Implementation of CSRD in Danish Legislation - Timeline
- 4 minute read
- Legal and Corporate Law
Updated May 2024.
On 7 February 2024 the Danish Minister for Industry, Business and Financial Affairs put forward the proposals for implementing the Corporate Sustainability Reporting Directive (also known as the CSRD) in Danish legislation.
The proposal was through the first hearing in the Danish Parliament on 23 February 2024. The second and third hearing were held on 23 April 2024 and 25 April 2024.
A proposal was finally approved on 2 May 2024, and CSRD will now be implemented in a number of Danish laws, including the Danish Financial Statements Act (Årsregnskabsloven – ÅRL) and The Danish Companies Act (Selskabsloven).
This can impact your year-end process for the financial year 2023 and forward. So make sure to get acquainted with the requirements and timeline for the implementation and transposition of CSRD in Denmark.
Highlights 👉
New size limits of companies: The thresholds based on revenue and assets increases by 25%, meaning that many companies will be categorized differently.
The new legislation will gradually enter into force. The first companies must start (retrospectively) reporting on sustainability from the financial year starting 1 January 2024 or later.
New exceptions for consolidated financial statements: More small groups within the new categorization thresholds are now exempt.
A qualified sustainability auditor must be appointed in the same fashion as a normal auditor at general meetings.
The new size limits can be used for the financial year starting 1 January 2023 or later. So, if you have yet to finish your annual reporting, you can use the new size limits.
Proposal to increase the size limits of Danish companies.
One of the proposed changes to the Danish Financial Statements Act was to raise the size limits of company categorization. This is justified by the inflation over the last couple of years.
The different thresholds will be increased by 25%. And this means that:
- Fewer companies will be covered by the sustainability reporting requirements, as some former ‘large’ companies in Accounting Class C will be considered ‘medium’. This makes them exempt from reporting on sustainability AND from filing statements on gender composition.
- More companies will move from Accounting Class C to Class B, resulting in less stringent accounting requirements for these companies. It also means that it will be possible for more companies to opt for extended review. However, doing so must be decided on annual general meetings. And in that sense, it can only be relevant for the future, and not for the 2023 reporting.
These changes in sizes can be applied to the financial year beginning 1 January 2023, and can by that be used when closing the year 2023. But it will not per say enter into full force before 1 June 2024.
What it means.
These new company size limits can apply for the annual reporting for the financial year 2023 to be filed in 2024 IF a company fit the new thresholds in the last two consecutive years.
But it would be a good idea to look at it long-term, as you may move “back” to your former Accounting Class within a few years of growth – then you might want to consider continuing your current practice.
New exemptions for consolidated financial statements.
Section 110: Size-based exemptions.
In the former Danish Financial Statements Act, Section 110 covers the exception of preparing consolidated financial statements, IF the group on the balance sheet date does not exceed 2 of the following 3 thresholds:
- Balance of DKK 44 million.
- Revenue of DKK 89 million.
- Average of 50 full-time employees throughout the financial year.
These are the same former thresholds categorizing a small company. Now, Accounting Class B is categorized by: A balance of DKK 55 million, revenue of DKK 111 million, and 50 full-time employees.
What it means.
More smaller groups may now be within the new thresholds and therefore can be exempt from preparing a consolidated financial statement.
Section 112: Exemptions for parent companies as subsidiaries.
Another exemption to preparing a consolidated financial statement is covered in Section 112 of the Financial Statements Act. And should your group be too big to fall within the exemption in Section 110, this might be relevant for you.
Section 112 states that if the Danish parent company is a subsidiary of another parent company in the larger group, and a consolidated financial statement is prepared further up in the structure covering the Danish parent company, the Danish parent company can be exempt from preparing a consolidated financial statement.
What it means.
In these cases, the Danish parent company will still be exempt from preparing the consolidated financial statement, BUT it will be required to prepare a sustainability report based on the new CSRD requirements. An exemption from sustainability reporting would require that your parent company prepares a consolidated sustainability report in accordance with ESRS.
Appointing a Sustainability Auditor.
With the implementation of CSRD, an audit requirement for sustainability reporting will be included in Danish legislation. Therefore, a so-called sustainability auditor must be appointed. And this appointment is regulated in the Danish Companies Act Section 149a.
The sustainability auditor must be appointed at a general meeting by a simple majority and be registered with the Danish Business Authorities. And the appointed auditor must pass a special exam regarding sustainability reporting.
The sustainability auditor may only be removed from office before the expiry of the terms of office for justified reasons. And any differences of opinion regarding sustainability reporting or assurance procedures cannot be regarded as justified reasons. This justifying explanation for changing the auditor must be filed with the Danish Business Authorities together with the registration of this change.
What it means.
Much of this process of appointing a sustainability auditor mimics what we know from appointing a “normal” auditor. The rules regarding premature termination of office are also similar, as you in neither case can “shop around” and merely justify it with differences of opinion or the like.
Sustainability reporting for branches of non-EU/EEA companies.
Branches of companies outside the EU/EEA will also need to get familiar with the changes to the Danish Financial Statements Act.
Section 137 l is especially an essential part of the CSRD implementation, as it determines who must prepare sustainability reports in accordance with the rules for third-country companies.
This section would apply for a branch (with revenue above €40 million) of a company outside the EU/EEA, IF the foreign company meets 1 of the following 2:
- Isn’t part of a group and has revenue in the EU in each of the last two consecutive financial years exceeding €150 million.
- Is part of a group whose ultimate parent undertaking is not governed by the laws of an EU/EEA country and the group’s total revenue in the EU in each of the last two consecutive financial years exceeds €150 million.
Exemptions for branches of non-EU/EEA companies.
There are two ways in which a branch can be exempt from preparing a sustainability report, despite being covered by the conditions mentioned above.
- The parent company has prepared a sustainability report in accordance with the requirements stated in Section 137 l (describing the content required in Danish sustainability reporting for third-country companies).
- The parent company has subsidiaries in Denmark covered by section 99a in the Danish Financial Statements Act.
A Statement of Sustainability Reporting should always be included in the sustainability report. The statement must be provided by a legal or natural person authorized to prepare such a statement under the laws of the relevant countries.
What it means.
The CSRD is an EU directive and will have a wide impact, but to some extent in accordance with existing national legislations. Make sure to have a clear understanding of the structure and the varying requirements related to this, as the reporting obligation is very conditional, and requirements can vary from country to country.
Want to know more?
If you have any questions or want to know how these changes could potentially affect your busienss, please contact
Cathrine Moesgaard Albertsen, Head of Legal & Compliance:
E-mail: CMA@mightyadmins.com
You can also read more about our Legal & Corporate Law services here.
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