To improve existing sustainability reporting, the Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023. The previously valid Non-Financial Reporting Directive (NFRD) was incomplete and showed deficits in transparency and depth, according to the results of studies by the Federal Environment Agency [1] and the Accounting Standards Committee e.V.
The CSR Directive expands the group of companies subject to reporting requirements
As part of the objectives of the European Green Deal and the European Commission’s Sustainable Finance Strategy, the pressure to deepen CSR guidelines has increased in recent years. The revision of the NFRD is intended to align the level of sustainability reporting with a company’s financial reporting. In Germany, the CSRD and previously the NFRD will be transposed into national law by the CSR Directive Implementation Act (CSR-RUG).
The new requirements will apply from the 2024 financial year, i.e. for reporting from 2025. They will be expanded in phases in subsequent years.
Am I affected and if so, when?
The reporting obligation will be extended in phases from the companies currently already affected by the NFRD to all large companies with limited liability under accounting law and all listed companies (with the exception of micro-listed companies). The reporting obligations are staggered as follows:
In 2025 for financial year 2024: companies that already had to report in accordance with NFRD.
In 2026 for financial year 2025: “Large” companies that meet 2 out of 3 size criteria:
1) Balance sheet total > € 20 million
2) Net sales > € 40 million
3) Employees > 250
In 2027 for financial year 2026: listed SMEs (with opt-out until 2028)
In 2029 for financial year 2028: Companies from third countries with a net turnover of more than EUR 150 million in the EU if they have at least one subsidiary or branch in the EU and exceed certain thresholds [2]
What’s new?
1. a double materiality analysis is mandatory.
2. the number of companies affected by the disclosure requirements is increasing.
3. there is an expansion of the scope of the report.
4. an external audit of the reporting takes place.
5 Sustainability information must be integrated into the management report.
6. the use of the European Sustainability Reporting Standards (ESRS) for CSR reporting is mandatory.
It starts with double materiality – but what does that mean?
The scope of the report is being expanded, but the materiality analysis is carried out before the actual reporting. The identification of key topics for a company is the basis for the subsequent collection of data and key figures.
Instead of carrying out a simple materiality analysis, as in the past, companies must now follow the principle of double materiality.
Double materiality means that, on the one hand, companies have an impact on people and the environment (inside-out view) and must identify these issues. For example, damaging nature or violating human rights.
On the other hand, sustainability-related developments and events create (new) risks and opportunities for organizations (the outside-in view). Examples include the reputational risk in the event of corruption incidents, the introduction of new carbon taxes or the opportunities to develop new circular and sustainable products.
According to the concept of dual materiality, a sustainability issue can be material from the perspective of impact and/or from the perspective of risks and opportunities. Although the CSRD provides some guidelines for this, an organization must decide for itself whether an issue is material or not and justify its decisions.
