Since the CSRD (Corporate Sustainability Reporting Directive) is an EU directive, its provisions must be transposed into German law. At the end of July 2024, the Federal Cabinet published a government draft of a German CSRD implementation law. This draft provides for the full implementation of the European CSRD to ensure comparability across Europe and to prevent German companies from facing competitive disadvantages within the EU. In certain areas, the implementation of the CSRD imposes unnecessary burdens on German companies, making further simplifications urgently necessary.

Practical Implementation of the Electronic Reporting Format Is Necessary

It is crucial to move away from the “preparation solution” in electronic reporting, so that the electronic reporting format is mandatory only for the disclosure of management reports and not for their preparation. On the other hand, it is welcome news that the requirement to prepare the management report in ESEF (European Single Electronics Format) and to tag it accordingly will now apply to all companies for the first time for the fiscal year 2026.

Audit of Sustainability Reports

According to the draft, only certified public accountants will continue to be authorized to audit the new sustainability reports. However, companies may freely choose from all three options provided by the EU—statutory auditors, certified public accountants, and independent audit service providers—to determine whom they wish to engage for the audit. This gives companies freedom of choice, avoids potential capacity bottlenecks in external auditing, and reduces costs.

Link to the Supply Chain Due Diligence Act (LkSG)

Just like the draft bill from the Federal Ministry of Justice (BMJ) dated March 22, 2024, the government’s draft bill provides for a link to the Supply Chain Due Diligence Act (LkSG) to avoid duplicate or overlapping reporting obligations. In this context, however, the legislature must still clarify that a company’s first CSRD report generally replaces all previous reporting obligations under the LkSG. This would enable companies to focus entirely on preparing sustainability reports under the CSRD.

In principle, the CSRD sustainability report should cover all sustainability-related reporting obligations so as not to place an excessive burden on companies. One positive development is that companies are now required to submit LkSG reports for the 2023 fiscal year no earlier than December 31, 2025.

Webinar on CSRD Implementation in Germany on October 9, 2024

The BDI, in collaboration with the DRSC, econsense, and EY, is hosting a web talk on October 9, 2024, from 4:00 p.m. to 6:00 p.m. to provide information on the changes introduced by the recently published government draft on CSRD implementation. Interested parties are cordially invited to participate virtually.

During this event, companies subject to reporting requirements will receive information and practical tips on implementing the CSRD in Germany. Companies that are already required to report in 2024 will share their experiences on topics such as materiality analysis and the value chain and answer questions. Click here to register.

Further Legislative Process

The legislative process for CSRD implementation will enter its next phase with the first reading in the Bundestag on September 26. The hearing in the Legal Affairs Committee is scheduled for October 16. The second and third readings in the Bundestag are scheduled for November 8, while the second round of deliberations in the Bundesrat is expected to take place on November 22 and December 20, respectively. This will allow the law to take effect on January 1, 2025, as planned.