CSRD adopted by the Sejm ... and what next?

Friday 22 November 2024
Sustainability

With a delay of several months and despite the Confederation's objections, on 21 November 2024 the Polish Sejm adopted amendments to the Accounting Act that implement the requirements of the EU CSRD (Corporate Sustainability Reporting Directive). The new legislation significantly expands companies' reporting obligations on issues related to their environmental, social and corporate governance impacts. However, can we really already be sure that these regulations will still be in force in 2024? This is not yet a foregone conclusion.

Confederation in ‘NO’

During the debate on 19 November, the Confederation firmly rejected the proposed changes, arguing that the imposition of new reporting requirements is an excessive interference of the European Union in the activities of Polish companies. Its politicians pointed out that the new obligations would particularly burden small and medium-sized companies, which do not have the resources necessary to meet the extensive reporting requirements. Despite the many ‘NO’ votes - because it is worth adding that almost all Law and Justice MPs were also against the changes - on 21 November the majority of the Sejm supported the amendment, making it possible to implement the directive into Polish law.

Is it already certain?

Although the Sejm adopted the amendments implementing the requirements of the EU CSRD on 21 November 2024, there can still be no certainty that the amended legislation will come into force later this year. This uncertainty is due to several issues. Senate work. According to the Polish legislative procedure, the passed law must be considered by the Senate. If the Senate submits amendments or rejects the bill, the Sejm will have to hold another vote. In the situation of a tense political atmosphere, this may lead to the work being dragged out until the end of the year. It is also worth remembering that the next (and probably last this year) sittings of the Senate are scheduled for 4 and 5 December and it is not yet known whether the vote on this bill will ‘fit’ into the agenda. Possible presidential veto. The President may veto the bill, which cannot be ruled out, as the President's home club has almost unanimously voted against the changes. If such a decision is made, the Sejm would have to gather a qualified majority to override the veto (3/5 of the votes). Given previous dissenting voices, especially from the Confederation and Law and Justice, as well as criticism from parts of the business community, gathering the required majority may be difficult. Procedural and organisational problems. Even if the law is formally adopted, the preparation of implementing acts and guidelines may drag on until 2025. The implementation of such a comprehensive regulation also requires adequate time for supervisors to adapt their reporting systems.

Consequences of non-implementation

If the changes do not enter into force in 2024, Polish companies will face a number of challenges: Non-compliance with EU regulations. As an EU member state, Poland is obliged to implement the CSRD on time. A delay may result in sanctions from the European Commission, which may affect Poland's image as an economic partner. Lack of a clear legal framework. In case of delays, entrepreneurs will find themselves in a situation of legal uncertainty. Companies that have planned to prepare for ESG reporting under the Directive may not know how to interpret their obligations in the context of EU requirements. Risk of loss of competitiveness. European financial markets and investors increasingly expect transparency in ESG reporting. Failure to implement the Directive in Poland may mean that Polish companies will lose their attractiveness in the eyes of investors, who prefer companies operating in accordance with the latest standards. Higher costs of later implementation. The later companies start preparing for their new responsibilities, the higher the costs they may incur. Lack of adequate time to adapt reporting systems and training may force companies to hire external consultants at much higher prices, as acting in express mode usually counts less favourably.

However, one should not worry in advance. Those in power assure that they will do their utmost to ensure that the law comes into force as soon as possible, stressing its importance for the implementation of the European Green Deal commitments. However, the final shape of the law and its implementation timetable depends on the further progress of the legislative process.

A reminder - or what will change?

The CSRD (Corporate Sustainability Reporting Directive) significantly changes the approach to reporting by companies, introducing new obligations and standards for sustainability information. Here are the key changes that the CSRD introduces:

Widening the scope of entities covered by the reporting obligation

Current provisions: The non-financial reporting requirement mainly applied to large listed companies, financial institutions and companies of significant public importance (approximately 150 entities in Poland). Changes introduced by the CSRD: The reporting obligation will cover all large companies (whether listed or not) that meet at least two of three criteria:

  • Revenues above €40 million,

  • Assets of more than €20 million,

  • Employment of more than 250 employees.

The reporting obligation will also cover medium and small listed companies, with some simplified requirements. On a Polish scale, this means an increase in the number of companies obliged to report from around 150 to as many as 3,000-4,000.

Introduction of detailed ESG reporting standards

Current legislation: Uniform reporting standards were not defined, leading to wide variations in the content and format of ESG reports. Changes introduced by CSRD: Mandatory use of European Sustainability Reporting Standards (ESRS), according to which companies will have to report detailed information on:

  • GHG emissions (scope 1, 2 and 3 - covering direct and indirect emissions, e.g. from the supply chain),

  • Climate, environmental and social risks,

  • Diversity and inclusivity policies in the workplace,

  • Impacts on local communities,

  • Strategies related to the transition towards climate neutrality.

Mandatory audit of ESG reports

Current legislation: Non-financial reports were not formally audited. Changes introduced by CSRD: ESG reports will be subject to mandatory external audit or verification to ensure their reliability and compliance with ESRS standards. Verification is expected to increase the credibility of the reports and facilitate their comparability at European level.

Integration of non-financial reporting with annual reports

Current regulations: Non-financial reports were often published as separate documents, not integrated with financial reports. Changes introduced by the CSRD: ESG reporting will become an integral part of the company's management report. All information (financial and non-financial) will be presented in a single document, increasing transparency and data accessibility.

Harmonised digital requirements

Current regulations: No requirement to digitise reports. Changes introduced by the CSRD: Making it mandatory to publish reports in a digital format compliant with the European Single Electronic Format (ESEF). This is to facilitate data analysis by investors and regulators and ensure interoperability at EU level.

Timetable for implementation and transition periods

  • Large listed companies: mandatory from financial year 2024 (2025 reports).

  • Large unlisted companies: mandatory from financial year 2025 (reports for 2026).

  • Small and medium-sized listed companies: mandatory from financial year 2026 with the possibility of an additional transitional year.

Benefits and challenges for businesses

Benefits:

  • Improved competitive position in EU markets through transparent reporting.

  • Increased credibility with investors and customers.

  • Better management of climate and social risks.

Challenges:

  • Need to invest in reporting systems and staff training.

  • Expansion of internal control and compliance procedures.

  • Adapting to new standards in a short period of time.

Changes also for auditors?

In connection with the implementation of the CSRD into the Polish legal order, amendments to the Act on Statutory Auditors were also enacted. They are an integral part of the comprehensive reform, as the CSRD imposes an obligation to verify non-financial (ESG) reports by external entities. So what is new about the amendment in this respect?

Introducing mandatory verification of ESG reports

Under the CSRD, all ESG reports prepared by companies subject to mandatory reporting must be subject to external audit or verification. The amendment to the Act on Statutory Auditors introduces a formal legal framework for this verification, specifying that only statutory auditors or other authorised assurance providers may be responsible for carrying it out.

Extension of the scope of competence of auditors

Statutory auditors will have to acquire additional qualifications and knowledge in non-financial reporting, including in particular in the area of ESG and the European Sustainability Reporting Standards (ESRS). The Act provides for the introduction of training and certification for auditors to ensure an adequate level of competence in the verification of ESG reports.

Verification standards

The verification of ESG reports must comply with international and European standards for assurance services. In Poland, principles in line with the ESRS and the International Federation of Accountants (IFAC) guidelines will be adopted. The verification procedures include, among others, an assessment of the reliability, completeness and compliance of the reports with the adopted standards.

Penalties for non-verification or unreliability

The amendment introduces sanctions for failing to subject an ESG report to mandatory verification or for failing to perform the verification reliably. Companies and assurance providers may be subject to financial penalties for non-compliance.

New obligations for supervisors

The National Council of Statutory Auditors will be given additional tasks related to overseeing the quality of ESG report verification. This body will be responsible for monitoring compliance with the verification standards and the qualifications of persons performing ESG audits.

Implications for the audit market

These changes imply new challenges for both audit firms and companies: Audit firms: They need to prepare for new responsibilities and an expansion of the scope of services provided. Staff training, adaptation of verification procedures and investment in new technological tools will be necessary. Companies: Will be required to cooperate with auditors on ESG reporting, which involves additional costs and time to adapt processes.

Implementation schedule

The obligation to verify ESG reports will be implemented in stages, in parallel with the CSRD implementation schedule for individual groups of companies. The first ESG reports of large companies will have to be verified already for the 2024 financial year, which means that the amendments to the Act on Statutory Auditors must be implemented in practice quickly.

Summary

Although the requirements of the CSRD have been adopted by the Sejm, it still remains for us to follow their further developments and keep our fingers crossed that they can still be implemented in 2024. Regardless of this, most large companies are already practically ready to prepare their 2024 reports already in line with the new rules.

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