KEY TAKEAWAYS
- The CSRD (Corporate Sustainability Reporting Directive) expands the EU’s previous requirements for non-financial reporting and aims to achieve more comprehensive and detailed reporting on environmental, social and governance (ESG) aspects.
- The new directive has been in force at EU level since January 5, 2023. Member states, including Germany, must transpose it into national law by July 2024 at the latest.
- The EU directive defines objectives and requirements at European level and provides the member states with a framework that they must transpose into national law accordingly.
- A draft bill has been presented to transpose the CSRD into German law. It is clear from the comments published on it that some of the points it contains are being increasingly criticized and there are numerous points of contention.
- The implementation of CSRD in Germany poses a certain challenge for many companies, but also offers significant opportunities for those who proactively address the issues of sustainability and transparent reporting.
Do you need an overview of the implementation of the CSRD directive in Germany? How is the EU directive specifically transformed into German law and implemented? We explain what the CSRD Implementation Act entails and outline what companies will need to consider in the future regarding sustainability reporting.
The CSRD Implementation Act is not intended to implement any measures into national law that go beyond the requirements of the CSRD.
This national law includes significant amendments to the Commercial Code (HGB) to incorporate the requirements of the CSRD directives and ensure their implementation in Germany.
Among the most important changes are expanded reporting obligations on sustainability aspects, which must now also be reflected in companies’ management reports. This means that companies will need to disclose not only their financial data but also their impact on the environment and society in detail.
The use of ESRS as the reporting standard will become the norm to ensure uniform and comparable reporting across the EU.
CSRD Directive: Implementation in Germany
The introduction of the CSRD and its transposition into German law present companies in Germany with various challenges and additional administrative burdens. In addition to financial performance, companies must now increasingly focus on reporting their environmental and social impacts as part of their disclosure obligations.
Are you interested in how companies can successfully implement the CSRD or in the topic of CSRD in general? Then we recommend diving deeper into the subject by reading our comprehensive CSRD whitepaper.
It is therefore necessary to adapt and expand reporting processes to meet the new requirements introduced by the CSRD Implementation Act in Germany.
However, the resulting opportunities should not be overlooked—improving sustainability practices can create competitive advantages and enhance a company’s image. Learn more about how companies can benefit from the CSRD reporting obligation.
What do companies in Germany need to consider for CSRD Implementation? First and foremost, as mentioned earlier, companies must comply with the European Sustainability Reporting Standards (ESRS), which have been in effect since July 2023, when preparing their reports.
These standards define how companies must report on a wide range of sustainability topics, including climate change, biodiversity, and social conditions.
Another key requirement of the CSRD is conducting a materiality assessment. This assessment serves as the foundation for the CSRD report and helps companies identify and prioritize the sustainability topics most relevant to them.
Additionally, considering double materiality is essential for the successful implementation of the CSRD directives in Germany. Companies must assess and report on both the financial impact of sustainability issues and their social and environmental impacts. This requires a thorough analysis of the effects of business activities that go beyond traditional business models.
See these changes as part of a broader trend toward more transparency and accountability in corporate governance. They reflect the growing awareness that sustainable action is not only an ethical obligation but also fundamental to long-term business success.
Specific Features and Challenges of CSRD Implementation in Germany
The implementation of the CSRD directive in Germany has some unique characteristics that distinguish it from other EU countries.
The directive is directly integrated by adapting the accounting regulations in the German Commercial Code (HGB). Additionally, Germany goes beyond EU requirements by including medium-sized companies with significant societal relevance in the reporting obligation.
The audit requirements for sustainability reports in Germany are particularly strict. Furthermore, a strong stakeholder orientation encourages comprehensive and detailed reporting. The Federal Ministry of Justice aims to implement the CSRD efficiently, considering the tight deadlines and complex EU regulations.
Following the publication of the draft bill for CSRD implementation in Germany, various stakeholders have expressed criticism. More than 80 statements have been published on the Federal Ministry’s website.
A key issue is external auditing: The draft bill proposes that, in addition to financial auditors, other certified auditors and accredited examiners should be allowed to conduct sustainability audits. This measure is intended to avoid capacity bottlenecks and open up the audit market.
At the same time, a high quality standard is to be ensured through accreditation. However, incorporating these changes into the German Commercial Code (HGB) is highly complex, requiring the introduction of numerous new legal provisions.
It is not surprising that some affected companies view this development with skepticism. Many prefer audits to be conducted exclusively by financial auditors.
The implementation of the CSRD directive in Germany results in additional compliance costs for businesses, estimated at €748 million as a one-time expense and €1.4 billion annually. The introduction is being carried out in stages, with a lower burden for the 2024 financial year, which will gradually increase until 2028.
Another widely discussed topic in the published statements is the amendment to the Supply Chain Due Diligence Act (LkSG). Many stakeholders consider this amendment to be poorly executed in terms of transposing the CSRD into German law.
We would like to inform you that, due to the draft bill (RefE), the reporting process for the Supply Chain Due Diligence Act (LkSG) has now been paused, and the reporting obligation has been temporarily suspended to prevent companies from having to submit duplicate reports.
Conclusion
The CSRD implementation in Germany is accompanied by the adoption of laws, regulations, and other legal instruments at the national level.
These laws specify the provisions of the EU directive and integrate them into the existing national legal system. Unlike the EU directive, the national laws and regulations resulting from the implementation are directly applicable in each respective country. Companies and individuals are required to comply with these national regulations. Given that the rules and guidelines at the EU level are already highly complex, it is important that this complexity is not further increased for companies based in Germany.
With the CSRD Implementation Act, which includes significant amendments to the German Commercial Code (HGB), companies will be required to expand their reporting on environmental, social, and governance (ESG) aspects. This not only requires an adjustment to reporting processes but also presents an opportunity to sustainably strengthen the company’s image and strategically position itself better.
It is clear that the Corporate Sustainability Reporting Directive (CSRD) is far more than just a bureaucratic hurdle, and medium-sized companies should view the CSRD reporting obligation as an opportunity to prepare for the future and improve their market position. Learn more in another article about how to get started with integrating sustainability into your company.
There may be differences in implementation across individual EU member states, as national-specific needs are taken into account when transposing the directive into national law.
FAQ
What is the CSRD, and how is it being implemented in Germany?
The Corporate Sustainability Reporting Directive (CSRD) expands the EU requirements for non-financial reporting and aims for a more comprehensive disclosure of environmental, social, and governance (ESG) aspects. In Germany, the CSRD is transposed into national law through the CSRD Implementation Act, which introduces significant amendments to the German Commercial Code (HGB).
What requirements does the CSRD impose on companies in Germany?
Companies in Germany will soon be required to disclose not only their financial performance but also their environmental and social impact in detail. They must comply with the European Sustainability Reporting Standards (ESRS) and conduct a materiality analysis to identify and prioritize relevant sustainability topics.
What opportunities and challenges does the CSRD implementation present for companies?
The CSRD introduces additional administrative effort for companies but also presents an opportunity to gain a competitive advantage and enhance their corporate image through improved sustainability practices. Companies must adapt and expand their reporting processes to meet the new requirements and position themselves for the future.
Are there differences in the implementation of the CSRD across EU member states?
Yes, differences may arise, as the transposition into national law takes into account country-specific needs. However, the national laws and regulations resulting from the CSRD implementation are directly applicable within each country, and companies are required to comply with these national provisions.
