Implementation of the CSRD and ESRS in Luxembourg for financial entities

Disclaimer: this is an automated translation from Italian. Go to the original article.

The Commission de Surveillance du Secteur Financier (CSSF) of Luxembourg recently issued a statement regarding the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). These regulations introduce sustainability reporting obligations for certain entities organized in legal form, aiming to promote greater transparency and accountability in the financial sector.

The CSRD provides for a gradual implementation, starting on January 1, 2024, with the first sustainability reports expected in 2025. These must be included in a dedicated section of the management report and verified by a Réviseur d'Entreprises Agréé (REA). The CSSF emphasizes that investment fund managers (GFI) and registered alternative investment fund managers (GFIA) might fall under the scope of this new regulation. To determine if an entity is subject to the CSRD, it is essential to evaluate the legal form and size of the company. Entities organized under legal forms in Luxembourg: SA, SCA and SARL, as well as SENC and SCS with specific characteristics, are subject to implementation. The CSSF invites each entity to promptly determine its position regarding the CSRD and consult its REA for clarification.

The CSSF has highlighted the update of size thresholds for large companies, as established by the Delegated Directive (EU) 2023/2775 of the Commission of October 17, 2023. These thresholds affect the applicability of the CSRD and ESRS, making it essential for financial entities to carefully assess their compliance with the new regulations. The adoption of the CSRD and ESRS represents a significant step towards greater transparency in the financial sector in Luxembourg. Financial entities are encouraged to familiarize themselves with these regulations and take necessary actions to ensure compliance, thereby contributing to a more sustainable and responsible market.

The update of the size criteria for the classification of businesses in Luxembourg was formalized with the Grand Ducal regulation of October 25, 2024, which incorporates Delegated Directive (EU) 2023/2775. This update responds to the need to adjust the parameters to recent economic dynamics, taking into account the inflation of recent years. In particular, a 25% reduction was applied compared to the previous limits for the total balance sheet assets and net turnover, while the average number of employees remained unchanged. The updated thresholds establish that a company is considered large if it exceeds at least two of the following three criteria: a balance sheet total exceeding 25 million euros, net turnover over 50 million euros, and an average number of employees equal to or greater than 250. The new rules can be applied to fiscal years starting from January 1, 2023.

In determining net turnover, the relevant regulatory framework is Article 48 of the Law of December 19, 2002, which governs the register of companies and businesses in Luxembourg. Turnover includes amounts from the sale of goods and the provision of services, net of discounts, VAT, and other related taxes. In the case of registered investment fund managers (GFM) or alternative investment fund managers (AIFM), all fees received for the management of collective investment undertakings, as well as for ancillary services, must be included in the turnover. Fees paid by such entities cannot be deducted. Regarding the average number of employees, the calculation must take into account the full-time equivalent (FTE) staff employed during the fiscal year, including both the staff of the main office and that of any branches of the entity.

There are also exemption regimes provided by the CSRD for certain entities, such as subsidiaries of non-EEA companies, which may be exempt from preparing the sustainability report if included in a consolidated report of their parent company. However, this exemption is valid only if the report complies with the ESRS or is recognized as equivalent by the European Commission. Currently, no equivalence has been determined. The CSSF emphasizes the importance of integrating new measures with the aim of supporting companies in adapting to new regulations. In collaboration with the Luxembourg Chamber of Commerce, specific training programs on the CSRD and ESRS have been planned, targeting to provide companies with the necessary tools for proper regulatory compliance.

This article was created as part of the "Biodiversity services EU expansion" project (CUP: E43D22000480009) under the Regione Lombardia "PR FESR 2021-2027 – LINEA INTERNAZIONALIZZAZIONE 21-27" call, aimed at supporting the internationalization of Italian companies. 3Bee is the naturetech company developing innovative technologies for monitoring, protecting, and regenerating biodiversity, supporting businesses in defining personalized climate strategies based on the analysis of their impacts and dependencies on nature. With a consolidated portfolio in Italy, Germany, and France and notable partnerships, 3Bee continues its expansion in international markets to create a concrete impact through technology.