CSRD reporting on a group or entity level – What are the differences?
09 Feb 2024
Background
Under the Corporate Sustainability Reporting Directive (CSRD), all listed and large companies must include sustainability information in their annual report in a dedicated section in accordance with the European Sustainability Reporting Standards (ESRS). The first time in-scope companies belonging to the first wave will have to report in line with the CSRD will be in 2025 for financial year 2024.
An exemption for subsidiaries
In principle, all in-scope companies will have to include the sustainability information in their annual report. However, an exemption may apply to subsidiaries of larger groups. Subsidiaries are exempted from the CSRD obligations if the parent company produces a consolidated sustainability report that conforms with the CSRD. This subsidiary exemption also applies to subsidiaries that are public interest entities unless they reach the large company thresholds.
Exempted subsidiaries must include the following in their annual report:
the name and registered office of the parent company that is reporting the sustainability information at group level;
the web links to the consolidated annual report; and
a reference to this exemption in their own annual report.
If there are significant differences between the risks and impacts of the group vs those of the subsidiaries, the parent company should provide an adequate understanding of the risks and impacts of their subsidiaries, including information on their due diligence processes where appropriate.
If the parent is located outside of the EU, the sustainability reporting must be in accordance with European (CSRD) or equivalent reporting standards. It will be up to the European Commission to determine if the standards used can be considered equivalent. As the assessment of equivalence of sustainability reporting standards will take place at a later stage, transitional provisions have been put in place for seven years so that Member States permit EU subsidiaries to report under the European standards.
The differences between group and entity level reporting
Company groups will have four options to choose from:
Global consolidated entity reporting where the ultimate parent reports on all sustainability information;
Subgroup consolidated reporting where in-scope EU holdings prepare a separate sustainability report for their subsidiaries;
Artificial EU consolidation reporting where all entities form an artificial consolidation and the largest EU entity prepares the sustainability report; and
Reporting on an entity basis where each in-scope entity reports individually on their sustainability information.
The most obvious difference were a group to voluntarily opt for consolidation is that the ultimate parent would have to report for the entire group, including all EU and non-EU subsidiaries regardless of whether they are subject to the CSRD. If, on the other hand, a group were to choose not to opt for consolidation, only the subsidiaries in scope would have to report under the CSRD. This would mean that assurance would only be required at consolidated level and not for each subsidiary individually.
Second, in the case of consolidation, the managing body of the parent company would need to sign off on sustainability activities and data on behalf of all subsidiaries worldwide which could cause some changes to the group-wide governance policies and procedures. The managing body would also be liable for the accuracy and correctness of the sustainability data which would otherwise rest on the managing body of each subsidiary individually.
Non-EU parent companies can use limited/reduced reporting standards which apply until 2029 (financial year 2028).
Feel free to contact us if you want to have a discussion on which option would be best for your company or if you have any other sustainability-related questions. Our experts would be more than happy to advise you on a wide range of sustainability issues.
Pierre Queritet - Quinten Smits
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