As new regulations closely accompany emerging technological and economic trends, 2024 becomes truly an inflection point for legal transformation. From global corporate sustainability to the first AI-related laws, foreign subsidies regulation in the EU and the OECD's global minimum tax, new legislative initiatives are raising the bar for corporate governance and compliance, which require novel approaches, processes and digital tools to stay abreast of the requirements. Below, we discuss key legislative developments affecting companies in 2024 and how to address them with corporate governance and compliance strategies.
Corporate Sustainability Reporting Directive
The EU Corporate Sustainability Reporting Directive (CSRD) requires EU listed companies with over 500 employees to start collecting data on the sustainability of their operations for disclosure in 2025 for the previous financial year.
Over the next few years, the CSRD directive will be gradually applied to all large EU companies and SME businesses listed on regulated markets (excluding micro undertakings). The Directive will also be applied to non-EU companies with at least one subsidiary generating a minimum of EURO 150 million within the European Union per year.
The disclosures under the Directive are to include governance policies, strategies to tackle sustainability, risks and opportunities resulting from sustainability topics, as well as various metrics. Given the number of data points covered by the Directive, companies will need to implement significant advancements for collecting and filing their governance and sustainability information to comply. Meanwhile, companies from other jurisdictions where sustainability regulations are pending would be prudent to look into the EU directive and its implications to ensure early preparation.
EU Artificial Intelligence Act
The European Union continues to be a frontrunner in initiating legislative regulations of novel developments and trends, including artificial intelligence. In December 2023, the European Parliament reached a provisional agreement on the AI Act, which was unanimously approved by the Counsel of the EU Ministers later in February 2024 and is the first in history to regulate artificial intelligence.
The AI Act classifies AI systems into low-limited-risk, high risk and prohibited systems, subjecting the first two groups to transparency requirements and banning outlawed AI applications. The new European regulation for AI imposes disclosure requirements to ensure transparency along the value chain, including summaries of content used for training, complying with EU copyright laws, and technical documentation.
The law initiates establishing a new regulatory body in the EU to oversee the existing large language models, similar to the AI regulator announced in the United States. While the new regulations for AI are still in the making, organizations implementing artificial intelligence in their processes can take preemptive action by implementing risk assessments, vendor due diligence and audits as a part of their wider governance strategies to ensure compliance with forthcoming changes.
EU Foreign Subsidies Regulation (FSR)
Another EU regulation with global repercussions came into effect in July 2023. Specifically, the EU Foreign Subsidies Regulation (FSR) requires companies to report to the European Commission when receiving contributions from outside theEU as part of M&A deals and major procurement transactions. Made with an intent to provide for free competition in the EU, the new regulation requires mandatory pre-closing notification in relation to any M&A deals signed from July 2023.
The FSR is accompanied by Implementing Regulation, which requires the disclosure of detailed information about the parties and the transactions. With theFSR regulation now up and running, businesses need to implement new processesand plan for filing notifications to the European Commission for foreign financial contributions exceeding EURO 1 million that are likely to have a significant influence on the internal market, for example, export financing operations or giving unlimited guarantees.
Global Tax Reform
Another far-reaching regulation starting to take effect in 2024 is the OECD (Organization for Economic Cooperation and Development) Pillar Two regulation setting a minimum 15% tax applied to the income of multinational groups in each jurisdiction they operate. The new enactment is intended to limit tax competition and reduce incentives for tax planning. While the new tax regime includes transitional safe harbors, Pillar Two regulation is already a top priority for senior tax and finance teams.
The analytics from companies like Deloitte underscore unprecedented requirements presumed by Pillar Two regulation for data disclosure, including more than 100 data points per entity across accounting, tax and entity management sectors. The reports highlight the necessity for reliable and scalable technology to provide for new processes and ensure Pillar Two readiness across multiple jurisdictions.
Learn more with Athennian
With unfolding regulatory changes for the ESG landscape in 2024 affecting critical aspects of business operations, the importance of reliable compliance software for ensuring corporate governance cannot be overestimated. Businesses wishing to stay ahead of the steep curve of regulatory changes need a reliable system in place designed to incorporate all existing and upcoming compliance standards and reporting obligations.
Athennian entity management software comes with an extensive compliance toolset to assist businesses of all sizes in navigating the evolving legislative landscape of 2024, including customizable solutions for compliance reporting, corporate due diligence, data governance and more. Please don't hesitate to contact the Athennian team for a free consultation and demo to learn more about how entity management software can be key for your upcoming legal transformation.
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