy for sustainability information, which facilitates the comparison of sustainability data across different sectors and regions.