The Directive (EU) 2022/2464 as regards corporate sustainability reporting, or the Corporate Sustainability Reporting Directive (CSRD), entered into force on 5 January 2023 and should have been implemented in Dutch law by 6 July 2024. The CSRD requires companies to include sustainability information in their management report, sets rules for the audit of that information and requires listed companies to make sustainability reporting statements public. All this is aimed at transparency and accountability, with the indirect aim of stimulating progress (for example by investing sustainably).

Non-Financial Reporting Directive (NFRD)

Based on the Directive on the disclosure of non-financial and diversity information by certain large undertakings and groups (2014/95/EU) (the Non Financial Reporting Directive -NFRD), which was implemented in the Netherlands on 6 December 2016, large listed companies, banks and insurers with more than 500 employees are already required to report on non-financial information. These include environmental, social and human resources policies, respect for human rights and the fight against corruption and bribery.

Corporate Sustainability Reporting Directive (CSRD)

Compared to the NFRD, the CSRD requires more companies to report on sustainability. All large legal entities, large banks and large insurers, regardless of their legal form, and all listed companies, with the exception of micro-listed companies, have to report on sustainability issues in their management report.

Under Dutch law, large legal entities are legal entities that meet two of the following three criteria:

• a balance sheet total of more than €20 million;
• a net turnover of more than €40 million; and
• more than 250 employees.

Micro-listed companies are those listed companies that meet two of the following three criteria:

• a balance sheet total of no more than €350,000;
• a net turnover of no more than €700,000; and
• fewer than 10 employees.

The sustainability information that companies must report is also expanded and standardised, and it is determined how the information must be audited.

The introduction of this reporting obligation will take place in phases, depending on the nature and size of the company involved:

• large listed companies, banks and insurance companies with more than 500 employees will report from financial year 2024;
• other large companies, banks and insurance companies (regardless of stock exchange listing) with 500 or fewer employees will report from financial year 2025;
• small and medium-sized listed companies, small and medium-sized listed banks and insurance companies will report from financial year 2026;
• small and non-complex credit institutions and (re)insurance captives that either qualify as large, or are listed and qualify as small or medium-sized, will also report from financial year 2026;
• finally, from financial year 2028, large or listed subsidiaries and branches with a net turnover of more than €40 million will be required to publish a separate sustainability report in certain cases with information on the entire group of their ultimate parent company that is established outside the EU or EEA.

The CSRD requires that the rules that apply to the audit of annual accounts also apply if the external auditor audits the sustainability reporting. This is done by amending the Audit Directive. This includes rules on professional ethics, independence, objectivity, confidentiality and professional secrecy of auditors. The Netherlands has indicated that the audit role will indeed be assigned to the external auditor.

Implementation decree sustainability reporting directive

Sustainability reporting must be included as a recognisable part of the management report and may therefore not be presented in a separate report. Sustainability reporting must be prepared from the perspective of dual materiality, i.e. reporting on (i) the effects that the company’s activities have on sustainability issues and (ii) the impact that sustainability issues have on the company.

In summary, sustainability reporting must contain the following information:

1. a brief description of the business model and strategy, including, among other things, the company’s plans to ensure that its business model and strategy are compatible with the transition to a sustainable economy;
2. a description of the time-bound targets relating to sustainability issues;
3. a description of the role of the management and supervisory board in sustainability issues, their expertise and skills in that area or their access to that expertise and skills;
4. a description of the policy relating to sustainability issues;
5. information on the existence of incentive schemes related to sustainability issues, for example by assessing the company’s performance against specific sustainability-related targets and linking management bonuses to the achievement of those targets;
6. a description of:
   1. the due diligence process applied to sustainability issues in accordance with the requirements of European law;
   2. the main actual or potential adverse impacts related to its own activities and those of the value chain;
   3. the measures taken to address actual or potential adverse impacts, and the outcome of such measures;
7.  a description of the main risks related to sustainability issues; and
8. indicators relevant to the intended reporting.

What else needs to be reported?

In addition to the topics in the sustainability reporting set out above, companies that fall under the CSRD must also report in general terms on standards laid down in the European Sustainability Reporting Standards (ESRS). The ESRS relate to all ESG factors (Environment, Governance and Social). Reporting therefore goes beyond what directly follows from the implementation decree.

The ​​“Social” factors concern: (i) own staff, (ii) employees in the value chain (relationships such as suppliers and customers), (iii) affected communities (in the area where the company operates) and (iv) consumers and end users. HR comes into the picture here.

The reporting obligations specifically with regard to own staff concern 17 requirements in the ESRS, covering topics such as job security; working hours; living wage; social dialogue; freedom of association; the existence of works councils and the information, consultation and participation rights of employees; collective bargaining incl. collective labour agreement coverage ratio; work-life balance; health and safety; gender equality and equal pay for work of equal value; education, development and skills; employment and inclusion for people with disabilities; measures against violence and harassment in the workplace; and diversity.

In addition to having to report on the participation structure in the company, the reporting obligations may also result in the works council having to be involved in the process, for example as a result of the information obligation of the entrepreneur, the duty of care of the works council in environmental matters, or the adoption or amendment of policies that may require the consent of the works council.

How to proceed

After submission to the House of Representatives, the implementation legislation will still have to be accepted by both the House of Representatives and the Senate before it can enter into force, while the implementation date of 6 July 2024 has already passed. It is still unclear what the consequences of this will be for the Netherlands.

However, it does not alter the fact that such implementation legislation will be a reality at some point and companies can already prepare for the CSRD obligations. This also applies to companies that do not fall within the scope of the CSRD. Now that reporting companies also have to report on their value chain, suppliers or cooperation partners may also be asked to share information.

Want to know more? Feel free to contact Niels van Boekel or Eline Jekel.