Certain companies in Germany are already required to issue a non-financial statement containing key sustainability information. As part of the implementation of the CSRD, this statement is to be replaced by a requirement to expand the (consolidated) management report to include a sustainability report (Sections 289b et seq. HGB-E, 315b et seq. HGB-E), and the group of companies subject to reporting requirements is to be significantly expanded. The sustainability report must comply with defined format and content requirements (European Sustainability Reporting Standards, ESRS). The sustainability report must include the information necessary to understand the impact of the corporation’s activities on sustainability aspects, as well as the impact of sustainability aspects on the corporation’s business performance, financial results, and financial position (so-called “double materiality”). Sustainability aspects include environmental, social, and human rights factors, as well as governance factors.

Audit of the Sustainability Report

As part of the (consolidated) management report, the sustainability report is to be subject to a substantive audit in the future (Sections 324b et seq. of the Draft HGB). The audit may only be performed by a certified public accountant or an auditing firm, although the auditor of the annual or consolidated financial statements may also be selected as the auditor of the sustainability report (Section 324e of the Draft HGB). Independent providers of assurance services are not to be admitted as auditors. For a transitional period, the audit of the sustainability report is to be conducted initially with limited assurance.

No Duplicate Reporting Requirements Regarding Supply Chain Due Diligence

If companies fall under the CSRD and are required to supplement their management report with a sustainability report, this sustainability report may replace the report required under the Supply Chain Due Diligence Act (Section 10(2) LkSG). This provision is intended to avoid duplicate or overlapping reporting obligations.

No Tightening of Sanctions

The draft does not provide for any stricter sanctions than those currently in place for violations of reporting obligations related to sustainability reporting.

Background

With the draft bill, the Federal Ministry of Justice is initiating the transposition of the CSRD into German law, which must be completed by July 6, 2024. The CSRD specifies the new EU regulations on sustainability reporting for large as well as small and medium-sized capital market-oriented companies and parent companies, and is intended to ensure the provision of reliable, relevant, and comparable information on sustainability aspects.