As climate change and sustainability become increasingly central themes on the global business agenda, companies are facing growing demands to document their environmental and social impacts. On May 2, 2024, the Danish Parliament passed a bill implementing the EU directive on sustainability reporting, the Corporate Sustainability Reporting Directive (CSRD), into Danish law. This directive represents an ambitious step towards greater transparency in companies' sustainability efforts and is one of the EU's initiatives to promote sustainable growth.
Sustainability reporting in the management report in the annual report
The Corporate Sustainability Reporting Directive (CSRD) is designed to strengthen and expand existing reporting requirements in financial reporting, which were previously covered by the Non-Financial Reporting Directive (NFRD), i.e., reporting on environmental issues, social issues, human rights, and the fight against corruption and bribery, among other things. The purpose of CSRD sustainability reporting is to ensure that companies also report on sustainability-related issues in a more consistent and detailed manner, which should promote increased accountability and transparency. The adoption of the bill in Denmark means that all large companies, including listed companies and certain other entities, will have to comply with the new standards from the financial year beginning January 1, 2024.
Implementation of CSRD in Danish law
The implementation of the Corporate Sustainability Reporting Directive (CSRD) into Danish law has introduced a step-by-step approach that ensures that you, as a business leader, can gradually adapt your business to the new requirements based on its size and accounting class.
Here are the key categories and implementation dates you need to be aware of:
1) Large listed companies in accounting class D:
This includes large companies with an average number of full-time employees exceeding 500.
These companies must begin reporting sustainability initiatives retroactively from the financial year beginning January 1, 2024, with reporting in 2025.
2) State-owned joint stock companies:
Like large listed companies, state-owned companies with more than 500 employees must also begin reporting from the 2024 financial year.
Listed companies and large companies in accounting classes C and D with fewer than 500 employees:
For these companies, the requirements will apply from the financial year starting in 2025, with the first reporting in 2026.
This includes companies that are not publicly traded small and medium-sized enterprises (SMEs) that have significant sustainability impacts or risks.
3) Listed SMEs:
These companies will have to comply with CSRD from the financial year starting in 2026, with the option to defer reporting to the financial year starting in 2028, with reporting in 2029.
4) Subsidiaries and branches of companies and groups with parent companies established outside the EU/EEA:
If they have net revenues within the EU/EEA exceeding EUR 150 million in two consecutive financial years, they must prepare a separate sustainability report for the group as a whole from the financial year beginning in 2028, with reporting in 2029.
Impact of CSRD sustainability reporting on Danish companies
The new rules will have a varying impact on companies based on their size and type of business. For example, large publicly traded companies will have to incorporate detailed sustainability information into their annual reports, including information about their supply chains and the impact their activities have on the environment.
Are you unsure how your business will be affected?
You are always welcome to contact our ESG team.The business climate of the future
With CSRD, the EU is setting new standards for sustainability reporting that will shape the business climate of the future. For Danish companies, these changes present both challenges and opportunities to strengthen their sustainability profile.
If you would like assistance with the legal implementation of CSRD, please feel free to contact our team of ESG experts. Our advice can ensure that your company not only complies with the legislation, but also uses this transition to improve your sustainability strategy and CSRD reporting.
Challenges and opportunities
Under CSRD, companies must report not only on direct but also indirect environmental and social impacts. This includes everything from greenhouse gas reduction to working conditions throughout the supply chain, and here the company's suppliers are affected by the rules, even if they are not directly covered by the requirements, see above. In order for a company covered by the rules to report on its supply chain, it is therefore necessary for the supply chain (suppliers, consultants, etc.) to have control over their environmental impact and handling of social aspects so that the correct information can be passed on to the covered company that is required to report.
This requirement will therefore affect a large number of small businesses that provide services to larger companies.
Furthermore, reporting must be audited to ensure its accuracy, which places higher demands on auditors and their understanding of sustainability factors.
The implementation of CSRD therefore places high demands on Danish companies, especially in terms of integrating sustainability into their reporting structures and ensuring valid data.
FAQ
The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that expands and strengthens the existing sustainability reporting requirements originally introduced under the Non-Financial Reporting Directive (NFRD). The CSRD aims to ensure more comprehensive and detailed reporting on companies' environmental, social, and governance (ESG) practices. This directive requires companies to report not only on their own activities but also on sustainability measures throughout the supply chain.
CSRD sustainability reporting affects large public interest entities (PIEs), which include all large listed companies, credit institutions, and insurance companies, regardless of their size. From 2024, CSRD will also apply to all large companies (defined as companies with more than 250 employees and an annual turnover of more than €40 million or a balance sheet total of more than €20 million). From 2026, this will be extended to include listed SMEs, except for micro-entities.
Here are the key areas that companies need to address in their CSRD reporting:
Environmental information
Greenhouse gas emissions: Details of all relevant greenhouse gas emissions, including CO2.
Energy consumption: Information on energy sources and the efficiency of their use.
Water and resource consumption: Data on consumption of water and other important resources, as well as measures to minimize consumption.
Waste management: Description of waste production and management, including recycling measures.
Biodiversity: Impacts on biodiversity and measures to preserve natural habitats.
Social information
Working conditions: Information on working conditions, health and safety at work, and workers' rights.
Human rights: Measures to ensure that human rights are respected in all company operations and supply chains.
Anti-corruption and bribery: Policies and practices to prevent corruption and bribery.
Consumer protection: Measures to ensure responsible relations with consumers, including product quality and safety.
Governance information
Corporate governance: Information about the company's management structures, management practices, and values.
Risk management: Description of processes for risk assessment and risk management, particularly in relation to sustainability aspects.
Internal control and compliance: Systems and processes established to ensure compliance with laws and regulations.
Double materiality assessment
Financial and societal impact: The company must evaluate and report on sustainability issues that are financially significant to the company and those that have a significant impact on people and the environment.
Reporting should not only focus on current practices, but also on planned actions and future goals. In addition, CSRD sustainability reporting requires these reports to be verified by an independent third party that can confirm the accuracy and reliability of the report. This ensures a higher degree of transparency and accountability in companies' sustainability reporting.
