The CSRD directive concerning the reporting obligations of companies in terms of “sustainability” will disrupt the economy.


CSRD (Corporate Sustainability Reporting Directive) 2022/2464 of December 14, 2022 adopted by the European Parliament and Council amends regulation number 537/2014 and directives 2004/109, 2006/43 and 2013/34 concerning the publication of information on “sustainability” by companies.

If listed companies and very large companies were already subject to obligations to publish information in ESG (Environment Social Governance) areas in their annual management report, the scope of the information required, its format and the extension of the area companies subject to it leads to a change in nature.

Through 28 pages of “recitals”, the European Union develops the new doxa applicable to businesses. This is a new stage in the implementation of the “Green Deal for Europe” published on December 11, 2019, the concrete implementation of the Paris Climate Agreement and the application of the recommendations of the IPCC.

The directive aims to green the economy by forcing transparency, but its cost of application poses a problem of competitiveness and favors the major players.

More transparent, therefore greener:

The directive is part of a saving perspective. The first recital reads: “the Commission commits to ensuring that by 2050 all of the world’s ecosystems are restored, resilient and adequately protected. »

The directive aims to resolve or improve any issue relating to the environment, social and personnel issues, human rights and corruption. For this, companies will have to publish relevant information in the annual management report. The main recipients of this information are named by the directive: investors and non-governmental organizations.

The objective is to channel financial flows from investors to virtuous companies designated by non-governmental organizations. This is in line with the “taxonomy” put in place by the Union (Delegated Regulation 2021/2139) classifying activities according to higher or lower degrees of desirability with an impact on the financing conditions from which they can benefit.

How can these investors and non-governmental organizations be enabled to analyze the considerable amount of information that companies will be forced to make available to them? Artificial intelligence comes to the rescue of humans since the management report must be presented in a standardized electronic format, each section of text having to be framed by tags allowing collection, indexing and automated processing of information.

The management report is also standardized in its content: it must specify the consideration of environmental issues, social issues, issues relating to human rights and corruption, broken down into:

• the business model of the company,

• the policy, procedures and due diligence implemented,

• the description of the result of these policies,

• consideration of risks and their management,

• and the performance indicators used.

The information must be prospective and retrospective in nature, it must be qualitative and quantitative in nature and it must be based on conclusive scientific evidence. The information must target the short, medium and long term and must relate to the entire value chain, i.e. not be limited to the company itself but extend to its network of suppliers and customers. The only limit placed on the information provided is the jeopardization of the company’s commercial position and respect for business secrecy.

These standards must be drafted and the body in charge will be neither the Commission nor the Council nor the European Parliament. The mission is entrusted to EFRAG, an association under Belgian law specializing in standardization which will be financed by the Union. The normative production of this association will be submitted, before adoption by the Commission, to the opinions of, amongst others, the Group of Member State Experts for Sustainable Finance (resulting from Regulation 2020/852), the Accounting Regulation Committee (Regulation 1606/2002), the European Securities and Markets Authority, the European Banking Authority, the European Insurance Authority, the European Environment Agency, the European Central Bank, and the “Platform on Sustainable Finance”.

These standards, enacted by EFRAG, with the aim of global convergence, may not substantially deviate from those established by the international Financial Reporting Standards Foundation and the ISSB.

In other words, when all this work has been completed and validated by experts, the democratic control provided for – in the conditional – by the directive, namely an annual consultation of the European Parliament to verify the work of EFRAG, risks becoming formal .

Monitoring the proper fulfillment of obligations obviously cannot be the responsibility of state authorities or the European Union, which would be overwhelmed by the scale of the task. The cost of the control will fall on the companies and it will be carried out by auditors since the annual report, in its component of compliance with the obligations in terms of sustainability, will be certified in line with the statutory auditors.

The certifiers, who will not necessarily be auditors, must be trained to carry out their mission. A new regulated profession will therefore emerge in the near future.

A moral dimension is added to the respect of the formal rule since it is also expected that the companies in a situation of default explain in their report the reasons having led to the violation of their obligations of publication.

Aware of the scope of the project, the European Union is planning a gradual implementation which will not be detailed here. It is sufficient to keep in mind that, at the latest for the 2028 financial year, all companies with the exception of those qualified as micro-enterprises, i.e. those meeting two of the following three criteria: balance sheet total less than €350,000, turnover less than €700,000, less than 10 employees will escape these obligations. The exception applied to micro-enterprises is superficial, since the companies subject to the obligation, through their information obligations relating to their value chain, will in one way or another include micro-enterprises.

The scope is therefore considerable and will result in separating, in the European economy, activities compatible with the objectives of the directive from those which will suffer the attrition of their sources of external financing.

A cost that hinders competitiveness and favors established players:

The first limit is the risk of non-competitiveness for European companies. The Union admits that the implementation of the directive will result in an additional cost for companies. It notes that this additional cost will have to be moderate, and to do so explains that it will ensure that competition is maintained in the audit market by examining the state of concentrations in the sector from 2029.

Attempting to remedy the damage to competitiveness, the directive provides for the extension of the obligations to companies outside the European Union, provided that their turnover in the Union exceeds 150 million euros or that the turnover of their branch exceeds 40 million euros.

But this obligation is not binding. Indeed, these third-party companies have the option of having their establishments or branches declare that they have requested, but not obtained, the required information from the head office or that the audit assignments could not be carried out. This discard is curious, the applicant being confused with the one who opposes the impossibility of following up.

In other words, where European companies will be subject to a cumbersome process that consumes time and money, non-European companies will be able, by summary declarations, to be released from their obligations. In this context, the proposed carbon tax at the common external borders will not restore the competitive balance for European businesses. Because if we can consider establishing a tax based on carbon emissions, at what customs rate should we tax forced child labor, the violation of human rights or the breach of gender equality?

The increase in the cost of productive activities in the Union could accentuate the process of relocation to regions lacking the protective normative arsenal that has been put in place.

Large European companies, with substantial resources, have already begun to describe the principles of governance and operation to satisfy certain ESG principles. But the scale of the task facing small and medium-sized businesses is cause for concern.

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The concept of environmental preservation applied to economic activities is commendable, but the complexity of the ways and means adopted raises questions. If lawyers and counsels will stand by their clients to enable them to meet their obligations, we fear, as citizens, that only the most equipped businesses will have the ability to adapt to this legal environment. Many actors will take refuge in the minimum respect of formal criteria, hoping not to find themselves under the gaze of non-governmental organizations and supervisory authorities. At the opposite end of the spectrum, the companies that have committed to the process will highlight their adherence to the approach which, regardless of their sincerity, will result in channeling financial resources towards them.

It is therefore certain that this directive will have a tangible effect on the economy. Bankers, investors and insurers, subject to the same criteria, will direct their flows accordingly. If we can hope that the environment will benefit from it, will we resign ourselves to the disappearance of the gas station attendant who allows us to arrive at our vacation spot or to the attrition of the armament industries when security collective is at stake? A reform of the European taxonomy would be desirable, not censoring the actors for what they are, because each one is useful to the economy and the community, but encouraging them from where they are, to converge towards the common good.