Impact of the EU Corporate Sustainability Reporting Directive on UK companies

The EU Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD) has been published in the Official Journal of the European Union. It will enter into force on 5 January 2023. Notwithstanding the UK’s withdrawal from the EU, the CSRD may impact UK companies because of its extra-territorial application.

Companies within scope of the CSRD will be required to include detailed sustainability disclosures in their narrative reports. These disclosures build on, and significantly expand, the disclosures required under the EU Non-Financial Reporting Directive 2014/95/EU (NFRD), which have been implemented in the UK through sections 414CA and 414CB of the Companies Act 2006 (Contents of strategic report).

Broadly, the disclosures obligations in the CSRD may impact UK-incorporated companies in two situations:

1. where the company has securities listed on an EU regulated market; or
2. where the company has a net turnover in the EU of over €150 million for each of the last two consecutive financial years and has either:
   1. an EU subsidiary which has securities listed on an EU regulated market, or is classed as a large undertaking (that is, it meets two of the following criteria: (i) total assets of €20 million; (ii) net turnover of €40 million; and (iii) an average of 250 employees over the financial year); or
   2. an EU branch which has generated a net turnover of more than €40 million in the previous financial year.

The application of the CSRD is being phased in for financial years beginning on or after:

• 1 January 2024 for listed undertakings with over 500 employees which are already within scope for reporting under the NFRD;
• 1 January 2025 for other large undertakings not currently required to report under the NFRD;
• 1 January 2026 for listed small and medium-sized entities; and
• 1 January 2028 for groups with a non-EU parent and either an EU subsidiary or EU branch meeting the requirements set out above.

As these reporting requirements are being introduced by a directive, they will need to be implemented by each EU Member State within 18 months of the CSRD coming into force.

More details on the CSRD can be found in our snapshot here.