The Corporate Sustainability Reporting Directive (CSRD) is poised to bring about significant changes in the way European companies report on their sustainability practices and impacts. CSRD Directive represents the European Union’s commitment to enhancing transparency, accountability, and sustainability across the business landscape and it is considered an important instrument for achieving the climate neutrality of our continent until 2050. To obtain this important scope, the implementation of the CSRD Directive will be performed with the support of the European Sustainability Reporting Standards, called ESRS. These standards will ensure a unified and standardized framework for sustainability reporting in Europe. These standards contribute to increased transparency, informed decision-making, sustainability integration, accountability, regulatory compliance, and global alignment, all of which are vital for promoting sustainability, responsible business conduct, and trust in corporate reporting.

Understanding the changes in sustainability reporting is crucial for Romanian companies. Compliance with these rules can be tough, time-consuming, and sometimes costly. In Romania, data from the Ministry of Public Finance and consultancy firms indicate that over 700 companies had to report on sustainability based on MPF Orders 1802/2014, 2844/2016, and 3456/2018.

However, there’s a big gap between what the law says and what companies do. According to Mrs. Mihaela Croitoru, Advisor in Sustainability, ESG, and Climate Change, very few companies are sharing sustainability information as required. For instance, in 2020, a mere 42 companies reported sustainability data either in separate reports or as part of their annual reports. By 2021, this figure had only increased to 54 companies, and in 2022, it reached a modest 66. What’s even more concerning is that out of these companies, only a small number followed a structured sustainability reporting framework, like GRI Standards, when preparing their reports. This big difference between what the law says and what companies are doing is a problem, especially with the new Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) coming into play.

The CSRD Directive will be gradually applied to companies in Romania based on their current obligations for disclosing sustainability information. Starting in 2025, for the 2024 financial year, companies that are currently obligated to report sustainability information according to the provisions of the NFRD Directive, which includes those targeted by OMFP 1802/2014 and OMFP 2844/2016, will be the first to apply the requirements of the CSRD Directive and ESRS standards.

From 2026, for the 2025 financial year, all other large undertakings within the meaning of Article 3(4) of Directive 2013/34/EU will be required to publish sustainability information. This category will include some of the companies currently covered by the provisions of OMFP 3456/2018, which means companies that meet the legal criteria for being classified as large companies. To be considered a large company, two of the following three conditions must be met: the total value of assets is over €20 million, the net turnover is over €40 million, and the number of employees exceeds 250. In other words, starting in 2026, some companies in Romania will be exempt from reporting if they do not meet the conditions for being a large company, even if they have more than 500 employees, while others will have this obligation for the first time.

The last companies to be obliged to comply with the provisions of the CSRD Directive will be small and medium-sized enterprises (SMEs) listed on a regulated market, excluding micro-enterprises, and non-European companies with branches or subsidiaries in Europe.

In this context, companies that already publish sustainability information, especially by using international reporting standards, and those that proactively address this issue in advance will find it much easier to meet the new legal requirements.

The low number of companies that have chosen not to comply with the current legislation on sustainability reporting can be attributed to the lack of significant financial sanctions for non-compliance. Even though the NFRD Directive did not explicitly provide for sanctions for non-compliance, Member States had the option to include such sanctions when transposing the directive into national law. Unfortunately, the new CSRD Directive also does not require the establishment of sanctions for non-compliance, even though the initial draft of the directive, published for consultation, included this provision. Nevertheless, Member States will have the discretion to establish sanctions when transposing the directive into national law. The position of the Romanian Government, as expressed by various representatives of the Ministry of Public Finance at several public events held in 2023, is not to establish sanctions for non-compliance with the provisions of the CSRD Directive through the implementing acts, as the transposition will be carried out entirely following the text of the directive.

To further incentivize compliance, the CSRD Directive introduces a pivotal change compared to the NFRD Directive: the auditing of sustainability information by including it in the annual reports of administrators. By introducing this requirement, the European Commission aims to increase compliance among companies by holding company administrators accountable. Clearly, this measure can only yield the desired results if firms offering assurance services possess adequately trained personnel capable of conducting these limited assurance engagements. This is especially significant in light of the scarcity of specialized workforce in the sustainability field throughout the entire European Union.

In summary, there is going to be a significant impact of the CSRD directive on Romanian companies by enhancing the reporting obligations, standardized reporting framework, and increased transparency by compelling companies to provide detailed information on sustainability risks, impacts, policies, and due diligence processes. Companies that successfully embrace the CSRD’s requirements will have a competitive edge. Investors and stakeholders are increasingly considering sustainability factors in their decision-making processes, making it essential for Romanian companies to align their operations with these new provisions.