France’s transposition of the CSRD

The foundational role of sustainability reporting within the European Union (EU) relies heavily on Member States transposing the Corporate Sustainability Reporting Directive (CSRD) effectively. Failure to do so not only undermines the enforceability of sustainability reporting obligations for companies, but also hampers the broader objectives of the framework. 

Examining Member States’ common grounds in transposition efforts reveals a focus on three key pillars: 

1. Defining the scope of application 
2. Implementing control mechanisms 
3. Prescribing sanctions for non-compliance

France’s leadership role in transposition initiatives

France has emerged as a leader in this transposition process, encouraging other nations to follow in its footsteps. France endorsed this role with the publication of its Ordinance No. 2023-1142 of December 6, 2023, relating to the publication and certification of information regarding sustainability and the environmental, social, and corporate governance obligations of commercial companies, and its implementing Decree which both amend the Commercial Code to align with CSRD requirements.  

This translates into practical implications for reporting companies. They’re now obligated to conduct a double materiality assessment in their reporting process, outlining the impact of their operations on sustainability matters and how these factors shape their business development, performance and market position.

An extended scope of application

First and foremost, a significantly larger number of companies will be subject to reporting obligations under the CSRD (over 50,000 companies compared to 11,700 under the Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU regarding disclosure of non-financial and diversity information by certain large undertakings and groups). In particular, all companies listed on the European regulated market (except microenterprises), all large European companies, and certain large non-European companies with solid European roots and establishments in the EU will be accountable.

A dual assurance process against non-compliance

France has bolstered its control mechanisms by mandating independent audits of sustainability reports for verifying compliance with CSRD and the 12 related European Sustainability Reporting Standards (ESRS) — for example, climate change or waste and pollution. While the current auditing standards solely focus on detecting misstatements (a “moderate” assurance mechanism), this aids the process of implementing CSRD and ESRS within French companies.  

However, it’s worth noting that companies will be required to move to the “reasonable” level of assurance from 2028, which — similar to an audit opinion over financial information — will observe the following process for auditing sustainability reports:  

• Gaining an understanding of the company and its culture 
• Assessing and reviewing the company’s controls 
• Identifying risks 
• Undertaking detailed testing 
• Evaluating the evidence obtained and forming the assurance conclusion.  

Another layer of assurance is guaranteed by the appointment of a specialized committee acting under the responsibility of the board of directors, which will mainly: 

• Monitor the effectiveness of the internal control and risk management systems regarding the procedures relating to the preparation and processing of the company’s financial information sustainability information 
• Monitor the completion of auditing missions and the certification of sustainability information 
• Ensure compliance with the independence conditions required of stakeholders carrying out sustainability information certification missions 

In any case, we expect that in the coming years sustainability reports will be taken to another level of scrutiny, which would undeniably step up CSRD’s game in the long run.
 

Potential prison terms for non-compliance

France also took a major leap forward when establishing a groundbreaking and stringent punitive framework aiming to deter non-complying behaviors from reporting companies. The stakes will be quite high if companies fail to observe newly transposed requirements. Not only did France introduce fines for non-compliance as preconized by the CSRD, but companies could also be exposed to up to 5 years of imprisonment for obstructing verifications or controls, or refusing to provide auditors with all the documents required to perform their duties. This proactive approach might pave the way for other Member States to adopt similar sanctions, although there are already notable variations in penalties across countries. 

Indeed, the prospect of imprisonment is a distinctive feature of the French approach, as no other transposing countries have taken a similar stance.

Taking stock of other Member States’ initiatives

Other Member States have somewhat missed the mark in fulfilling their transposition duties by weakening the impact of the CSRD with lenient enforcement systems. For instance, while legal consequences remain unchanged in Romania and Hungary and non-compliance with CSRD is not specifically sanctioned by a penalty, Finland provides for a small administrative fine in case of delayed submission. It’s worth noting that some countries, such as Czech Republic, have also implemented stringent sanctions including non-neglectable fines of up to 3% of the total value of the company’s assets for the absence of submission of the sustainability report.  

What about trends currently developing in other Member States? Despite the lack of official transposition instruments in most EU countries, drafts, proposals, and consultation papers already indicate other national authorities’ attempts to give effect to the CSRD within the transposition deadline. Slovakia, Lithuania, Sweden, Norway, Denmark, Spain, the Netherlands, Ireland and Latvia are all already in the process of transposing the Directive.  

Even so, these divergences in enforcement mechanisms pose a significant challenge to achieving a harmonized reporting framework within the EU.

Ultimately, the effectiveness of transposition efforts depends not only on meeting the July 2024 deadline for transposing but also on establishing robust control mechanisms and dissuasive penalties. The coming months will reveal whether Member States rise to these challenges, crucial for the successful implementation and deployment of the CSRD’s effects across the EU.