Introduction

As part of the European Union (EU)’s European Green Deal, one of the areas of EU law that has developed most rapidly and profoundly is that relating to corporate sustainability governance. Most recently, the CSDDD was provisionally agreed at the political level in December 2023.  This provisional political agreement was confirmed by COREPER in a revised form in March 2024 and subsequently approved by the European Parliament. An overview of this text is available here. The final text of the CSDDD must still be formally adopted by the Council of Ministers before it enters into force.

In addition to behavioral obligations regarding due diligence on environmental and human rights (see a deep dive on those here), as well as climate change-related obligations (see a deep dive on those here), the CSDDD also enshrines a number of new reporting obligations.

Reporting Duties

The CSDDD requires businesses in scope to publish an annual statement on their website ("CSDDD report"), unless an exemption applies (see section 3 below).

The CSDDD must comply with the following formalities:

• The CSDDD report must be published in at least one of the official EU languages and, where the official language of a non-EU company differs, in a language generally used in international business contexts (such as English, French and Spanish).
• The CSDDD report must be published no later than 12 months after the balance sheet date of the financial year for which the CSDDD report is drawn up, or, for companies voluntarily reporting in accordance with the CSDDD¹, by the date of publication of the annual financial statements.
• The CSDDD report of non-EU companies must also include information about their authorized representative.
• From 1 January 2029, the CSDDD report must also be shared with a collection body to be determined at Member State level for the purpose of making it accessible on the European Single Access Point (ESAP)² - the digital platform that will be the single point of access to information published by businesses. This will require businesses to obtain a legal entity identifier (among other formalities).

Other than the formalities listed above, the CSDDD provides no clarity on the information and level of detail that should be included in the CSDDD report. The European Commission must issue delegated act(s) clarifying the specific content and criteria for the CSDDD report by March 2027, including how businesses are expected to describe (i) their due diligence policies and processes, (ii) the identified potential and actual adverse impacts, (iii) the measures taken to address these impacts and (iv) a transition plan for combating climate change. A description of this information is already required for businesses falling within the scope of the CSRD, and it is possible that the European Commission will leverage the CSRD requirements for the CSDDD.

It is also conceivable that the European Commission will issue a mandatory questionnaire that every company must complete - like, for example, the one issued by the German authority under the German Supply Chain Act.

As under the CSRD, the reporting requirements will not prejudice the protection of trade secrets under the Trade Secrets Directive.

Exemption from Reporting Duties

The CSDDD provides that businesses falling within the scope of the CSRD's reporting obligations³ (including those in scope but exempted by their parent reports) are not required to publish a separate CSDDD report, since their CSRD report will already describe their transition plan and how they implement their human rights and environmental due diligence.

While most companies falling within the scope of CSDDD are likely to fall within the scope of the CSRD – and therefore will be able to rely on this reporting exemption – there are some possible cases in which CSRD and CSDDD obligations may not overlap, as explained below.

1. Large non-EU companies, regardless of their presence in the EU

Non-EU companies and non-EU parents of groups that generated a net turnover of more than EUR 450 million in the EU in the last financial year for which annual financial statements (should) have been adopted must publish a CSDDD report, but they may not necessarily be required to file a CSRD/ESRS compliant report.

The critical difference between the applicability of the CSRD and the CSDDD in this case relates to the geographical scope. The CSRD applies to businesses with a presence in the EU, either in the form of an EU entity or EU branch, while the CSDDD will apply where the business is active in the EU, regardless of whether the business is present in the EU. This is an atypical case, e.g., large businesses that have no or limited presence in the EU (because, for instance, they operate remotely) but have a large consumer base in the EU. In that regard, a limited presence in the EU could also trigger debate on whether the net turnover was generated within the EU and therefore whether the CSDDD would apply to those businesses.

2. Businesses with a franchising or licensing business model 

The obligation to publish a CSDDD report also applies to businesses that entered into – or are the ultimate parent company of a group that entered into – franchising or licensing agreements (i.e., those that ensure a common identity and business concept) in the EU that meet certain financial thresholds⁴.

For EU businesses, the financial threshold associated with this category (EUR 80 million in turnover) is higher than its counterpart under the CSRD (EUR 50 million in turnover). Therefore, it is likely that many EU businesses based on franchising or licensing models will be fall simultaneously within the scope of the CSDDD and the CSRD if they also meet at least one other threshold under the CSRD⁵. There may, however, be circumstances in which an EU franchising business has limited personnel and assets in the EU due to the nature of their business, so they may not be caught by the CSRD.

For non-EU businesses with a franchising or licensing business model, the possibility of falling under the CSDDD but not under the CSRD is higher since the financial thresholds under the CSDDD (EUR 22.5 million in royalties and EUR 80 million net worldwide turnover) are not significantly high when compared to the CSRD⁶. Furthermore, presence in the EU is not required (as is the case for the CSRD).

It is worth noting that the CSDDD goes beyond the reporting exercise under the CSRD, imposing behavioral obligations on businesses with regards to their due diligence and climate transition plan. The exemption explained above is therefore limited to reporting and does not extend to actions that must to be implemented by businesses under the CSDDD.

Timeline for Reporting Duties

The timeline for reporting is aligned with the wider CSDDD obligations for in-scope businesses, detailed in our previous deep dive on scope (see here). The obligations for most in-scope EU businesses will commence in 2027 and 2028, but as explained above, these businesses are likely to be exempt from reporting as they will likely fall within the scope of the CSRD. For other businesses that may not be able to rely on the CSDDD reporting exemption – notably non-EU businesses and those under the "franchise and licensing" category – CSDDD reporting obligations will only start from 2029 onwards.

1 Corporate Sustainability Reporting Directive - Directive 2013/34/EU.

2 Regulation 2023/2859 of 13 December 2023.

3 This exemption only applies for businesses that report under Articles 19a and 29a of the CSRD, in conformity with the European Sustainability Reporting Standards (ESRS).

4 For EU businesses: Accrued more than EUR 22.5 million in royalties and generated, individually or on a consolidated basis as the ultimate parent company of a group, a net worldwide turnover of more than EUR 80 million; for non-EU businesses: Accrued more than EUR 22.5 million in royalties in the EU and generated, individually or on a consolidated basis as the ultimate parent company of a group, an EU turnover of more than EUR 80 million.

5 Either assets of EUR 25 million or 250 employees.

6 For the CSRD to apply, a non-EU company must either be listed on an EU regulated market, or generate more than EUR 150 million EU-wide turnover and have either a large EU subsidiary, a listed EU SME (small and medium-sized enterprise) or an EU branch generating a net turnover of more than EUR 40 million.