Scope, assurance, enforcement: EU answers frequent questions on CSRD

The European Commission has published a document answering frequently asked questions on its flagship Corporate Sustainability Reporting Directive (CSRD) – from scope and application dates to third-party assurance and enforcement.

With the number of data points covered by the regulations causing concern among the sustainability community, the publication of the FAQ has been well received. “The document helps to clarify and, hopefully, take away some of the common stereotypes around the regulation,” said Agnese Alksne-Bensone, owner of Sustainability Partners.

The document takes into account the feedback the European Commission has received from companies and clarifies issues such as scope, application dates, and exemptions. 

One example is the rule for when companies may use estimates rather than having to collect value chain information from suppliers or partners: being able to demonstrate that “reasonable effort” has been made to try to obtain actual data is key, and the Commission explains that such reasonable effort will be judged based on the reporting entity’s size and resources and technical readiness, as well as the availability of tools to access and share value chain information, amongst other aspects.

According to Anja Carron, Founder and President of Theia International, who posted in reaction to the FAQ, reasonable effort may include trying to obtain value chain data based on contractual arrangements, control levels, and buying power.

CSRD assurance requirements

Another welcome clarification is around third-party assurance. The FAQ document lays out in detail how auditors and assurance services providers are to be accredited: for example, independent assurance services providers established outside of the EU “are allowed to provide the assurance of sustainability reporting in accordance with Member States’s commitments”.

In addition, the document clarifies which assurance standards should be used pending the adoption of assurance standards by the European Parliament: “the Commission has requested the Committee of European Auditing Oversight Bodies (CEAOB) to develop in 2024 non-binding guidelines for statutory auditors and other assurance services providers,” though Member States may apply their own national auditing standards until a pan-European set is adopted. 

“Personally, I found the sections on CSRD assurance particularly valuable, as this topic has been a major focus for me lately,” said Maria Tymtias, Senior Sustainability and ESG Advisor at Palau Project.

“At last, we have a comprehensive summary and clarification on the auditing process, eligibility to conduct CSRD assurance, clarification on Independent Assurance Service Providers (IASPs), and many other useful insights.”

CSDDD FAQ

The European Commission also published answers to frequently asked questions about the Corporate Sustainability Due Diligence Directive (CSDDD) at the end of July. 

Among other insights around the types of human rights and environmental impacts covered within its scope, the document revealed that third-party assurance does not exempt companies from liability in case of violations in their supply chain.

It also specifies how the rules will be applied to non-EU companies: those that don’t have a branch in any Member States will be supervised by the authority of the country where they generate most of their net EU turnover.

“The competent supervisory authority may take enforcement action, including the imposition of fines, against a non-EU company and take any measures available under national law for their execution. If the company fails to comply with a fining decision, the authority may issue a public statement on the responsibility of the company,” the Commission adds.