CSR Luxembourg: The auditor’s vital role in implementing the EU Directive

The draft law to implement EU Directive 2022/2464 on corporate sustainability reporting (CSRD) into national law has been submitted to parliament in Luxembourg. The Ecovis experts explain what changes companies can expect and the special features of the Luxembourg draft law.

The draft law, presented on 29 March 2024 and expected to be adopted in early July, introduces significant changes, particularly concerning the role of auditors in ensuring compliance with sustainability reporting requirements. Statutory auditors will play a crucial role in verifying the accuracy and reliability of sustainability information disclosed by entities, thus enhancing transparency and accountability.

CSRD scope and application

The CSRD expands the scope of sustainability reporting requirements to include a broader range of entities. Initially targeting only EU public interest entities with more than 500 employees, the CSRD now encompasses:

• Large entities
• Parent companies of large groups
• Listed SMEs
• Non-EU entities listed on regulated markets in the EU

Approximately 50,000 companies are expected to fall under the CSRD’s purview, necessitating comprehensive reporting on governance, as well as environmental and social impacts.

Main provisions and changes with the Luxembourg CSR

Under the CSRD, entities will adhere to European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG). These standards, published in December 2023 in Commission Delegated Regulation (EU) 2023/2772, mandate detailed disclosures aligned with the principle of “double materiality”, considering both impact and financial materiality. Auditors will conduct limited assurance engagements to ensure compliance with CSRD requirements and the ESRS.

We offer customised solutions to ensure compliance with the CSRD.

Arnaud Yamalian, Managing Director, ECOVIS IFG Audit S.A., Luxembourg, Luxembourg

Focus on ESRS

Companies within the scope of the CSRD will be required to disclose a wide range of data relating to their governance and environmental and social impacts. The aim is to ensure that investors, consumers and other stakeholders have access to relevant information to assess:

• Companies’ impacts on people and the environment
• Financial risks associated with climate change
• Other sustainability issues

ESRS require entities to disclose cross-cutting standards applicable to all sectors, along with sector-specific standards where necessary. This ensures consistent and comparable reporting across industries. Compliance with ESRS is particularly relevant for entities subject to the Sustainable Finance Disclosure Regulation (SFDR) as datapoints will be aligned to reporting requirements under the SFDR, notably in respect of the SFDR principal of adverse impacts.

Application timeline

Luxembourg entities must adhere to a phased timeline for CSRD implementation. Large, listed entities or parent companies of large groups are first, followed by large, non-listed entities and small and medium-sized listed entities. Non-EU parent companies with significant operations in the EU will comply in subsequent phases.

The timeline ensures a structured transition to CSRD reporting requirements:

• Large companies with more than 500 employees being either: European public interest entities; other entities listed on EU regulated markets – for financial years starting on or after 1 January 2024 (reports published in 2025)
• Large companies listed on EU regulated markets. Other EU large companies (i.e., not listed) – for financial years starting on or after 1 January 2025 (reports published in 2026)
• SMEs listed on EU regulated markets (excluding micro-enterprises) – for financial years starting on or after 1 January 2026 (reports published in 2027)
• Other large non-EU groups or companies with an EU Net turnover more than EUR 150m – for financial years starting on or after 1 January 2028 (reports published in 2029)

What companies should be aware of and do now

The various obligations and their compliance, as well as the procurement and evaluation of the data required for reporting, is time-consuming and complex. It is therefore essential that companies which must deal with CSRD compliance seek advice from experienced experts.

For further information please contact:

Arnaud Yamalian, Managing Director, ECOVIS IFG Audit S.A., Luxembourg, Luxembourg
Email: arnaud.yamalian@ecovis-audit.lu