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EU Green Deal: Impending Obligations Under the Corporate Sustainability Reporting Directive

What is the Corporate Sustainability Reporting Directive?

EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.

The Corporate Sustainability Reporting Directive (CSRD) modernises and strengthens the rules concerning the social and environmental information that companies have to report. The new rules aim to standardise the information that Organisations in scope need to report.

Companies subject to the CSRD will have to report according to recently developed European Sustainability Reporting Standards.

What is the aim of CSRD?

The aim of this Directive is to help investors, civil society Organisations, consumers and other stakeholders to evaluate the sustainability performance of companies, as part of the European green deal.

As it stands, voluntary standards of reporting are leading to variances in the quality of sustainability reporting and creating an accountability gap. CSRD aims to improve the quality and reliability of public reporting by companies to help create a culture of greater public accountability.

By requiring Organisations to use common reporting standards, the CSRD aims to ensure that companies across the EU report comparable and reliable sustainability information.

The use of common standards is also expected to help companies reduce reporting costs in the medium and long term, by avoiding the use of multiple voluntary standards as is the case today.

What Organisations Fall Within the Scope of CSRD?

CSRD expands the scope of existing rules for non-financial reporting by very large companies and public-interest entities to large companies, large public-interest entities, and listed SMEs (excluding micros) on a main EU stock market.

An Organisation will be a ‘large’ company if it meets two of the following three criteria:

  • It has a balance sheet of greater than €25 million
  • It has revenue of greater than €50 million, and / or
  • It has more than 250 Employees.

While non-listed SMEs are not directly within the scope of CSRD, they may need to provide information to ‘large’ companies in due course if they are part of the large company’s value chain.

When do the obligations under CSRD come into effect?

Ireland and other member states have until mid-2024 to transpose CSRD into national law with a view to mandatory requirements commencing for financial years on or after:

  • 1 January 2024 for companies and public interest entities in scope of the existing rules (greater than 500 employees)
  • 1 January 2025 for other larger companies and public interest entities (greater than 250 employees)
  • 1 January 2026 for listed SMEs, with an ‘opt out’ possible until 2028.

Disclosure of Employment Related Information

CSRD requires companies in scope to provide certain employment-related information. This requirement includes information on Employees and contractors that make up the Organisation’s own workforce as well as workers in the value chain.

Value chain workers include all Employees in the company’s upstream and downstream value chain who are or may be significantly affected by the company but are not part of the company’s own workforce.

Outside In and Inside Out Reporting

Companies in scope will be required to report on a double materiality basis. This means Organisations will have to disclose not only the risks they face from a changing climate and other ESG matters (financial materiality or outside in), but also the impacts they themselves may have on climate and society (impact materiality or inside out). Companies will also have to provide information on their value chain. To assist companies with the transition to the new requirements, for the first three years of reporting, where information on the value chain is not available, they may elect to explain their inability to obtain the information.

How to Prepare for CSRD

While relatively few Organisations may fall directly within the scope of the new CSRD requirements, it is likely that many Irish businesses will find themselves dealing with CSRD information requests from large organisations that they do business with.

The key steps to take for now are:

  • determine whether your Organisation falls within the scope of CSRD, either directly or as part of the value chain of a large company
  • determine your company’s existing position on sustainability reporting by assessing and analysing your reporting processes, internal controls and governance
  • if your Organisation is part of the value chain of a large company you work with, consider making an early request as to what sustainability information the large company might ask your Organisation to supply including any employment-related information
  • assess your Organisation’s ability to capture any sustainability data required, as a company in scope of CSRD or as a business within the value chain of a large company

 

 

New Legislation Regulating Collective Redundancies Following Insolvency Now in Operation

The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (the Act) quietly came into effect on 1st July 2024. The core aim of this legislation is to bolster the protection of Employees in collective redundancy situations.

Background

The Programme for Government includes a commitment to “review whether the legal provisions surrounding collective redundancies and the liquidation of companies effectively protect the rights of workers.”

This commitment led to the development of the ‘Plan of Action on Collective Redundancies following Insolvency’ which was published in June 2021. The plan of action addressed matters relating to both employment rights and company law and concluded that the existing law be supplemented by way of:

  • a range of amendments to employment law and company law,
  • the setting up on a statutory basis of an Employment Law Review Group, and
  • the provision of an accessible guidance document to help workers and their representatives navigate the existing legal framework.

The Act implements the outstanding employment law and company law legislative commitments which were set out in the Plan of Action.

Amendments to the Protection of Employment Act 1977

The Protection of Employment Act 1977, which governs collective redundancy rules, has been amended to:

  1. Define a ‘responsible person’ who will take on certain obligations under the Act where an Employer is insolvent. A responsible person can include a liquidator, a provisional liquidator, a receiver or any other person appointed by a court where they assume full control of the business.
  2. Where collective redundancies are envisaged, require the responsible person to initiate consultations with Employees’ representatives with a view to reaching an agreement. Consultations should be at the earliest opportunity and in any event at least 30 days before the first notice of dismissal is given.
  3. Oblige the responsible person to supply Employees’ representatives with all relevant information relating to the proposed redundancies.
  4. Remove the exemption from notification requirements in respect of collective redundancies caused by the Employer’s insolvency. This means all collective redundancies are subject to a 30-day notification period before they take effect, including where the Employer is insolvent.
  5. Provide that Employees may seek redress from the Workplace Relations Commission (WRC) where their Employer makes them redundant before the 30-day notification period finishes. This change applies to all collective redundancies, not just those precipitated by insolvency. This is in addition to Employees’ existing right to make a complaint to the WRC should their Employer fail to consult with or provide information to their representatives.
  6. Align the 1977 Act with case law of the Court of Justice of the European Union (CJEU), by explicitly providing that the Employer’s obligations must also be complied with by a liquidator or similar appointee, where they are managing the collective redundancy process in an insolvency situation.
  7. Provide that, where a liquidator or similar appointee is managing the collective redundancy process in an insolvency situation and they fail to comply with their duties under the Act, the WRC may prosecute them, with a maximum fine on conviction of €5,000.
  8. Update the methods by which Employers can notify the Minister of proposed collective redundancies to include notification by email.

Establishment of the Employment Law Review Group (ELRG)

The Act also provides for the establishment of a statutory Employment Law Review Group (ELRG) which will advise the Minister all aspects of employment and redundancy law.

The ELRG will be an expert and technical advisory group, and this will be reflected in the membership of the Group, which should include members of the legal and insolvency professions, practitioners, academics and Ministerial nominees.

It is intended that bodies including those representing workers and Employers, will be invited to nominate a member for inclusion in the Group.  Ministerial nominees will be appointed following a call for expressions of interest. It is intended that this will be open to all interested parties with qualifications and/or professional experience in areas including employment law and/or redundancy and insolvency law.  Once the Chairperson and members are appointed, an inaugural meeting will be held.

Amendments to the Companies Act 2014

The Companies Act 2014, which underpins Ireland’s modern and flexible corporate recovery and insolvency framework, has been amended to:

  1. Improve the quality and circulation of information to Employees as creditors such as ensuring they have access, within a reasonable period, to the company’s Statement of Affairs which is filed with the court and ensuring the provisional liquidator informs them of his/her appointment, explains the liquidation process and invites them to provide relevant information.
  2. Ensure remedies for transactional avoidance are more accessible to creditors.

Key Takeaway

The Act helps to clarify the redundancy obligations of Organisations that are insolvent or seeking insolvency protection advice. Employers that are considering a collective redundancy scenario will need to carefully consider their obligations under this legislation as will insolvency practitioners who could face serious civil and criminal liability for failing to comply with their obligations as ‘responsible persons.’

 

Further Statutory Protection for Employees in Insolvency Situations

The Government has published legislation to further protect Employees where their Employer becomes insolvent. The General Scheme of the Protection of Employees (Employers’ Insolvency) (Amendment) Bill 2024 (the Bill) proposes making changes to the Protection of Employees (Employers’ Insolvency) Act 1984 which sets out pay-related entitlements of Employees working for an insolvent Employer.

The Bill will make changes to the Insolvency Payments Scheme, which protects Employees’ pay-related entitlements if their Employer becomes insolvent.

The Bill will:

  • expand access to the Insolvency Payments Scheme to protect Employees of Employers who cease trading without entering into liquidation, receivership or bankruptcy
  • provide access to the scheme to Employees with historical claims which arose in the period from October 1983 up to the commencement of the Bill. Applications will be open for two years following commencement of the Bill
  • expand access to the Insolvency Payments Scheme to include Employees of sole trader Employers who enter into personal insolvency arrangements other than bankruptcy
  • amend the Employment Equality Act 1998 to ensure Circuit Court awards for gender discrimination are covered by the Insolvency Payments Scheme
  • provide a legislative basis to apply the statutory salary ceiling, currently €600 per week, to all payments from the Insolvency Payments Scheme

Insolvency Payments Scheme

The Insolvency Payments Scheme protects certain outstanding pay-related entitlements owed to Employees in the event of the insolvency of their Employer. The entitlements covered include wages, holiday pay, sick pay, payment in lieu of minimum notice and certain pension contributions. Various other statutory employment rights awards made by the Workplace Relations Commission and Labour Court are also covered by the scheme.

The Insolvency Payments Scheme is administered by the Department of Social Protection on behalf of the Minister for Enterprise, Trade and Employment. Payments from the Insolvency Payments Scheme are made from the Social Insurance Fund.

Access to the Scheme is contingent on the Employer being legally insolvent. This means:

  • a company entering into liquidation or receivership;
  • a sole trader being declared bankrupt;
  • where the Employer has died and their estate is insolvent; or
  • the Employer being deemed insolvent in another EU Member State or the UK.

In 2022, €4.638 million was paid out to Employees from the Insolvency Payments Scheme.

Employer Deemed Insolvent Application

Under Article 2(1) of Directive 2008/94/EC, Member States are required to provide for a scenario where an Employer has ceased trading but has not formally wound up their business (for example by entering into liquidation or bankruptcy) because the available assets are insufficient to warrant the opening of proceedings. In December 2018, the Supreme Court decision in Glegola ruled that Ireland has not properly transposed the Directive.

The new Bill provides for an Employer Deemed Insolvent Application, where an Employee can follow a process to have their Employer deemed insolvent for the purpose of claiming their outstanding entitlements from the Insolvency Payments Scheme.

The new Bill also provides for a Historical Employer Deemed Insolvent Application. This will cover Employees impacted by the Glegola judgment during the period October 1983 (the original Directive transposition date) up to the commencement of the Bill. This Historical Employer Deemed Insolvent Application will be open for applications for the first two years following the Bill’s commencement.

Limits on Payments from Insolvency Payments Scheme

Certain limits are applied to payments from the Social Insurance Fund via the Insolvency Payments Scheme.

Arrears of wages, holiday pay and sick pay entitlements are capped at 8 weeks each. Payments from the scheme are generally subject to a salary ceiling, currently €600 per week.

In 2019, the Court of Appeal found that certain employment rights awards should not have the salary ceiling applied to them.

The Bill will amend the underpinning legislation to restore the longstanding policy approach, whereby all payments from the scheme are subject to the salary ceiling.

The General Scheme has been referred to the Office of the Attorney General for drafting of the Bill.

Adare can Help

Our team of Employment Law and Human Resource experts can be your HR partners and guide you through compliance, ensuring your business knows its obligations, staying protected and informed. Reach out to us at (01) 561 3594 or info@adarehrm.ie for support tailored to your needs. Learn more about our services at www.adarehrm.ie.