The EU has reformed sustainability reporting with the introduction of the CSRD Directive.
You can find out what companies need to know about this here.
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a directive of the European Union.
It came into force in January 2023 and obliges companies to report on their sustainability as part of their annual or consolidated financial statements.
The new directive replaces the previously valid Non-Financial Reporting Directive (NFRD), which only had a limited impact and reach.
Under the new CSRD, around 13,000 companies in Germany alone are now directly affected instead of the previous 500 companies.
In the EU as a whole, there are around 50,000 companies.
The special feature of the new CSRD Directive lies in its aim to make complex processes and interrelationships transparent, measurable and comparable.
The implementation of this requirement is still in its infancy and not only challenges companies in operational terms, but also presents them with completely new strategic management tasks.
What goals is the EU pursuing with the new CSRD Directive?
The EU has three main objectives as part of the Green Deal:
- Redirecting capital flows towards sustainable investments for sustainable and inclusive growth
- Overcoming financial risks due to climate change, resource scarcity, environmental degradation and social problems
- Promoting transparency and long-termism in financial and economic activity
The new sustainability reporting obligation contributes to all three goals, as it addresses these goals directly.
In the long term, the new CSRD directive will ensure greater transparency and measurability of sustainability aspects and generate a high steering effect.
Companies have the opportunity to use the new instruments to become more resilient and more competitive.
Has the CSRD already been transposed into German law?
The CSRD is a European Union directive that came into force in January 2023.
As such, it must be transposed into national law by the member states by July 2024 at the latest.
The draft bill for the CSRD Implementation Act implements the EU requirements 1:1 and provides for corresponding amendments to German law.
In particular, the German Commercial Code, the Supply Chain Duty of Care Act and the German Stock Corporation Act will be amended.
Numerous other laws will also be amended.
The CSRD will not disappear, even if the political environment is currently against this type of legislation.
However, it is conceivable that changes will be made to the CSRD over the next few years to make it more user- and implementation-friendly and reduce the bureaucratic burden.
Who is affected by the CSRD?
The CSRD obliges EU member states to ensure that certain companies are required to submit sustainability reports.
These are companies that are defined under accounting law as either large companies or small or medium-sized capital market-oriented companies.
In Germany, these size categories are regulated in HGB §267.
Companies are affected differently over time, depending on their size and form:
| Time of application | Scope of application | First report |
|---|---|---|
| 1.1.2024 | Companies already subject to the NFRD | 2025 |
| 1.1.2025 | Large corporations | 2026 |
| 1.1.2026 | Listed SMEs, small and non-complex credit institutions, captive insurance companies | 2027 |
For example, large corporations are affected from the 2025 financial year and must prepare their first sustainability report in 2026.
According to HGB §267, large corporations are those that fulfill at least 2 of the following 3 criteria:
- Turnover greater than €50 million in the 12 months prior to the reporting date
- Balance sheet total greater than €20 million
- Annual average of more than 250 employees
Small listed companies, small and non-complex credit institutions and captive insurance companies will not be subject to the CSRD until 2026. The current rules are to be tailored to this user group. The correspondingly amended law is to come into force by January 1, 2026 with an opt-out option for a further 2 years, so that these companies are expected to be directly subject to the CSRD regulations by 2028 at the latest.
The EU is currently working on an adaptation of the CSRD for smaller companies (SMEs). Simplified rules should apply here that take into account the limited resources of smaller companies.
Smaller companies that are part of the value chain for companies already affected are currently indirectly affected and must expect to have to account for their sustainability to their customers.
Is the CSRD sustainability report audited?
Yes, the CSRD sustainability report is audited by auditors. In the first few years, only a limited assurance review is required. By 2028, the audit intensity will be increased to the level of the audit of financial reporting with reasonable assurance.
CSRD in detail: What and how do companies have to report?
Companies must report on their sustainability in the form of a standardized report. The report contains both qualitative and quantitative information relating to sustainability issues in the areas of environment, social affairs and corporate policy, or ESG for short.
The EFRAG (European Financial Reporting Advisory Group) has developed its own standards for reporting, which must be applied as part of the reporting process. The standards are called ESRS (European Sustainability Reporting Standards) and define how and what exactly must be reported.
The following chart provides an overview of the content of the reporting. Two cross-cutting standards and the subject standards E1-E5, S1‑4 and G1 form the basic framework.
The materiality analysis of sustainability issues is at the heart of CSRD and is the tool that companies use to formulate their own strategies, measures and goals.
Conclusion
The introduction of the CSRD marks an important step towards greater long-term orientation and sustainability in corporate management. Companies must now take a close look at their sustainability strategies and prepare comprehensive reports that meet the new requirements. This not only presents challenges, but also considerable opportunities to increase their resilience and future viability.
Our guide provides you with a complete checklist for all CSRD reporting requirements. Find out more about our guide here: CSRD Guide
