ARTICLE
30 September 2022

COUNTRY UPDATE-Austria: ESG Reporting

DR
Dorda Rechtsanwälte GmbH

Contributor

Dorda Rechtsanwälte GmbH logo
DORDA is a leading business law firm in Austria. We see ourselves as a full-service law firm and advise clients in all related areas of law. We offer tailor-made solutions, regardless of the complexity of the problem – and concise, clear risk assessments and proposals for action.
Environmental, social and governance (ESG) reporting is a major and evolving regulatory area in Europe. Disclosures play a crucial role in helping the financial sector address climate change and sustainability.
Austria Corporate/Commercial Law

Environmental, social and governance (ESG) reporting is a major and evolving regulatory area in Europe. Disclosures play a crucial role in helping the financial sector address climate change and sustainability. They are also being used to address issues such as poor workplace diversity and gender pay gaps. Several jurisdictions have introduced or plan to introduce measures dealing with ESG risks in supply chains.

After an outline of EU legislation, this article provides an overview of ESG law in Austria by Clemens Burian, and Christian Richter-Schöller of DORDA Attorneys at Law. DORDA and its dedicated Sustainability Practice Group are happy to answer any further questions you might have.

Principal EU ESG reporting legislation

Implementation of the EU's Sustainable Finance Action Plan is now well advanced. The plan contains three legislative measures:

  • The Sustainable Financial Disclosure Regulation 2019/2088 (SFDR) imposes disclosure requirements on financial market participants. SFDR came into effect for 'level 1' disclosures in March 2021 and it is planned that more onerous 'level 2' disclosures will be required from January 2023.
  • Taxonomy Regulation 2020/852 standardises definitions and processes to be used when determining whether an activity is environmentally sustainable or meets other ESG criteria for disclosures under SFDR. The Taxonomy Regulation came into force in July 2020 and has applied in practice since January 2022.
  • A proposed Corporate Sustainability Reporting Directive COM(2021)189 (CSRD), in effect replacing the Non-Financial Reporting Directive 2014/95 (NFRD). This will apply to many more companies than the NFRD, greatly extend the ESG information they must disclose and be aligned with the SFDR and Taxonomy Regulation.

Trilogue negotiations on CSRD started in March 2022 between the EU Parliament, Council and Commission. The EU Parliament and the Council reached political agreement on the proposal for a CSRD in their trilogue meeting on June 21, 2022. Its implementation has been postponed to 2024, with first companies' CSRD compliant reports to be published in 2025. Consultation on draft European Sustainability Reporting Standards (ESRS) for the CSRD started on April 29, 2022.

Proposed EU due diligence directive

In February 2022, the European Commission published a proposal- COM(2022) 71- for a Corporate Sustainability Due Diligence Directive (CSDDD).

CSDDD would impose a duty of due diligence on large companies and medium sized ones in high-impact sectors. They would have to identify actual or potential adverse environmental and human rights impacts of their activities, their subsidiaries' and in their value chain.

ESG in Austria

1. Which national authority or authorities oversee ESG reporting?

a) NFRD reporting

In line with Article 19a para 5 NFRD, the Austrian implementing legislation requires the auditor to verify whether the non-financial statement (or the separate non-financial report) has actually been provided. However, the auditor's review is limited to whether a nonfinancial statement has been made in the management report or whether a separate non-financial report has been prepared. An audit of the accuracy of the content of the disclosures by the auditor is not required. The Austrian Companies Register (Firmenbuch) will oversee whether the required filing with the Companies Register and publication in the Austrian Federal Gazette (Amtsblatt) as published in the "Wiener Zeitung" has been made (following the discussion at the reporting company's Annual General Meeting).

In line with Art 4 Transparency Directive ( Directive 2004/109/EC as amended), Section 124 Austrian Stock Exchange Act 2018 (Börsegesetz 2018 – "BörseG 2018") requires issuers whose home member state (within the meaning of Art 2 para 1 lit (i) Transparency Directive or Section 1 no 14 BörseG 2018) is Austria to publish their annual financial reports (Jahresfinanzbericht) within

four months after the end of the financial year. The Austrian Financial Market Authority (Finanzmarktaufsicht – "FMA") shall verify whether this obligation is fulfilled and – if this is not the case – impose appropriate penalties. The annual financial report consists inter alia of the issuer's audited annual financial statements (Jahresabschluss) and the management report (Lagebericht). Issuers that fall within the scope of Sec 124 BörseG 2018 typically also fall within the scope of the reporting obligations pursuant to Sec 243 para 5 Austrian Commercial Code (Unternehmensgesetzbuch – "UGB" - see question 3 below) and Section 243b UGB, and thus have to include ESG- related information in their management report. Thus, it would be conceivable that the FMA would also check (or have to check) whether the management report also contains such ESG-related information. As far as can be seen, however, this question has not been discussed/addressed in the literature or jurisprudence to date. However, since issuers that fall within the scope of the report obligations pursuant to Section 243b UGB (Article 19a Accounting Directive) also have the option to prepare a separate non-financial report (i.e., instead of including a non-financial statement in the management report) and such non-financial report is not part of the annual financial report to be published pursuant to Section 124 BörseG 2018, in the authors' view it is rather unlikely that the FMA would actually review compliance with the reporting obligations under the NFRD in this context.

Within the framework of the "enforcement" regulated in the Accounting Control Act (Rechnungslegungs-Kontrollgesetz), the FMA (or the Austrian Financial Reporting Enforcement Panel [Österreichisches Prüfstelle für Rechnugnslegung – "OePR"] which is called upon by the FMA for this purpose) has to review "whether the annual financial statements, management reports, consolidated financial statements and group management reports [...] of companies comply with national and international accounting standards".

A non-financial statement, as part of the management report, is obviously subject to this review; whether a separate non-financial report is also subject to this review is questionable due to the wording of the law and - de lege lata - in the authors' view is rather to be ruled out, even though systematic considerations call for equal treatment of a non-financial statement included in the management report and a separate non-financial report. In addition, it is questionable whether the FMA and the OePR have the necessary competences to carry out a meaningful review of non-financial information. For this reason, it has already been argued in the literature that the enforcement review (similar to the audit of financial statements) should also be designed as a mere "whether" review. With regard to both questions, further developments, possibly also on the part of the legislator, are to be expected. For more information on the OePR and enforcement review see the OePR's homepage under http://www.oepr-afrep.at/en/homepage.html.

b) SFRD reporting

In Austria, the national competent authority for the SFDR obligations is the FMA. The FMA has outlined several times that sustainability and ESG are topics of particular importance. It stated that it will check regularly whether Austrian entities within the scope of the SFDR meet the disclosure requirements.

2. What ESG reporting or ESG due diligence regulatory developments have there been in Austria since May 1, 2021?

No new Austrian ESG reporting requirements entered into force since May 1, 2021. As mentioned above, the current EU framework is still modelled after the less extensive NFRD and not after the more extensive CSRD (which will apply in the future). Accordingly, the Austrian legislator has transposed the NFRD into national law but does not go beyond the requirements of the NFRD (no "gold plating").

The Austrian legislator did not use the entry into force of the SFRD or discussions on the CSRD as an occasion to enact further provisions on ESG reporting or ESG due diligence, nor to adapt the existing provisions on ESG reporting. Also, the FMA did not publish any additional guidelines regarding the application of the SFDR (no "gold plating").

3. Briefly, how great a change to existing Austrian legislation would be required to implement the CSRD, as currently drafted?

As mentioned above, the current Austrian framework transposes the NFRD into Austrian law but does not go beyond its requirements. Applying the CSRD instead of the current NFRD laws would be a major game changer both in terms of who is affected and what are

their obligations. From what the authors can see, this would be the same in many of the other EU/EEA member states that – just as

Austria – have so far relied on the "minimalistic" approach of simply enforcing the NFRD.

4. Does any national law require firms to disclose the environmental/ sustainability impact of their activities, or of companies in which they invest?

If firms are (i) large undertakings (as defined in Art 3 para 4 Accounting Directive or Section 221 para 3 UGB), (ii) PIEs (as defined in Art 2 para 1 Accounting Directive or section 189a no 1 UGB) and (ii) employ more than 500 on average during the financial year, a reporting obligation on the "environmental/sustainability impact of their activities, or of companies in which they invest" may arise in individual cases from section 243b UGB (implementing Article 19a Accounting Directive).

If a firm is a large undertaking but is not subject to the reporting obligation under the NFRD (i.e., is not a PIE and/or employs less than 500 on average during the financial year) a reporting obligation on the "environmental/sustainability impact of their activities, or of companies in which they invest" may arise in individual cases from Section 243 para 5 UGB (implementing Art 19 Accounting Directive), as such large undertakings must also report on non-financial key performance indicators, including information on environmental and employee matters, in the management report (Lagebericht). Besides the provisions transposing Articles 19 and 19a Accounting Directive, Austrian law does not (currently) contain any provision that explicitly requires firms to disclose the environmental/ sustainability impact of their activities, or of companies in which they invest.

However, as mentioned above such obligations can be triggered by the application of the EU-wide SFDR (which is a directly applicable EU regulation for which there is no need to be transposed into Austrian law).

5. Does any national law regulate whether an activity or investment can be classified or promoted as sustainable/environmentally friendly?

No. There is no national framework classifying certain financial products or services as "sustainable" or "green". As is according to the authors' understanding at the moment the case in most of the EU countries, also in Austria internationally available ESG ratings by private companies are often used when trying to demonstrate "sustainable" or "green" qualities. In particular the lack of transparency ("Why is this product sustainable and not that one?") and comparability ("Is this product greener than that one?") are problems commonly quoted in connection with this practice. In the past couple of years, the Austrian Ecoloabel for Sustainable Finance which is awarded by the Austrian Republic after a mandatory external audit has been particularly popular among issuers active inter alia on the Austrian market. More information can be found here: https://www.umweltzeichen.at/en/products/sustainable-finance.

6. Does any national law or regulatory guidance cover workplace diversity, for example, the representation of women on a firm's management or supervisory body?

Yes. In June 2017, the Act on Equality between Women and Men in Supervisory Boards (Gleichstellungsgesetz von Frauen und Männern im Aufsichtsrat – "GFMA-G") was adopted to raise the share of women in leadership positions. Since January 1, 2018, (i) publicly traded companies and (ii) companies with more than 1,000 employees are required to have at least 30% women and 30%

men on their supervisory boards provided that the supervisory board consists of at least six members (capital representatives) and the workforce consists of at least 20% female (respectively male) employees.

If the quota of female (or male) members of the supervisory board is not reached, the respective appointment becomes invalid due to the infringement of the gender quota.

7. Does any national legislation require firms to report on gender or other diversity pay gaps?

Since 2011, companies with a certain number of employees have to submit an income report (Einkommensbericht), i.e., an anonymized statement of the pay earned by women and men, every two years in order to ensure more income transparency. According to Section 11 lit a of the Act on Equal Treatment (Gleichbehandlungsgesetz – "GlbG"), companies with at least 150 employees (since 2014) have been obliged to fulfil the reporting requirements. However, this report does not have to be openly published; it only has to be made available to the works council. In companies that do not have a works council, the report must be made available in a room accessible to all employees.

The works council and/or the employees may bring action in court to enforce the preparation of the income report up to three years after its due date. Employees are obliged to keep the content of the income report confidential. In the event of a violation of the duty to observe confidentiality, the employer may file a demand with the district authority to impose an administrative penalty amounting to a maximum of EUR 360.

In implementation of Article 19 of the Accounting Directive (Directive 2013/34/EU), Section 243 para 5 UGB provides that "large undertakings" (as defined in Article 3 para 4 Accounting Directive or Section 221 para 3 UGB), must also report on non-financial key performance indicators, including information on environmental and employee matters, in the management report (Lagebericht) (unless they are subject to the reporting obligation under the NFRD). Thus, if the firm is such a "large undertaking", an obligation to report on gender or other diversity pay gaps could arise in individual cases from Section 243 para 5 UGB.

8. Are firms under any national legal duty to identify or mitigate environmental, human rights or other ESG risks at subsidiaries or in their supply chain?

Not expressly, but the Austrian legislator has provided multiple direct and indirect legal duties in order to both protect against modern slavery and respect human rights laws. More specifically:

  • the Austrian Act against Wage and Social Security Dumping (Lohn- und Sozialdumping-Bekämpfungsgesetz – "LSD-BG") mainly ensures that employees are paid at least the applicable minimum wage;
  • the Employee Health and Safety Act (Arbeitnehmerschutzgesetz – "ASchG") very broadly pertains to matters such as first aid, size, lighting and ventilation of workspaces, safety instructions, fire prevention etc and provides that all of the existing hazards and health risks for employees at the place of work must be systematically determined and evaluated;
  • the GlbG mainly ensures that employees are not discriminated against;
  • the Act on Working Hours (Arbeitszeitgesetz – "AZG") and the Act on Rest Periods (Arbeitsruhegesetz – "ARG") mainly ensure that the applicable regular and maximum working hours as well as provisions on rest periods are complied with (e.g. regular weekly working time of 40 hours, maximum weekly working time of 60 hours; after six hours of work at least half an hour break etc.);
  • the Maternity Protection Act (Mutterschutzgesetz – "MSchG") and the Fathers Leave Act (Väterkarenzgesetz – "VKG") concerning the protection of mothers and fathers to be (e.g., prohibition of work prior to and after delivery, special termination protection, leave clauses).

There is also a broad and extensively developed insurance system for both employees and self-employed individuals securing aid in need. Every person who is gainfully employed in Austria is covered by health, pension, accident and unemployment insurance by operation of law starting from their first day of work. All of the above provisions, together with many other provisions, have been introduced in order to ensure that employers observe certain minimum standards in the working environment and employees are treated fairly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More