Since the CSRD is an EU directive, individual member states must transpose the sustainability reporting requirements into national law. In March 2024, the Federal Ministry of Justice published a draft bill for a German CSRD implementation law. In principle, the draft provides for a one-to-one transposition of the European CSRD Directive to ensure comparability across Europe and to prevent German companies from facing competitive disadvantages within the EU.

Refinements are needed for a one-to-one implementation

In certain areas, however, the German implementation is more stringent, which is why further simplifications are urgently needed. It is crucial to move away from the “preparation solution,” so that the electronic reporting format is mandatory only for the disclosure of management reports, but not for their preparation. In addition, it should be possible to define the scope of consolidation or the reporting unit for the sustainability report according to the same rules that apply to the scope of consolidation for the financial report.

Avoiding Duplicate Reporting Obligations

Furthermore, the draft provides for a link to the Supply Chain Due Diligence Act (LkSG) to avoid duplicate or overlapping reporting obligations. To prevent unnecessary additional burdens on companies, it must also be stipulated that a company’s first CSRD report generally replaces its LkSG reporting obligations. Similarly, transitional periods should apply to the reporting obligations under the Sustainable Finance Taxonomy for companies newly covered by the CSRD. A single report—the CSRD report—should cover all of a company’s sustainability-related reporting obligations to avoid placing an excessive burden on companies.

Audit of Sustainability Reports

According to the draft, only certified public accountants are to be permitted to audit the new sustainability reports. From the BDI’s perspective, companies should be free to choose whom to commission for the audit from among all three options provided by the EU: statutory auditors, certified public accountants, and independent providers of audit services. Such freedom of choice in selecting an audit service provider could prevent potential capacity bottlenecks in external auditing and reduce costs.

Designing SME Standards to Be Practical

The BDI welcomes the sustainability reporting standard for unlisted SMEs (VSME ED) as a tool that can standardize the flood of various questionnaires sent by reporting companies and banks to their supply chains. This would ensure better comparability of information and reduce the burden on SMEs. However, it is essential that the VSME ED be designed to be practical and gain widespread acceptance among both preparers and users. Furthermore, the information must be easy for SMEs to obtain, and the VSME ED must represent the upper limit for reporting requirements imposed by business partners.

The BDI also generally welcomes a mandatory reporting standard with a reduced scope for publicly traded SMEs (LSME ED). However, the current LSME ED does not sufficiently address the specific characteristics and needs of the affected companies in some respects and remains too complex and comprehensive. Therefore, the LSME ED should be redesigned to align with the VSME ED (following appropriate revision).

The next step in the legislative process for CSRD implementation is a cabinet decision scheduled for June 2024. The entire process is not expected to be completed until toward the end of 2024. Following its revision by the European Financial Reporting Advisory Group (EFRAG), the LSME ED will be submitted to the European Commission.