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 Corporate Sustainability Due Diligence Directive (CS3D) has been provisionally agreed at a political level in December 2023, confirmed by COREPER in a revised version in March 2024 and has just been approved by the European Parliament. An overview of this text is available here. The final text of the CS3D 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 CS3D also enshrines a number of new reporting obligations.

Reporting Duties

The CS3D requires businesses in scope to publish an annual statement on their website ("CS3D report"), unless an exemption applies (see section 3 below).

Certain formalities of the CS3D report are set out in the CS3D, namely:

• The CS3D 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 CS3D report must be published no later than 12 months after the balance sheet date of the financial year for which the CS3D report is drawn up, or, for companies voluntarily reporting in accordance with the CSRD¹, by the date of publication of the annual financial statements.
• The CS3D report of non-EU companies must also include information about their authorized representative.
• From 1 January 2029, the CS3D report must also be shared with a collection body to be determined at Member States' 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 – which requires businesses to obtain a legal entity identifier (amongst other formalities).

Other than the formalities above, the CS3D provides no clarity on the information and level of detail that should be included in the CS3D report. The European Commission must issue delegated act(s) clarifying the specific content and criteria for the CS3D 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 in scope of the CSRD, and it is possible that the European Commission leverages the CSRD requirements for the CS3D.

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 CS3D provides that businesses in scope of the CSRD's reporting obligations³ (including those in scope but exempted by their parent reports) are not required to publish a separate CS3D 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 in scope of CS3D are likely to be in scope of the CSRD – and therefore will be able to rely on this reporting exemption – there are some possible cases under which CSRD and CS3D obligations may not overlap, as explained below.

1. Large non-EU businesses 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 CS3D report, but they may not necessarily be required to file a CSRD/ESRS compliant report.

The critical difference between the CSRD and the CS3D applicability in this case is the geographical scope – the CSRD applies to businesses with presence in the EU, either in the form of an EU entity or EU branch, while the CS3D 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 CS3D would apply to those businesses.

2. Businesses with a franchising or licensing business model 

The obligation to publish a CS3D report also applies to businesses that entered into – or are the ultimate parent company of a group that entered into – franchising/licensing agreements (ensuring a common identity and business concept) in the EU that meet certain financial thresholds⁴.

For EU businesses, the financial threshold under this category (EUR 80 million in turnover) is higher than the one under the CSRD (EUR 50 million in turnover), so it is likely that many franchising or licensing EU businesses will be simultaneously in scope of the CS3D and CSRD if they also meet at least one other test under the CSRD⁵. There may howeber be circumstances where an EU franchising business has limited personnel and assets in the EU due to the nature of their business (franchise), so they may not be caught under the CSRD.

For non-EU businesses with a franchising or licensing business model, the possibility of falling under the CS3D but not under the CSRD is higher since the financial thresholds under the CS3D (EUR 22.5 million in royalties and EUR 80 million net worldwide turnover) are not significantly high when compared to the CSRD⁶. Furthermore, EU presence is not required (as is the case for the CSRD).

It is worth noting that the CS3D goes beyond the reporting exercise under the CSRD, imposing behavioral obligations upon businesses with regards to their due diligence and transition plan. The exemption explained here is therefore limited to reporting and does not extend to actions that need to be implemented by businesses.

Timeline for Reporting Duties

The timeline for reporting is aligned with the wider CS3D obligations for businesses in scope, detailed in our previous deep dive on scope (here). The obligations for most EU businesses in scope will kick-in in 2027 and 2028, but as explained above, these are likely to be exempt from reporting as they are likely in scope of the CSRD. For all other businesses that may not be able to rely on the CS3D reporting exemption – notably non-EU businesses and those under the "franchise and licensing" category – CS3D 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.