Transposition of the Corporate Sustainability Reporting Directive in Luxembourg: Key Features of the Bill

Luxembourg, as a Member State of the European Union, was due to transpose the CSRD into national law by 6 July 2024. The Luxembourg government introduced Bill No. 8370 (the “Bill”) on 29 March 2024. This Bill, which has been long anticipated, aims to integrate CSRD into Luxembourg’s legal framework, while also transposing Commission Delegated Directive (EU) 2023/2775, which adjusts the size thresholds for companies. This article summarizes the key provisions and implications of the Bill as it is currently proposed, particularly in relation to the sustainability reporting obligations imposed on companies and the significant flexibility which Luxembourg will presumably use.

Exemptions, Adjustments to Company Size Criteria and Reporting Obligations

The Bill introduces definitions for concepts not previously codified in Luxembourg’s accounting law. For instance, the Bill establishes the concept of "micro-companies" to clarify which entities are exempt from certain reporting requirements. This definition plays a key role in supporting the objective to alleviate the administrative burden on the smallest entities, specifically by exempting micro-companies from the requirement to publish sustainability reports.

The Bill introduces several important changes to the criteria for classifying companies based on size, as well as their respective reporting obligations. Specifically, in addition to implementing CSRD, the Bill also implements the requirements introduced by Directive (EU) 2023/2775 as regards the adjustments of the size criteria for micro, small, medium-sized and large undertakings or groups, which raises the size thresholds for micro, small, medium-sized, and large companies by approximately 25%. These adjustments reflect an effort to better align reporting obligations with the size and capacities of companies, thereby reducing the disproportionate administrative burden for smaller entities.

Moreover, the Bill raises the thresholds for medium and large companies, resulting in some entities being reclassified from "large" to "medium-sized." As a consequence, these companies will benefit from certain administrative simplifications, such as exemption from sustainability reporting obligations under the CSRD. These amendments seek to mitigate the compliance burden on medium-sized enterprises, which may not possess the resources to fully comply with extensive reporting requirements.

Additionally, a major shift in the Luxembourg approach concerns the definition of “net income”. While the CSRD proposes a broader definition applicable across the European Union, Luxembourg has opted for a more nuanced approach. The Bill modifies this concept specifically for credit institutions and insurance or reinsurance undertakings, ensuring that sectoral accounting laws — not common accounting laws — govern these entities. This sectoral approach allows Luxembourg to tailor the reporting obligations more closely to the unique accounting and regulatory frameworks applicable to these sectors.

Reporting on Intangible Resources

Another noteworthy amendment introduced by the Bill is the modification of Article 68 of the Law of 19 December 2002, which governs trade and company registers, specifically addressing management reports. Under the amended provisions, companies will now be required to include information about their intangible resources in these reports. The rationale behind this amendment is to provide investors and other stakeholders with greater transparency and a deeper understanding of the company’s intangible assets—assets that are often unrecognised in traditional financial statements but are critical in assessing the company’s value and performance.

Commercially Sensitive Information Exclusions

A particularly significant provision of the Bill relates to the exclusion of commercially sensitive information from sustainability reports. Under the CSRD, Member States have the discretion to permit companies to omit specific information that could seriously harm their competitive position if disclosed. Luxembourg has chosen to exercise this option in the Bill, thus enabling companies to exclude details on impending developments or ongoing negotiations that could jeopardise their commercial standing. This provision is intended to protect the strategic interests of companies while maintaining a commitment to transparency. However, such exclusions must not impede a comprehensive understanding of the company’s overall situation and the environmental and social impact of its operations.

Impact of Article 1730-1 on Private Equity Firms and Reporting Obligations

The Bill introduces changes under Article 1730-1 of the amended Commercial Companies Act, which sets out the criteria for determining when a group must prepare a consolidated sustainability report. This has raised concerns from the Luxembourg Institute of Auditors (Institut des Réviseurs d’Entreprises or IRE) about how these criteria should be applied: whether they should apply to the entire group, including all subsidiaries (as per Article 1711-1), or only to those entities consolidated for financial purposes (as per Article 1711-4).

If these criteria are applied to the entire group, including all subsidiaries, many private equity firms that currently avoid the obligation to prepare consolidated financial statements could now be required to produce consolidated sustainability reports. This broader interpretation would significantly increase the reporting burden on these firms, particularly for subsidiaries held for strategic purposes or pending sale, and could necessitate new legal and administrative processes, such as filing separate sustainability reports with the commercial register (RCS).

Alternatively, if these criteria are applied only to entities consolidated for financial purposes, the impact on private equity firms would be more limited. These firms could continue to exclude certain subsidiaries from consolidation in their sustainability reports, as they do in financial reporting. However, this narrower interpretation still introduces new obligations of corporate sustainability reporting, which could lead to additional complexities and adjustments in how these firms manage their reporting processes.

In essence, while the Bill extends certain flexibilities, it also presents new challenges depending on how the criteria under Article 1730-1 are construed and applied.

Reporting Exemptions for Medium-Sized Groups

The Bill exercises an option permitted by the CSRD, proposing to exempt medium-sized groups from the requirement to prepare consolidated financial statements and a consolidated management report, unless a related undertaking is classified as a public interest entity. By implementing this exemption, Luxembourg aims to alleviate the reporting obligations for medium-sized groups, while ensuring that public interest entities continue to be subject to more stringent transparency requirements.

Assurance of Sustainability Information

In line with the CSRD, the Bill mandates that the company’s statutory auditor or, depending on the Member State’s option, another auditor or an independent assurance service provider (IASP) must provide limited assurance on sustainability reports. While Luxembourg has not yet opted to allow IASPs to fulfil this role, Member States that choose to do so must ensure that IASPs meet the same quality, independence, and oversight requirements as statutory auditors under the Audit Directive. In the future, there is potential for limited assurance to evolve into reasonable assurance, similar to that provided for financial information.

Should you need more information, feel free to liaise with Pierre Reuter, Simon Recher or Mathilde Soetens.

Authored by Pierre Reuter, Simon Recher, and Mathilde Soetens.

Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.