ABS and SPVs under CSRD – original considerations prior to Omnibus

The following article outlines what were the original considerations for Aviation Asset Backed Securitizations (ABS) and Special Purpose Vehicles (SPVs) under the EU’s Corporate Sustainability Reporting Directive (CSRD).

However, further to the Omnibus announcements of Wednesday February 26th 2025, the qualifying criteria are proposed to be significantly changed as part a proposed substantial simplification in the field of sustainability and EU investment programmes which includes amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy amongst others. Of crucial significance is the redefinition of a large undertaking to be one that has >1,000 employees, which at a stroke will see the number of companies required to report under CSRD reduced by around 80% including in all likelihood the entire ABS and SPV category. A further article will follow in due course – this article is retained in News & Insights as a record of the previous programme.

The CSRD, introduced by the European Commission, aims to standardize and improve sustainability reporting for a broad range of companies. This directive not only replaces the previous Non-Financial Reporting Directive (NFRD) but also expands the scope of reporting obligations significantly.

Approximately 50,000 companies will now be required to comply with these new regulations, a substantial increase from the 12,000 previously covered under the NFRD.

For Special Purpose Vehicles (SPVs) who operate in Europe, navigating the new reporting CSRD framework is important.

SPVs need to prepare for their respective reporting timelines based on their classification and size, ensuring compliance with CSRD.

The first entities required to report under the Corporate Sustainability Reporting Directive (CSRD) are large companies with over 500 employees that are already subject to the Non-Financial Reporting Directive (NFRD). They must comply for their 2024 fiscal year, with reports due in 2025.

Following this, large companies meeting the new criteria will need to report for the 2025 fiscal year, with their first reports due in 2026. Lastly, listed small and medium enterprises (SMEs) will be required to report starting in 2026, with their first reports due in 2027, although they can opt out during a transitional period until 2028.

Who does CSRD apply to?

CSRD represents a substantial increase in the number of entities obligated to report on it, compared with its predecessor NFRD.

However, recent adjustments due to inflation in 2021 and 2022 have modified the reporting thresholds, increasing the balance sheet total and net turnover criteria by about 25%.

Consequently, the thresholds are now set at:

  • Balance Sheet Total: €25 million (up from €20 million)
  • Net Turnover: €50 million (up from €40 million)

The CSRD applies to the following categories of entities:

  • Listed Companies in the EU Market: All companies listed on EU regulated markets, including listed SMEs (excluding micro-enterprises), are subject to the CSRD.
  • Large Companies: The CSRD applies to large companies that meet at least two of the following criteria based on the Accounting Directive 2013/34/EU:
    • Employ 250 or more employees during the financial year.
    • Have a balance sheet of €25 million or more.
    • Generate a net turnover of €50 million or more.
  • Non-EU Companies: Non-EU companies must comply with the CSRD if they meet any of the following conditions:
    • Generate a net turnover of more than €150 million.
    • Have a subsidiary in the EU that meets the criteria applicable to EU companies.
    • Have a branch in the EU that generates more than €50 million in net turnover.
  • Small and Non-Complex Financial Institutions: This includes large undertakings or listed SMEs (excluding micro-enterprises) as defined in Regulation (EU) No 575/2013, as well as captive insurance and reinsurance undertakings.

Exemptions and Special Considerations

Certain entities are exempt from the CSRD scope:

Alternative Investment Funds (AIFs): AIFs under the Alternative Investment Fund Managers Directive (AIFMD) are exempt, which may be beneficial for some asset managers.

However, segregated accounts, co-investment structures, special vehicles, and holding companies are not exempt and may fall within the scope of the CSRD.

Key Reasons Why CSRD is Important for SPVs

  1. Regulatory Compliance: The CSRD mandates legal requirements for sustainability reporting, making compliance essential for SPVs to avoid penalties and reputational harm.
  2. Investor and Stakeholder Confidence: Adhering to CSRD enhances trust among investors and stakeholders by demonstrating a commitment to transparency and responsible practices, attracting socially conscious investors.
  3. Reputation and Brand Image: CSRD compliance can significantly improve the reputation and brand image of SPVs, appealing to customers and partners who prioritize sustainability.
  4. Competitive Advantage: SPVs that effectively showcase compliance and robust sustainability practices may gain a competitive edge, attracting environmentally conscious customers and investors.
  5. Increased Reporting Requirements: The CSRD imposes stricter reporting obligations, requiring SPVs to disclose detailed environmental and social impact information, enhancing transparency for stakeholders.
  6. Stakeholder Engagement: The CSRD encourages active engagement with stakeholders on sustainability issues, enabling SPVs to consult with customers and suppliers to improve practices and reporting.

How to prepare for CSRD?

To comply with the Corporate Sustainability Reporting Directive (CSRD), companies, including Special Purpose Vehicles (SPVs), should follow these essential steps:

  1. Determine Applicability: Assess whether your company falls under the CSRD scope based on size, listing status, and operational presence in the EU. This includes evaluating if you meet the criteria for large companies or listed SMEs.
  2. Understand Double Materiality: Familiarize yourself with the concept of double materiality, which requires reporting on:
    • Impact Materiality: How your operations affect the environment and society.
    • Financial Materiality: How sustainability issues impact your financial performance and risk profile.
  3. Follow the European Sustainability Reporting Standards (ESRS): Align your reporting with the ESRS, which provide detailed guidelines on what to disclose under the CSRD. This includes mandatory industry-agnostic disclosures, industry-specific disclosures, and company-specific information.
  4. Collect Relevant Data: Establish robust systems for gathering and managing sustainability data. This includes emissions data, social impact metrics, and governance practices. Ensure that data collection processes are reliable and comprehensive.
  5. Digital Tagging: Ensure that all sustainability data is digitally tagged to comply with the European Single Access Point (ESAP) requirements. This will make the information machine-readable and facilitate easier access for stakeholders.
  6. Independent Assurance: Prepare for third-party assurance of your sustainability reports. This will enhance the credibility of your disclosures and ensure compliance with CSRD standards.
  7. Integrate Reporting into Annual Reports: Incorporate sustainability reporting into your annual management report. This integration ensures that financial and sustainability information is presented together, promoting transparency.
  8. Engage Stakeholders: Actively involve stakeholders in the reporting process. Gather feedback from investors, customers, and other relevant parties to improve your sustainability practices and reporting accuracy.
  9. Monitor and Adjust: Regularly review your sustainability performance against set targets and key performance indicators (KPIs). Adjust your strategies as necessary to meet CSRD requirements and improve sustainability outcomes.
  10. Stay Updated: Keep abreast of any changes to the CSRD and ESRS requirements, as well as emerging best practices in sustainability reporting.