The Corporate Sustainability Reporting Directive (CSRD) has been making waves in the business world, but its applicability can be complex and confusing. In this article, we delve deeper into the factors that determine whether a company, particularly non-EU companies with operations in the EU, falls within the scope of CSRD.
To begin with, the primary threshold for being subject to CSRD is based on the size of the entity. A company is deemed “large” if it exceeds two out of three criteria: a €25 million balance sheet, €50 million turnover, or 250 employees. However, there are other factors that may trigger the applicability of CSRD, such as being listed on an EU regulated market.
It’s important to note that alternative investment funds (AIFs) are exempt from CSRD under the Alternative Investment Fund Managers Directive (AIFMD). This exemption may be useful for asset managers, but it’s worth mentioning that segregated accounts, co-investment, special vehicles, and holding companies are not exempt and may still be subject to CSRD.
The EU Accounting Directive provides a prescribed list of “undertakings” that fall within the scope of CSRD. However, it’s important to note that not all expected companies or partnerships are listed in this directive. For example, the Lux SCSp is not included.
Looking ahead, the reporting requirements under CSRD will be phased in over the next few years. The 2024 financial year, to be reported on in 2025, will primarily cover public interest entities, large issuers on an EU regulated market, and other large entities. The scope of reporting will gradually expand in the following years to include EU large entities, small and medium-sized enterprises, and non-EU parent entities.
In conclusion, understanding the applicability of CSRD can be a challenging task, particularly for non-EU companies with operations in the EU. The varying thresholds and exemptions outlined in the directive require careful consideration. However, as sustainability reporting becomes increasingly important in the business world, complying with CSRD can ultimately benefit companies by enhancing transparency and demonstrating their commitment to environmental and social responsibility.
