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For Danish companies there is a new requirement to include a sustainability report in the annual management report - and therefore also to elect a sustainability auditor at the general meeting. The sustainability report must contain the information necessary to understand the company's impact on sustainability issues and how sustainability issues affect the company's development, performance and current situation.
On 1 June 2024, new rules came into force that set requirements for companies' sustainability reporting in the annual report, and it is now possible for companies to register their choice of "sustainability auditor" in the Danish Business Authority's IT system.
The new rules (pursuant to Act no. 480 of 22 May 2024) require the sustainability reporting to be accompanied by a limited assurance statement issued by an approved "sustainability auditor" elected at the company's general meeting. The Act implements the European Union Corporate Sustainability Reporting Directive (CSRD) into Danish law. The purpose of the CSRD is to strengthen the legal framework for companies' sustainability reporting. The implementation entails a number of changes to various Danish corporate laws, predominantly the Annual Accounts Act.
Registration with the Danish Business Authority
Just as companies are currently required to register the financial auditor elected by the general meeting for the financial audit, certain large companies are now also required to register their elected "sustainability auditor" in the Danish Business Authority's IT system. As of 15 August 2024, the Danish Business Authority has opened up for the registeration of the statutory sustainability auditor in the Danish Business Authority's IT system. The registration of sustainability auditor for companies that have already elected a sustainability auditor at their general meeting must be done on or before 1 October 2024. For all other companies, the general registration deadline of two weeks after adoption applies.
Affected Companies
Large companies in reporting class D (these are listed companies and state-owned public limited companies) with more than 500 employees are covered by the new rules with effect from 1 January 2024 and must therefore report on sustainability for the financial year 2024. The majority of the affected companies have already elected an auditor in relation to both statutory financial and sustainability reporting at the annual general meeting this year. These companies can now proceed to register the elected sustainability auditor with the Danish Companies House in the CVR Register. Affected companies that have not yet elected a sustainability auditor must hold an extraordinary general meeting to elect a sustainability auditor with effect from the financial year 2024.
Further Roll-Out
The requirement is being implemented in phases, with the group of affected companies continuously expanding over time. Companies that will only be subject to the rules with effect from 2025 or later must elect a sustainability auditor at an upcoming annual general meeting. This applies to:
As of 1 January 2025: Large companies in reporting class C and large companies in reporting class D with 500 or fewer employees.
As of 1 January 2026: Small and medium-sized companies in reporting class D (unless they decide not to report for financial years beginning before 1 January 2028).
As of 1 January 2028: Subsidiaries that are part of a group whose total EU net turnover in each of the last two consecutive financial years exceeds EUR 150 million and where the ultimate parent company is not subject to the laws of an EU/EEA country.
Green Financing and Sustainability Auditors
The overall purpose of CSRD is to improve corporate sustainability reporting in order to better utilise the potential for companies to contribute to achieving the EU's climate goals and the UN's Sustainable Development Goals. The CSRD will also support the EU's work on sustainable finance by ensuring that investors and lenders such as financial companies can access uniform, comparable and credible sustainability information. It is expected that the election and registration of a sustainability auditor, will enable corporate issuers and borrowers that have entered into green financing transactions, to use the sustainability auditor to audit and certify the green key performance indicators that are relevant to show compliance with the green terms and conditions of their financing arrangements. Green bonds and green loans incorporate environmental Key Performance Indicators (KPIs) to measure the environmental impact of the project or activity being financed. While the specific KPIs used in a green financing will vary depending on the nature of the project being financed by the credit facility, the selection of appropriate KPIs should be tailored to the financing purpose to ensure a measurable financial covenant. The KPI will be reviewed by the appointed sustainability auditor quantifying the impact for the purposes of the credit facility. The purpose is to quantify the KPIs in accordance with e.g. Green Loan Principles (GLP) maintained by the Loan Markets Association (LMA) for the European lending market.
Further Information
For more information on banking and financial regulation law for banking or capital markets transactions in Denmark, please contact Dr. Andreas Tamasauskas or Michael Carsted Rosenberg at Carsted Rosenberg.
This briefing is intended to provide general information on green financing in Denmark It is not intended to provide definitive legal or tax advice. No legal, tax or business decisions should be based solely on its content. The briefing does not necessarily deal with every important topic and is not designed to provide legal or other advice. It shall not be used as a substitute for legal advice and none may be inferred. It is only intended for general information on matters of interest. While we endeavour to represent the information as accurately and correctly as possible, we cannot accept any responsibility for any errors or omissions.