CSRD news

On 26 September 2024, the Commission opened infringement proceedings against Germany for failing to transpose the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464). The 18-month transposition deadline expired in June of this year. The German government then adopted a draft bill in July, which met with broad resistance from both the Bundesrat and industry associations. At this point it is still open when the directive will be transposed into German law, and exactly what companies have to prepare for and by when. This article gives a short overview of the ESG reporting duties that currently apply, an outlook on the reforms expected from the national legislator, and the most important news on corporate sustainability reporting.

What applies at present?

Because the transposition deadline passed without result, there is considerable uncertainty about the ESG reporting duties for the 2024 financial year. What is clear to begin with is that the CSRD as such does not apply directly. In particular, the German legislator’s failure to transpose it does not give the directive direct effect to the detriment of companies.

Until it is transposed into national law, the reporting duties under the German Supply Chain Due Diligence Act (LkSG) therefore continue to apply — we have covered these elsewhere (The Supply Chain Act: responsibility for the entire supply chain; Supply Chain Act: no contract without proof of human rights compliance) — as do the duties of the Non-Financial Reporting Directive (“NFRD”, Directive (EU) 2014/95) through its transposition in the German Commercial Code (HGB). The reporting duties under the CSRD and under the LkSG overlap, which is also why the Federal Office for Economic Affairs and Export Control (BAFA) extended the filing deadlines for LkSG reports.

Alongside this, government circles increasingly hint at, or openly advocate, suspending the reporting duties under the LkSG at least until the CSRD is transposed (Wie geht es weiter mit dem Lieferkettengesetz? | tagesschau.de; Robert Habeck will Lieferkettengesetz überraschend aussetzen). So far, however, this does not change the fact that the LkSG currently continues to impose reporting duties. The current duties under the NFRD likewise remain in force through the provisions of the HGB. At the same time, companies should prepare for the possibility that the act transposing the CSRD applies retroactively to the 2024 financial year. Given that the transposition deadline has expired, this cannot be ruled out, as companies are unlikely to be able to invoke any legitimate expectation to the contrary.

What is the CSRD set to require in future?

With the CSRD, the European legislator further extends the duties created by the NFRD in 2014. The central changes are the wider range of companies subject to reporting and new uniform standards governing the reporting duties themselves.

1. New size criteria:

The CSRD widens the circle of companies under an obligation to report. Under it, “large” companies are covered regardless of whether they are listed. A company counts as “large” if it exceeds a balance sheet total of EUR 25 million, net revenue of more than EUR 50 million or an average of 250 employees. In addition, “SMEs” in the accounting sense are now subject to reporting if they are listed and do not fall under the exemption for micro-entities. The circle of companies is to be widened step by step from the 2024 reporting year, starting with those already subject to non-financial reporting. From January 2025, all “large” companies follow, and from 2026 listed “SMEs” are added.

2. Uniform Commission standards:

The CSRD introduces binding reporting standards at European level for the first time, in order to make supervision and its digitalisation easier (CSRD recital 37, second subparagraph). In December 2023, the Commission therefore published the ESRS (“European Sustainability Reporting Standards”) by way of a delegated regulation. As a regulation, these do not have to be transposed into national law but apply directly. Annex I ESRS categorises the standards as follows:

• Cross-cutting standards (ESRS 1, ESRS 2)
• Environment (ESRS E1–E5)
• Social (ESRS S1–S4)
• Governance (ESRS G1)

ESRS 1 sets out the general requirements and ESRS 2 governs general disclosures. At a general level, a report must therefore be submitted covering all material sustainability aspects in the reporting areas of governance, strategy, management of impacts, risks and opportunities, and metrics and targets. For the further areas of environment, social and governance, by contrast, a reporting duty arises where the analysis to be carried out classifies a sustainability aspect as material.

The sustainability topics named above (environment, social, governance) have to be examined for a.) what external impact the reporting company has on these areas and b.) what financial effects those same topics have on the company. The reports must then follow the relevant standards in line with the result of that analysis (for example ESRS E2–4 on air, water or soil pollution). The new standards are extremely extensive in detail, so they cannot be covered individually here.

Outlook

Whether opening the infringement proceedings will speed up the German act transposing the EU sustainability reporting directive remains to be seen. Although companies face a degree of uncertainty, the directive itself already offers plenty of ways to prepare for the “whether” and the “how” of the new reporting duties. The Federal Ministry of Justice has announced that it intends to transpose the rules into national law as closely as possible to a one-to-one implementation (Infopapier_CSRD_UG.pdf) and, in particular, not to go beyond the obligations now known. To that end, companies are to be given the right to replace the report under the LkSG where they report under the CSRD, so that duplicated duties can be avoided.

The new ESG reporting duties will cover a far wider circle of companies than the previous rules on non-financial reporting and, given the now detailed requirements of the ESRS, will call for considerable additional financial and administrative effort. It is therefore high time to examine whether and which duties apply to your own company, and from when.

Clarius has many years of experience in compliance matters and will be glad to advise you on the various ESG reporting duties, so that you can implement them at the lowest possible cost and with legal certainty.

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