Corporate sustainability moves forward: green light for the proposed Law of Corporate Reporting on Sustainability
The Council of Ministers recently green-lighted the proposed Law of Corporate Reporting on Sustainability, a decisive step towards greater transparency and accountability in business activity. This regulatory framework, which is now headed for parliamentary processing, includes environmental, social and governance (ESG) criteria in corporate management. The proposed law amends the Spanish Code of Commerce, the Spanish Law on Corporations and the Spanish Account Auditing Law and reflects a step forward in the framework of transparency and corporate social responsibility, aligning Spanish regulations with the objectives of the European Green Deal and the Sustainable Development Goals of the United Nations.
Key aspects of the proposed law:
- Scope of application and legally bound parties.
The regulation introduces, in the first place, sustainability reporting obligations for large companies and, to an adjusted extent, for medium-sized and small listed companies, while excluding micro-companies.
These entities must include detailed information in their reports on their environmental, social and governance impact, as well as the effects of these factors on their performance and financial situation. The purpose of this obligation is not only to ensure greater accountability, but also to provide stakeholders with direct access to sustainability-related information.
- Submission and verifiability standards.
On the other hand, the proposed law establishes the creation of a single submission format for sustainability reports at an European level, in an electronic form that will facilitate the comparability and accessibility of the information between the different Member States. It also establishes an external verification regime for these reports, in similar terms to financial auditing, which reinforces their rigour and objectivity. The Accounting and Auditing Institute (ICAC, for its initials in Spanish) , with the support of the recently created Official Register of Auditors and Sustainability Information Verifiers, will be in charge of supervising this new area of verification.
- Gradual implementation for staggered adaptation.
Furthermore, the law foresees a phased schedule for its entry into force:
- Large public interest companies and dominant entities of public interest groups with more than 500 employees will be required to submit in 2025 the information for the tax year 2024. with more than 500 employees will be required to report in 2025 for the fiscal year 2024. As of the 1st of January 2025, this obligation will also apply to the remaining large companies.
- Listed SMEs, captive insurers and small and non-complex credit institutions will be required to report this information starting the 1st of January 2026.
- Finally, Spanish subsidiaries and branches of foreign companies with a EU-wide turnover above 150 million euros will assume this obligation as of the 1st January 2028.
This timeline allows entities to progressively adapt their compliance management systems to the new European regulations and standards.
- Administrative simplification and corporate threshold adjustments.
To reduce administrative burdens, the proposed law also updates the business size thresholds, raising the asset and turnover ceilings enabling certain entities currently classified as large companies to benefit from a simplified accounting reporting regime. This measure, besides addressing past years’ inflation, contributes to a more efficient application of accounting and regulatory obligations for concerned entities.
Molins Defensa Penal, Compliance Department.