While European regulations apply directly to every EU country, directives must be transposed into national law. A draft bill for the transposition of the EU Corporate Sustainability Reporting Directive (CSRD) into German law is now available. We take a look at what has changed in the German draft legislation compared to the EU directive, how the national implementation proposal compares to others and how our neighbours are tackling the issue.
Entry into force and roadmap of the CSRD
The EU Corporate Sustainability Reporting Directive (CSRD) came into force on 5 January 2023. It marks a significant step in European sustainability legislation. It obliges companies to provide comprehensive sustainability reporting within the requirements of the European Sustainability Reporting Standards (ESRS).
The directive was supposed to be transposed into national law by the individual member states by 6 July 2024. In this respect, Germany is (too) late. Nevertheless, on 24 July, the Corporate Sustainability Directive Implementation Act (CSRD-RUG) was sent out as a draft for departmental consultation.
Implementation in Germany
In principle, the draft implements the CSRD one-to-one.
- There are no major deviations or stricter requirements under the German CSRD-RUG.
- The limits for when companies are required to report remain the same as in European law.
- However, the reporting obligations have been simplified to do justice to the special situation in Germany with its Supply Chain Due Diligence Act.
Adjustments due to the Supply Chain Due Diligence Act
The draft bill intends to,
- reduce potential duplicate reporting by allowing companies to use their sustainability report under the German Commercial Code as a substitute for the report under the German Supply Chain Sustainability Obligations Act (LkSG).
- In addition, the submission deadline for LkSG reports for financial years that began before 1 January 2024 will be postponed to 31 December 2025.
Further changes resulting from the CSRD
The CSRD-RUG aims to align:
- the Accounting Directive, the Transparency Directive and the Auditors Directive.
- In addition, there are extensive changes to the German Commercial Code (HGB) and amendments to other relevant laws, such as the German Stock Corporation Act, the Cooperatives Act, the Securities Trading Act and the Auditors’ Code.
- The simplifications also include the cancellation of the obligation to prepare a separate audit report and adjustments to the appointment of auditors. In future, reporting can be integrated into the audit report for the audit of the financial statements. In addition to the auditor’s report for the audit of the annual financial statements, an auditor’s report on sustainability reporting will be issued.
- The sustainability report is to be labelled in the machine-readable ESEF format (requires its own software) for the first time for the 2026 financial year and therefore later than originally planned. The postponement is considered sensible as companies are facing a major challenge with the ESEF format.
Important difference in testing authorisation
One of the main differences in CSRD implementation compared to other countries is the group of authorised auditors. In Germany, only auditors are authorised to audit the reports, as the German government believes that independent auditors do not meet the same requirements. The audit will initially be carried out with limited assurance. This means that the auditors primarily ensure that the basic requirements are met and that the information appears logical. The individual figures are not scrutinised in detail. Countries such as France, on the other hand, also allow an audit by external appointed experts, for example.
Legal and planning security
Many of the companies affected are already in the middle of preparing their first CSRD-compliant report due to the tight schedule and the high implementation effort. The publication of the government draft provides them with additional legal certainty.
Nevertheless, it is still difficult to assess the extent to which the draft bill from July 2024 is set in stone. There are increasing legislative endeavours on this topic at state level. After North Rhine-Westphalia, the states of Bavaria, Schleswig-Holstein and Mecklenburg-Western Pomerania are also seeking exemptions from sustainability reporting for certain public-sector companies.
The situation in other European countries
It is becoming apparent that the flexibility in transposing the CSRD into national law is leading to different national approaches in Europe.
- Countries such as France are pioneers in implementation and have already published the national implementation law at the end of 2023.
- Austria is also in the process of transposing this into national lawThe draft Sustainability Reporting Act (NaBeG) has been available since April 2023 and was not finally adopted at the end of August 2024. The issue of the authorisation of so-called “independent assurance service providers” (IASPs) is seen as particularly controversial.
- In Switzerland, companies that meet certain criteria have been required to report on non-financial matters since the 1st of January 2023 (Art. 964 ff. CO). Reports will be or were published for the first time in 2024. An implementing ordinance came into force on the 1st January 2024, which at least specifies the climate-related disclosures and recommends that the reporting party follow the recommendations of the international Task Force on Climate-related Financial Disclosure (TCFD) (source). However, the Federal Council would like to align Swiss legislation and requirements with EU sustainability reporting and the CSRD and therefore published a consultation draft on 26 June 2024 to amend the law. The bill is now in the legislative process, although it is difficult to say when a corresponding law will come into force. It is unlikely that this will happen before 2026.
What to do?
In the European regulatory system, it is easy to lose sight of what is going on. Below you will find a number of links to sources where you can find out more about the content of this article.
Especially if you are already in the process of preparing your CSRD report or are already in the middle of it, it is worth calling on more specific and customised support. Get in touch with us. We will be happy to help you with your CSRD process.
Sources
- EU-wide overview
- France
- Germany
- The German Government Draft CSRD Implementation Act | Squire Patton Boggs
- Act implementing Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014 and Directives 2004/109/EC, 2006/43/EC and 2013/34/EU with regard to corporate sustainability reporting | BMJ
- CSRD Implementation Act | KPMG Germany
- Auditor explains the government’s draft CSRD | Zeitung für kommunale Wirtschaft
- Draft bill on the CSRD Implementation Act published | KPMG Germany
- EU Taxonomy, CSRD, Climate & Co. – We answer your questions from the 1st ESG Day | Rödl & Partner
- Austria
- Switzerland
