CSRD Implementation Act: The most important contents and effects

On 24 July 2024, the Federal Cabinet adopted the government draft of the law to implement the Corporate Sustainability Reporting Directive (CSRD). The CSRD replaces the previously applicable EU Non-Financial Reporting Directive (NFRD) and entails far-reaching changes for companies as well as an expansion of the scope of application.

The amending provisions of the CSRD have adapted the Accounting Directive, the Transparency Directive and the Auditing Directive. These European requirements are to be transposed into German law with this draft bill.

In addition to far-reaching changes to the German Commercial Code, corresponding amendments are also proposed in other affected laws, such as the German Stock Corporation Act, the Cooperative Societies Act, the Securities Trading Act, the Auditors' Code and the Supply Chain Due Diligence Act.

The sustainability reporting obligation applies to both individual companies and (sub-)groups. In addition to capital market-oriented companies and issuers from a third country, large corporations and commercial partnerships with limited liability are also required to report.

The government draft also provides for capital market-oriented cooperatives with more than 500 employees to be included in the scope of application. The provisions on sustainability reporting are not to apply to companies that fall under the Public Disclosure Act.

The size of the company or (sub)group is determined in accordance with the financial reporting criteria set out in Section 267 HGB. Companies are considered large if they fulfil two of the following criteria: They have a balance sheet total of more than 25 million euros, more than 50 million euros in sales revenue or more than 250 employees.

Companies and subgroups can be exempted from the sustainability reporting obligation if they are included in the group management report of a higher-level parent company, which has been expanded to include a group sustainability report. Inclusion in the consolidated sustainability report of a parent company based in a third country may also allow exemption under certain conditions.

However, the group exemption cannot be utilised by companies that are both capital market-oriented and large within the meaning of Section 267 HGB.

Parent companies that supplement a group management report with a group sustainability report do not also have to prepare a sustainability report at company level.

In addition, the (group) sustainability report can fulfil the reporting obligations of companies under the Supply Chain Due Diligence Act, meaning that companies do not have to prepare a separate report on their fulfilment of due diligence obligations.

The scope and content of sustainability reporting are specified by the European Sustainability Reporting Standards (ESRS). The report must be published as part of the management report, prepared in digital XHTML format from the 2026 financial year and labelled in accordance with the requirements of the ESEF Regulation. This also applies to non-capital market-oriented companies.

The Executive Board or management is responsible for preparing the sustainability report; the Supervisory Board is responsible for monitoring it. The government draft provides for corresponding additions to the AktG, the GmbHG and the GenG. In the event of incorrect representations in the sustainability report, the same sanctions apply as for financial reporting for the legal representatives and the supervisory board.

The balance sheet and management report oath are combined and expanded to include a statement on sustainability reporting.

Sustainability reporting is subject to an audit by an auditor, initially with limited assurance. The EU Commission is also to develop standards for an audit with reasonable assurance, which are to be applied in the future.

The provisions on the appointment of auditors are to be applied accordingly to the appointment of the auditor of the sustainability report. For the year of first-time application, the government draft contains a legal fiction that leads to a simplification for affected companies: For companies that have to prepare a sustainability report in accordance with the new requirements for the first time for the 2024 financial year, the auditor of the corresponding annual financial statements shall also be deemed to have been appointed as the auditor of the sustainability report, provided that the annual general meeting or shareholders' meeting was convened before the CSRD Implementation Act came into force and no separate auditor was appointed for the sustainability report.

The government draft serves as the basis for the subsequent discussion in the Bundestag.

Despite the existing legal uncertainties and possible amendments or additions with regard to the CSRD Implementation Act, we recommend that all companies subject to sustainability reporting obligations - including those for which first-time application is not planned until the 2025 financial year - deal with the legal obligations and the complex content requirements in good time.