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CSRD: what are the penalties?

Summary

The CSRD establishes penalties to ensure compliance with financial and non-financial disclosure obligations by EU companies.
Penalties can include warnings, financial fines and suspension of subsidies. Regulatory authorities may publish information on companies' non-compliance, which may affect their reputation.
In the event of fraud or deliberate concealment of information, criminal proceedings may be brought against those responsible, including company directors.
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Introduction

The European Union's Corporate Social Responsibility Directive (CSRD) puts in place penalties for non-compliance. The penalties provided for by the CSRD are intended to ensure compliance with the obligations to disclose financial and non-financial information by the 50,000 companies concerned.

Criminal penalties may vary from country to country depending on national legislation. Therefore, companies need to comply with the disclosure requirements of the CSRD and adhere to the standards of transparency and responsible disclosure to avoid any financial or legal penalties.

Un marteau d'avocat montrant les sanctions en cas de non-respect de la CSRD

The requirements of the CSRD

The CSRD requires certain EU companies to collect data to produce a comprehensive report on their performance in terms of sustainability, corporate social responsibility (CSR), and environmental, social, and governance (ESG) impact. This directive strengthens transparency requirements and broadens the scope of non-financial disclosure for large companies.

Transparency and Corporate Accountability

Companies must disclose information about their ESG performance as well as the actions they are taking to improve that performance. This allows stakeholders to track the company's progress and commitments.

The CSRD reinforces the responsibility of companies towards society and the environment. They must be held accountable for their efforts to achieve these sustainability goals.

Penalties for non-compliance

In the event of non-compliance of disclosed information or omissions in reporting, regulatory authorities may initially issue warnings and request corrections. Companies are asked to correct errors or provide missing information as soon as possible.

If, after that, companies still fail to comply with their obligations, penalties may apply. They aim to strengthen companies' accountability to their stakeholders and ensure the accuracy and reliability of disclosed information.

Compliance becomes essential to avoid penalties, suspension of subsidies and reputational repercussions.

The different types of penalties

Penalties and enforcement mechanisms may vary from one EU country to another, since CSRD, although an EU directive, is implemented at the national level. National regulatory authorities are therefore responsible for enforcing penalties in the event of non-compliance.

Financial Penalties

Companies that fail to comply with the disclosure requirements of the CSRD may be subject to financial fines. The amount of fines may vary depending on the seriousness of the non-compliance and the applicable national legislation. This amount must be sufficient of a deterrent to encourage large companies to comply with their transparency obligations.

Suspension of subsidies

In addition to fines, companies may face other financial penalties, such as restrictions on access to public funding.

Business subsidies can take a variety of forms, including direct financial aid, tax exemptions, tax credits, tax reductions, project financing, environmental benefits, and other economic incentives.

If a company is found to be non-compliant with the disclosure requirements of the CSRD, competent authorities may consider suspending or reducing such subsidies or financial benefits. Therefore, companies are encouraged to comply with the disclosure requirements of the CSRD to avoid these potential penalties.

In addition, non-compliant companies cannot be selected to respond to public tenders.

Publication of non-conformance information

In some cases, regulators may publish information on companies' non-compliance and on specific areas where they have failed to comply with disclosure obligations. This can harm the company's reputation and trust in it.

In terms of image and competitiveness, it is in the interest of companies to comply with the obligations of the CSRD.

Legal consequences

If elements of fraud, deliberate concealment of information, or other wrongdoing are involved, it can lead to criminal prosecution against those responsible, including company executives.

Companies and their managers can thus be held legally liable in the event of non-compliance with the CSRD. Criminal liability is governed by the national law of each EU Member State.

To comply with CSRD obligations and set up reliable processes, companies can equip themselves with solutions such as the D-Carbonize carbon footprint calculation software. This allows them to ensure compliance with corporate social responsibility disclosure requirements and avoid possible penalties.

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