In accordance with community and Spanish regulations, certain companies are obliged to facilitate non-financial information, mainly of an environmental or social nature, with the aim of complying with the European Green Deal of the European Commission[1].
As a consequence of Directive 2014/95 regarding the disclosure of non-financial information (known as the “Non-Financial Reporting Directive” or “NFRD”), Law 11/2018 of 28th December was passed in Spain, whereby three laws in terms of non-financial information and diversity were modified:
- Commercial Code;
- Companies Act, and
- Account Auditing Act.
Law 11/2018, as well as incorporating the NFRD Directive into the Spanish legal system, also extended the scope of application of affected companies, regulated in more detail the contents of the of Non-financial information Statement (“NFIS”)[2] and established the obligation to have the NFIS verified by an independent provider of verification services.
For the purpose of modernising and reinforcing the rules to be followed by the companies obliged to facilitate the referred to information, and given the drawbacks detected by the European Commission with regard to the NFRD[3], on 14th December 2022 Directive 2022/2464 was approved (known as the “Corporate Sustainability Reporting Directive” or “CRSD”), thus substituting the NFRD Directive insofar as the presentation of non-financial information on sustainability on the part of companies.
The main new developments of the CSRD Directive, which entered into force on 5th January 2023, are:
- The broadening of its scope to include all large companies and groups, regardless of whether they are listed companies or not, as well as listed small and medium-sized entities (“SMEs”)[4], not including micro-enterprises;
- The contents of the information on sustainability[5], the regulations according to which it should be prepared and the requirement for its verification[6];
- The substitution of the term “non-financial information” for “information on sustainability”.
In accordance with the provisions of article 5 of the CSRD Directive, it must be transposed by the Member States no later than 6thJuly 2024 (the “Transposition Date”). In this respect, in Spain the Accounting and Accounts Audit Institute, at the request of the
Ministry of Financial Affairs and Digital Transformation (the “Ministry”), presented on 5th May 2023 the Draft Bill pursuant to which the framework of corporate information on environmental, social and government issues is regulated, thus modifying the Commercial Code, the Companies Act and the Account Auditing Act (the “Draft Bill”.)
The purpose of the Draft Bill is to establish a legal system applicable to the presentation of information on sustainability and to regulate the verification of said information. Likewise, it establishes which are the companies obliged to facilitate information on sustainability via the issue of the corresponding report (in the same sense as the CSRD Directive):
1) “Large” companies, that is to say, those which during two consecutive financial years, at the close of each one of them, fulfil, at least, two of the three following criteria[7]:
(i) that the total of the asset entries exceeds 20,000,000 Euros;
(ii) that the net amount of annual turnover exceeds 40,000,000 Euros;
(iii) that the average number of employees during the financial year is above 250.
2) Listed SMEs, except micro-enterprises;
3) Subsidiary companies established in Spain whose ultimate controlling company is governed by the law of a third country, if they are:
(i) Subsidiaries considered as “large”, or listed SMEs;
(ii) Subsidiaries whose ultimate controlling company has generated net annual turnover in excess of 150,000,000 Euros within the EU in each one of the last two consecutive financial years.
4) Branches, located in Spain, of a company which is governed by the law of a third country and which does not form part of a group or ultimately belong to another company incorporated under the law of a third country, when:
(i) the branch has generated an amount within the amount of annual turnover greater than 40,000,000 Euros in the previous financial year;
(ii) the company from the third country, which incorporated the branch, does not have a subsidiary company established in Spanish territory;
(iii) the company from the third country has generated an amount of net annual turnover greater than 150,000,000 Euros within the EU in each one of the last two consecutive financial years.
5) Credit entities as defined in Regulation 575/2013 and insurance and reinsurance companies (provided that they are large companies or listed SMEs, and not micro-enterprises).
Furthermore, the Draft Bill takes into account the provisions of Regulation 2020/852, of 18th June, regarding setting up a framework to facilitate sustainable investment, pursuant to which additional information is required from companies obliged to present information on sustainability.[8]
In view of the above, it can be seen that Spain is currently in the process of passing the law intended by the Ministry through the presentation of the Draft Bill, with the purpose of transposing the CSRD no later than the Transposition Date.
The first reports on sustainable information will be published in phases in the manner set forth in the Sixth Final Provision of the Draft Bill. Therefore, the obliged companies as indicated must file once a year, at the time of approving and filing annual accounts, the sustainability report (which must be included in the management report), duly signed by all of the company directors.
It is worth mentioning that even though the CSRD is not applicable to the obliged companies, the provisions of the NFRD (and, therefore, on a national level those of Law 11/2018[9]) shall continue to be applicable.
Albert Zúñiga Carulla
Vilá Abogados
For more information, please contact:
20th October 2023
[1] The European Green deal aims to combat climate change and the deterioration of the environment, with the objective that the European Union becomes climate neutral in 2050.
[2] The NFIS is an annual report regarding the impact that carrying out an economic activity has on mainly environmental and social issues.
[3] The European Commission report of 21st April 2021 concluded that many companies do not present significant information regarding important issues concerning sustainability, demonstrating the limited comparability, reliability and accessibility of the information presented and the limited scope of application.
[4] In spite of SMEs being included as obligated parties in the terms indicated, they will have a series of facilities: reduced content, specific rules for presenting the information and an additional period to prepare for the new requirement.
[5] The CSRD Directive requires, as well as the information set forth in Law 11/2108, information relative to the impact generated by companies on matters of sustainability and the company’s performance, results and position.
[6] According to the CSRD Directive, the verification of the information may be carried out by an auditor, as well as, at the option of the Member States, by an independent verification service provider, duly accredited by the national organism for accreditation.
[7] Companies which, during two consecutive financial years, do not meet the indicated circumstances, shall no longer have the obligation to prepare the sustainability report.
[8] The additional information required consists of information regarding the manner and the extent to which the activities carried out by the company are associated with economic activities which are considered to be environmentally sustainable.
[9] The second transitory provision of the Draft Bill establishes that companies and groups of companies obliged to prepare the NFIS in accordance with Law 11/2018 will continue to comply with said obligation until the new provisions regarding the presentation of the sustainability report contained in the law become applicable to them.
