Under the Corporate Sustainability Reporting Directive (CSRD), certain exemptions and flexibilities are available for companies. These exemptions are designed to reduce the reporting burden for specific types of organizations and circumstances, while still ensuring transparency and compliance with the overall sustainability framework. Here’s a detailed look at the permitted reporting exemptions under the CSRD:
1. Subsidiary Exemption
- Exemption Criteria: A subsidiary company may be exempt from CSRD reporting if its parent company prepares a consolidated sustainability report that includes the subsidiary’s data.
- Conditions:
- The parent company’s report must comply with the CSRD requirements.
- The exemption must be disclosed, and the consolidated report must be publicly accessible.
- The subsidiary must provide a reference to the parent company’s report.
2. Simplified Reporting for Listed SMEs
- Applicability: Listed small and medium-sized enterprises (SMEs) have reduced reporting requirements compared to large companies.
- Key Provisions:
- SMEs are allowed a transition period until FY 2028 to fully comply with the CSRD requirements.
- A simplified reporting standard tailored for SMEs will be introduced, focusing on core sustainability metrics.
3. Deferral for Non-EU Companies
- Exemption Scope: Non-EU companies with significant EU operations have an extended timeline and may defer reporting obligations until FY 2028.
- Criteria:
- The company must generate more than €150 million in net turnover within the EU and have at least one EU subsidiary or branch.
- The deferral allows these companies additional time to align their sustainability reporting processes with CSRD requirements.
4. Exemption for Captive Insurance and Credit Institutions
- Eligibility: Small, non-complex credit institutions and captive insurance undertakings are eligible for simplified reporting standards.
- Rationale: These entities are generally considered to have a lower risk profile in terms of sustainability impacts, and therefore face fewer reporting requirements.
5. Partial Exemption for Confidential Information
- Disclosure Flexibility: Companies can withhold specific information if its disclosure would seriously harm their commercial position.
- Conditions:
- The decision to withhold information must be justified and clearly explained in the report.
- The exemption is subject to scrutiny by auditors and may not be applied to all types of information (e.g., material environmental and social impacts cannot be omitted).
6. Phased Implementation for First-Time Reporters
- New Entrants: Companies reporting under the CSRD for the first time may be allowed a phased approach to implementation.
- Key Features:
- First-time reporters may initially provide limited disclosures while they build capacity for full compliance.
- The phased approach is intended to ease the transition and allow companies to gradually improve their reporting practices.
7. Use of Equivalency Frameworks
- Non-EU Reporting Standards: Companies that already report under certain non-EU sustainability standards (e.g., TCFD, GRI) may use these reports if they are deemed equivalent to the ESRS under the CSRD.
- Conditions:
- The equivalency must be approved by the European Commission.
- The company must clearly disclose any deviations from the CSRD requirements.
Key Considerations for Companies Using Exemptions
- Transparency: Even when exemptions are used, companies must clearly disclose the use of exemptions in their reports and provide the rationale behind them.
- Verification: Exemptions are subject to verification by auditors, and misuse may lead to non-compliance penalties.
- Stakeholder Communication: It is important for companies to communicate the use of any exemptions effectively to stakeholders to maintain trust and credibility.
The CSRD’s approach to exemptions is designed to strike a balance between reducing the reporting burden for smaller entities or subsidiaries and ensuring robust, comparable sustainability disclosures across the board.
