European Commission Starts CSRD Infringement Action for 17 Countries: Implications and Strategic Response for Companies

The European Commission’s issued a formal notice in September 2024 to 17 Member States urging them to fully transpose the Corporate Sustainability Reporting Directive (CSRD) into their own national rules. The CSRD is designed to enhance transparency in corporate sustainability and risk assessment across the European Union. The directive's goals are now at risk due to delayed implementation in many key economies.

Concerns Arising from the EU’s Formal Notice

The Commission’s notice reflects frustration with the slow pace of adoption, which could lead to a fragmented approach to sustainability reporting across the EU. The CSRD builds on several previous directives, the Accounting Directive, Transparency Directive, and Audit Directive, to create a unified framework for corporate reporting. By failing to fully transpose the CSRD into national law, the 17 Member States are creating a critical gap in the EU’s ability to achieve this goal.

The potential consequences are significant. Without fully harmonized sustainability reporting, companies face uncertainty about compliance requirements and the level of scrutiny they will encounter. Investors and stakeholders will struggle to assess companies' sustainability performance consistently, undermining the directive’s core objective of enhancing transparency in how businesses manage environmental and social risks. Furthermore, this lack of clarity creates an uneven playing field for businesses operating across borders, complicating efforts to evaluate risk profiles accurately.

The Commission's notice also reflects broader concerns about the timely and consistent implementation of the CSRD, particularly with the directive's reporting requirements set to begin for fiscal years starting this year. The primary concern is the lack of harmonization across Member States’ sustainability reporting standards and compliance processes. An implied concern is the potential for delay in achieving the EU's overarching sustainability goals. The CSRD is a critical tool for meeting the European Green Deal’s targets, particularly the transition to a low-carbon economy. The directive is designed to promote transparency while pushing companies to take more concrete actions in reducing their environmental impact. The delays in transposition slow down these objectives, creating a potential gap between ambition and action within the EU.

“No Remorse” Actions While Waiting for Clarity

The delayed transposition of the CSRD poses a range of challenges. Without clear national guidelines, firms face uncertainty about how to prepare their reports and what standards to follow. Moreover, companies that have already started implementing sustainability initiatives and gathering relevant data may find themselves in limbo, unsure if their efforts and reporting processes align with the eventual national laws. For multinationals, the delay means having to navigate multiple regulatory environments, increasing the complexity and cost of compliance.

In the face of this uncertainty, companies should not wait for full transposition before acting. The underlying principles of the CSRD include improving transparency, understanding environmental and social risks, and working toward risk mitigation. These are sound business practices that will benefit companies regardless of the regulatory environment. Here are three “no remorse” steps companies can take now to avoid getting behind the curve on compliance requirements:

Gather Comprehensive Data on Facilities and Supply Chains. One of the foundational elements of sustainability reporting is having a clear understanding of the activity drivers for your environmental footprint. Companies should enhance their detailed data gathering capabilities for facilities, energy use, emissions, and other key environmental indicators. This also extends to their supply chains. Many of the risks, including carbon emissions and resource usage, are embedded within supply chains, so comprehensive data collection is essential for a full sustainability and risk assessment.

Understand Risks and Opportunities. Companies should conduct a thorough assessment of the variety of environmental and social factors that could impact their operations. This includes understanding climate risks, such as physical damage from extreme weather events or regulatory risks from new carbon pricing mechanisms like CBAM. Social risks, such as labor practices or community impact, should also be considered. Opportunities should be evaluated including potential cost savings from energy efficiency measures and improved market opportunities through sustainable practices.

Work Toward Mitigating Risks Acting on the identified risks is critical. Companies should develop strategies to reduce their carbon footprint, improve resource efficiency, and ensure responsible supply chain practices. While full compliance with the CSRD may not be required immediately in your country, aligning with its goals will help companies stay ahead of future regulatory changes. Moreover, adopting sustainability practices early can give businesses a competitive advantage, as customers and investors increasingly prefer companies that demonstrate responsible environmental and social stewardship.

17 member states that received the formal notice are: Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, and Finland.

 

Read the European Commission press release: https://ec.europa.eu/commission/presscorner/detail/en/inf_24_4661

 

About the author: Fosterra is an independent sustainability consultancy that works with global supply chains to find opportunities to collaboratively reduce their carbon footprint and achieve SBTi goals. Our work provides deep insight into the risks, trends, and opportunities for improving environmental performance that we are pleased to share. https://www.fosterra.com/SustainableSupplyChain