CSRD implementation uneven a month before deadline
June 2024 – With less than a month to go before the 6 July 2024 deadline for transposing the EU Corporate Sustainability Reporting Directive (EU) 2022/2464 (the "CSRD", the “Directive”), countries in Central and Eastern Europe (“CEE”) are still at different stages of implementation. While Romania and Slovakia have completed their legislative processes, Bulgaria and Croatia are still in the legislative pipeline. The Czech Republic and Hungary have completed, at least partially, their transposition, with additional legislation still to be implemented, albeit within uncertain timeframes.
For a more comprehensive overview of each stage of the progress on CSRD transposition in the monitored EU Member States, we encourage readers to refer to our detailed updates in December 2023, February 2024 and April 2024. These reports delve into the specifics of each country's legislative developments and provide valuable insights into adopted or proposed legislation.
Bulgaria
Bulgaria has yet to complete the transposition of the CSRD. The draft pieces of legislation amending the Accounting Act and the Independent Financial Audit Act were subject to public consultation between March and May 2024. We informed on the detail of the proposals in our April and February 2024 updates. The next step involves submitting the final drafts to parliament for consideration and adoption. However, Bulgaria held general elections on 9 June 2024 which failed produce a majority in parliament. It may take more than a month to form a new coalition, meaning that Bulgaria may miss the 6 July 2024 deadline for transposition.
Croatia
Although Croatia has made significant progress in its CSRD transposition efforts, it is still unclear if the legislation will be transposed by the deadline. Public consultations on the draft legislation have been completed, and the draft has been submitted to the parliament, though no voting date has been set. On 11 April 2024, the Ministry of Finance announced that the CSRD will be transposed through amendments to the Audit Act, the Capital Market Act, and the Accounting Act.
The amendments ensure compliance with the CSRD requirements for auditors and impose penalties for non-compliance. An audit firm may be fined between EUR 26,540 and EUR 106,000, while an individual auditor may face fines between EUR 2,650 and EUR 13,270. These penalties apply to a range of infractions, including the illegal performance of auditing services. The legislation will be considered under an expedited procedure, aiming for adoption by Q2 or Q3 2024.
The proposed legislation aligns closely with the CSRD, requiring companies to publish sustainability reports according to the European Sustainability Reporting Standards. It also includes provisions for the verification of these reports by auditors and the imposition of penalties for non-compliance.
The Czech Republic
The Czech transposition process takes place in two phases, the first of which – concerning the companies subject to the Directive 2014/95/EU (the “NFRD”) – has already been concluded. Initially, it was announced that the second phase was to be carried out through the adoption of a new Accounting Act, thus replacing the current legal framework. However, even though the draft text has been prepared and is awaiting final approval by the government, there has been a notable lack of the progress that has led to the Ministry of Finance to change its approach. As a result, the second phase of the legislative process (concerning companies not subject to the NFRD) will now be implemented by amending the framework of the existing Accounting Act and the Act on Auditors.
The draft legislation has gone through the intergovernmental commentary procedure which concluded in May 2024. This legislation will transpose the remaining obligations of the CSRD on a staggered basis for each group of the remaining companies as provided under the CSRD, starting with large companies from 1 January 2025. The proposed date of entry is 1 January 2025.
A draft of the New Accounting Act is still under way, but is expected to be delayed past the 1 January 2025 deadline.
Hungary
Despite some early legislative milestones (Hungary partially adopted its CSRD legislation at the end of 2023), substantial progress in the practical implementation of the CSRD has been limited. The detailed regulations necessary for full compliance, particularly concerning the verification processes and reporting standards, but also the amount of the fines in case of non-compliance, have yet to be finalised which is expected in Q2 or Q3 of 2024. These include essential guidelines on the roles and responsibilities of ESG auditors and the criteria for their certification.
Overall, while Hungary has laid the groundwork for CSRD transposition (see our previous updates on the topic), the absence of detailed regulatory framework and the delayed adoption of critical guidelines have slowed the country's progress. This lag poses challenges for businesses aiming to meet the upcoming reporting requirements effectively.
Romania
Romania has fully transposed the CSRD through Ministry of Finance Order No. 85/2024, effective 26 January 2024, and the Romanian Sustainability Code, a non-binding normative act. The Financial Supervisory Authority has implemented Rule No. 4/2024 for entities under its supervision (e.g., financial services investment companies, investment management companies, alternative investment fund managers, collective investment schemes, market operators, Romanian branches of certain foreign entities), effective as of 4 April 2024. The Romanian National Bank is also expected to issue regulations for the entities it supervises (e.g., credit institutions, non-bank financial institutions). Additional rules for auditors' activities related to sustainability reporting are anticipated, though no timeline has been set for their publication.
Slovakia
Slovakia has successfully transposed the CSRD through Act No. 105/2024 Coll. amending the Slovak Accounting Act and other legislation (the Commercial Code, the Stock Exchange Act, the Commercial Register Act and the Statutory Audit Act), adopted on 24 April 2024 and effective as of 1 June 2024. The amendments require companies to include sustainability reporting in their annual reports, with assurance provided by approved auditors. The assurance must be issued no later than one year after the end of the financial year and retained for at least ten years. The assurance report must be filed with the Register of Financial Statements.
The national tax authority oversees compliance with the sustainability reporting obligations. The assurance process involves verifying the accuracy of the sustainability information provided in the reports, and auditors are responsible for issuing assurance statements. These measures ensure that the information disclosed is reliable and meets the standards set by the CSRD.
How we can help
While to some extent the national laws in CEE countries implementing the CSRD thus far do not differ significantly from the Directive, we have seen that some countries differ in, among others, the definition of the undertakings that need to comply with the Directive at the different reporting stages.
Kinstellar will continue to monitor these developments and publish updates on the transposition of the new rules in the countries where we are present. We are proud to provide our clients with valuable assistance in the area of the CSRD, in particular in assessing the applicability of the obligations arising from the Directive to both EU and non-EU companies. We work with technical consultants to provide the full range of technical and legal advice on the preparation and review of CSRD reports and the related data collection.
Authors
Jan Lehký, Karla Rundtová, Jakub Rubáš, Svilen Issaev, Vedran Kopilović, Franciska Fadljević, Mónika Frank, Balázs Tomaj, Viktória Kárnyáczki, Cătălin Graure, Dana Sârbu, Roman Oleksik, Viliam Achberger.