Guide to CSRD: Get started with sustainability reporting

What is the CSRD?

On 15 March 2024, the Ministry of Finance proposed new rules on sustainability reporting implementing the EU Corporate Sustainability Reporting Directive (CSRD) in Norway.

The CSRD entails comprehensive changes in annual reporting requirements for large undertakings (listed and unlisted) and listed small and medium-sized enterprises (SMBs). For companies that will be subject to the obligations, it is important to start preparations early.

The CSRD is part of the EU's action plan for sustainable finance and aims to increase transparency around sustainability in companies' operations and reporting so that investors, consumers, and others can more easily assess companies' impact, risks, and opportunities in a sustainability context. The CSRD, which amends, inter alia, the EU Accounting Directive and the EU Transparency Directive, is intended to work in conjunction with other parts of the EU's framework for sustainable finance. To that effect, the CSRD will, among other things, contribute to the availability of information required by asset managers and other financial market participants in order for such companies to comply with disclosure and reporting requirements under the Sustainable Finance Disclosure Regulation (SFDR).

Implementation in Norway

CSRD has not yet been implemented in Norwegian law, but from a political standpoint, there is an expressed intent for the rules to come into force in Norway with the same timing as in the EU. The Ministry of Finance recently proposed the implementation of CSRD in Norwegian law with the publication of Prop. 57 L (2023-2024). There are some key differences between the Ministry's proposal and the proposal previously published by the committee in May 2023 in NOU 2023: 15. An overview of some of these differences follows at the end of this article.

It is expected that the proposed legislative changes will be adopted by Parliament in the spring of 2024 with entry into force during the year, so that the first companies subject to Norwegian legislation implementing CSRD will have to report according to CSRD in 2025 for fiscal years starting 1 January 2024 or later.

Key implications of the CSRD

• Expanded scope: CSRD will – after a staggered implementation as described further down in this article – apply to:
  • companies that meet at least two of the following three criteria: (i) More than 250 employees on average during the fiscal year, (ii) a balance sheet total of more than NOK 290 million on the balance sheet date, and (iii) net turnover of more than NOK 580 million on the balance sheet date,
  • companies that have transferrable securities listed on a regulated market in the EU/EEA, with the exception of so-called micro-undertakings, and
  • companies that are not EU/EEA-based but have subsidiaries or branches of a certain size in the EU/EEA and have a turnover of more than EUR 150 million within the EU/EEA.

The CSRD will introduce sustainability reporting requirements in the Norwegian Accounting Act, and all undertakings (Norwegian or non-Norwegian) subject to the Norwegian Accounting Act should therefore check if they will be covered by these new reporting obligations.

Further, the CSRD will introduce sustainability reporting requirements in the Norwegian Securities Trading Act that will be applicable to issuers with transferrable securities listed on a Norwegian regulated market and that are subject to the Norwegian reporting obligations under Section 5-4 of the Securities Trading Act and that meet the size criteria. It should be noted that this includes issuers established outside the EU/EEA with transferrable securities listed on the main list of the Oslo Stock Exchange and that have Norway as their home state for reporting purposes under the Norwegian Securities Trading Act, unless the issuer is subject to certain exemptions in Section 5-4 of the Securities Trading Act. Among the issuers exempted are companies that have issued only debt instruments with a denomination of at least EUR 100,000 or an equivalent amount in another currency.

• More detailed reporting: Companies will have to report in detail on how their business affects people and the environment, as well as how sustainability-related risks affect the company. This includes aspects such as climate change, social conditions, employee rights, and anti-corruption efforts. The reporting requirements are based on the principle of "double materiality", meaning that companies must cover both how the company affects sustainability matters and the risk that sustainability matters pose to the company, including the company's financial position. The specific reporting requirements follow from the European Sustainability Reporting Standards (ESRS). These are published as annexes to a regulation drafted by the Commission pursuant to CSRD.
• Standardized reporting: The ESRS constitute a mandatory, standardized framework designed to ensure comparability and consistency in reporting across companies and sectors. To date, general standards (ESRS 1 and 2) – which are mandatory for all subject to reporting requirements – and a total of ten theme-based standards in the areas of environment, social matters, and governance have been developed. Later, sector-specific standards and standards that are proportional for small and medium-sized enterprises, as well as separate standards for third-country companies, will be introduced. These standards are to be adopted by June 2026. For most of the matters that the reporting requirements apply to, companies must report only where they themselves consider the matter to be "material" according to the company's double materiality analysis. This means that the company's materiality analysis is central to determining the specific reporting obligations.
• Assurance requirements: Sustainability reports must be assured to ensure that the information reported is reliable. The introduction of an assurance requirement for sustainability reporting is entirely new and a central element of the CSRD, the purpose of which is to strengthen the trustworthiness of the reporting. The assurance must be performed by an independent auditor. The assurance statement is to be given with limited assurance, which is a lower degree of certainty than what is required for the financial statements (so-called reasonable assurance). While an assurance engagement designed to provide limited assurance contains all the same elements as an engagement intended to provide reasonable assurance, the controls carried out are significantly less extensive. In other respects than the level of assurance, the auditor's role and function will largely be the same as in the statutory audit of the annual accounts. The Commission is to establish mandatory assurance standards, but until these are adopted, the assurance engagement should be performed in accordance with good auditing practice and current accepted standards. The Commission will later assess whether the assurance should be made with reasonable assurance.
  
  The CSRD allows for the assurance to be performed by so-called independent assurance services providers (IASPs) in addition to auditors. However, it is up to each country to allow this, and an interesting difference from the Norwegian Official Report (NOU) and the Ministry of Finance's proposal is that, for the time being, assurance opinions by IASPs shall not be accepted.

• Digital accessibility: The sustainability reports shall be made available in a digital format that makes it easier for investors and other stakeholders to analyse and compare data.

Timeline for implementation

The scope of companies subject to sustainability reporting requirements will expand over the course of several years, and the first group of companies must report in 2025 for the financial year that began on, or begins after, 1 January 2024.

• From 1 January 2024, with reporting in 2025: Companies with more than 500 employees that are public-interest entities, meaning banks, insurance companies, and companies that have issued transferable securities such as shares and bonds that are traded on a regulated market in an EU/EEA state (including third-country issuers), and which have a balance sheet total of more than NOK 280 million and/or net turnover of more than NOK 560 million. The same applies to public-interest entities that are parent companies in a group that on a consolidated basis exceeds the same thresholds.
• From 1 January 2025, with reporting in 2026: All large undertakings, which are companies exceeding at least two of the following three thresholds: (a) a balance sheet total of NOK 290 million, (b) net turnover of NOK 580 million, and (c) an average of 250 employees during the financial year, as well as parent companies to a large group that meets the same criteria.
• From 1 January 2026, with reporting in 2027: Listed small and medium-sized enterprises (SMEs), small and non-complex institutions, captive insurance undertakings, and captive reinsurance undertakings. For the SMEs, there will be an "opt-out" option until the financial year 2028, so that the first mandatory reporting is due in 2029.

Preparations

To ensure compliance, it is recommended to start preparations early:

• Gap analysis: Conduct a gap analysis to identify where adjustments are needed in the company's current reporting practices to meet the CSRD requirements.
• Internal processes: Assess and adjust internal processes for data collection and management to obtain the necessary information in an efficient and accurate manner.
• Training: Ensure that employees at all levels, especially those working with reporting and sustainability, understand the new requirements and how they affect their work.
• Stakeholder engagement: Engage with stakeholders – including investors, customers, and suppliers – to understand their expectations and needs for sustainability reporting.
• Assurance: Prepare for the sustainability reports to be assured by establishing a dialogue with the company's auditor about what the audit process for sustainability reporting will look like. If you wish for another auditor to perform the assurance of the sustainability report in 2025, it means that they must be elected at the general meeting in 2024, or at an extraordinary general meeting later.
• Technology and systems: Assess the need for investment in new technologies or systems that can support the collection and reporting of sustainability data.
• Communication: Develop a communication plan to convey the company's sustainability efforts and reporting to external stakeholders in a clear and transparent manner.

The importance of early adaptation

Although CSRD reporting lies somewhat down the line for most companies, early preparation and adaptation to the regulations can be advantageous. First, by adapting and preparing early, for example by drafting a sustainability report according to CSRD the year before one actually has to report, one can identify potential challenges at an early stage. Second, we see that companies not currently subject to CSRD are experiencing increasing demand from institutional investors, lenders, as well as other counterparties and stakeholders, for transparent information about the company's sustainability matters, and early preparations for reporting in accordance with CSRD can facilitate the work of issuing such information.

Sanctions and board liability

All entities required to report under the Accounting Act will be subject to the current sanction provisions of the Accounting Act. This means that delayed or deficient submission to the Register of Company Accounts can lead to late filing penalties. For entities that report under the Securities Trading Act in their capacity as issuers, the Norwegian Financial Supervisory Authority has the statutory power to issue orders for corrections if the sustainability reporting is not considered to be in accordance with CSRD, and the Securities Trading Act provides for penalties if such orders are not complied with.

It is the board of directors that is the ultimate responsible body for the company's sustainability reporting, in the same way as for the company's financial reporting. Board responsibility may become relevant in cases where the board has failed to assess sustainability risk at all, or where the assessment has been unrealistic. Liability can also be considered in cases where incorrect or misleading information about sustainability is provided in the reporting.

Summary

The CSRD represents a significant development in how companies report on sustainability. By preparing well and starting the adaptation to the framework early, companies can ensure that they not only comply with the new requirements but also gain a competitive advantage.

At Thommessen, we assist with sustainability issues across sectors and disciplines in all departments of our practice. We have CSRD expertise and can advise on whether the company is covered by CSRD and – if so – when, and what it entails to be subject to the reporting obligations.