The CSRD is here: time for sustainability reports 2.0

After a lengthy process and many rounds of coordination by the EU bodies, it has finally arrived: the new CSRD. It expands sustainability reporting and puts it on the same level as financial reporting. It is also intended to make the quality of sustainability reporting comparable across the EU. It replaces the NFRD from 2014, which Germany transposed into German law in 2017 as the CSR-RUG (CSR Directive Implementation Act). This means that the German government must adapt the CSR-RUG to the CSRD by July 2024 at the latest. And there is a lot to do.

At the forefront of the significant changes is the enormous expansion of the scope of companies obliged to publish sustainability information. In addition, sustainability reporting must now be included in the management report in the form of a non-financial statement and a standardised electronic reporting format must be taken into account. The first mandatory review of the content of sustainability disclosures by an auditor - albeit initially only in the form of an audit review - is also a must. And let's not forget the consideration of the content of the European Sustainability Reporting Standards (ESRS) , which are currently still under development, and the planned standards for auditors.

ESG reporting obligation: the circle is becoming very large

The new directive significantly expands the group of companies required to report, albeit in a staggered manner. Previously, 12,000 companies across the EU - including around 550 German companies - were already legally obliged to report on their sustainability in accordance with the NFRD. However, this only applied to listed and very large companies with more than 500 employees. They will have to apply the CSRD from the 2024 reporting year.

The enormous increase will then come from the 2025 reporting year with the inclusion of so-called large companies. All companies with more than 250 employees and a balance sheet total of €20 million or more or a turnover of €40 million or more are considered large. This means that around 50,000 companies across the EU , including SMEs, will be subject to the reporting obligation - including 15,000 in Germany alone. This will continue with the 2026 reporting year, when the majority of listed SMEs will also be included. And from the 2028 reporting year, non-EU companies with EU branches or EU subsidiaries will also fall within the scope of the CSRD under certain conditions.

Sustainability reporting: a must or a plus?

The CSRD stipulates that sustainability reporting must be included in a separate section of the management report. The so-called double materiality must be adhered to. This means that the company is obliged to always present its sustainability aspects from two perspectives, namely from an economic as well as a social and ecological perspective.

The whole process involves extensive data collection within the company. A challenge, but one that also opens up new opportunities: in the form of a separate sustainability report in addition to the prescribed sustainability content in the annual report. This offers completely new opportunities for positive image building for the company through exciting content, and some of the associated additional work is incurred anyway due to mandatory reporting. Another particularly smart solution is the so-called integrated annual report, in which sustainability points in the voluntary section are directly linked to the corresponding text passages in the management report. The great advantage of this is that the company demonstrates that it is thinking about sustainability issues in an integrated way right from the preparation and presentation stage.

Sustainability disclosures: What needs to be reported?

In addition to financial reporting, sustainability reporting in the management report should in future also contribute to an understanding of business performance and results as well as the company's situation and the impact of its activities. To this end, information on the following points is provided - always with regard to sustainability aspects:

1. Brief description of business model and strategy: including presentation of the corresponding corporate resilience, opportunities, plans in line with the Paris Climate Agreement and alignment with stakeholder interests
2. Description of sustainability targets over time and progress made
3. Description of the role of the administrative, management and supervisory bodies
4. Description of the sustainability-related corporate concepts
5. Information on corresponding incentive systems
6. Description of due diligence obligations already implemented, the most important actual or potential negative impacts caused by the company or its value chain and all measures taken against them, including successes to date
7. Description of the most important risks
8. Indicators for this information
9. Special case of information on the value chain: If information is still missing, a transitional period of three years from the CSRD application period applies, during which it is possible not to provide certain data with a reference to future information procurement