Draft bill on the CSRD Implementation Act published

On 22 March 2024, the Federal Ministry of Justice published the draft bill on the implementation of the Corporate Sustainability Reporting Directive (CSRD) (draft law on the implementation of 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).

Through the CSRD, the European Union introduced mandatory (group) sustainability reporting for large companies and for small and medium-sized capital market-oriented companies, as well as the auditing of such sustainability reporting. The scope of application includes corporations and commercial partnerships treated as corporations. The Accounting Directive, the Transparency Directive and the Auditing Directive have been adapted by the amending provisions of the CSRD. These European requirements are to be implemented in Germany by this draft law. As part of the implementation of the CSRD, the existing legal framework is also to be reviewed and amended in certain areas according to the draft bill. In addition to far-reaching changes to the German Commercial Code (HGB), corresponding amendments are also to be made to other affected laws, such as the German Stock Corporation Act (AktG), the Cooperatives Act (GenG), the Securities Trading Act (WpHG), the German Auditors Act (WPO) and the Supply Chain Management Act (LkSG).

The application obligation begins for the companies concerned with their registered office in the Federal Republic of Germany and for issuers from a third country, as provided for by the CSRD, staggered over time for financial years beginning

• from 1 January 2024: large public-interest entities, including credit institutions and insurance companies with more than 500 employees
  
• from 1 January 2025: all other large companies or groups, including credit institutions and insurance companies
  
• from 1 January 2026 with the option of deferring first-time application to financial years from 1 January 2028
  
  • capital market-oriented SMEs that are not micro-entities, and
    
  • non-capital-market-oriented small and non-complex credit institutions and captive insurance companies that are large companies
    
• from 1 January 2028: certain large EU subsidiaries and EU branches of third-country groups in relation to group-wide reporting.

Among other things, the draft law intends to exercise the following member state options:

• The responsibility for monitoring sustainability reporting is to be transferred to the audit committee of the supervisory board for public interest entities. Other companies may also delegate this responsibility to the supervisory board itself or another committee.
  
• It should be possible for the sustainability report to be audited either by the company's auditor or by another auditor. A separate audit opinion and audit report is to be issued on this audit.
  
• Other independent providers of auditing services will not authorised to audit sustainability reports.
  

In addition, the draft law also provides for penalties and fines for breaches of sustainability reporting.

By extending the obligation to apply sustainability reporting to large capital market-oriented cooperatives with more than 500 employees, the draft bill goes beyond the mandatory implementation of the directive. The regulations on sustainability reporting are not to apply to companies that fall under the Public Disclosure Act.

In addition, the reporting obligation under the Supply Chain Sustainability Obligations Act is to be waived under certain conditions if the company has expanded its management report to include a sustainability report or is exempt from the sustainability reporting obligation by including it in such a management report.

The draft bill of the implementation law is available here.

The draft bill forms the basis for the governmental draft of the implementation law of the Federal Government. The member states of the European Union are obliged to transpose the CSRD into national law by 6 July 2024.