News on CSRD and its implementation in Germany

The Corporate Sustainability Reporting Directive ("CSRD") obliges many companies to include sustainability-related disclosures in their annual financial statements (more information on the background to the CSRD can be found here (in German)). This article will focus on two new developments regarding the introduction of the CSRD.

I. EFRAG consultations on SME reporting - ESRS LSME and VSME ESRS

The European Financial Reporting Advisory Group ("EFRAG") has published a draft standard for consultation to concretise reporting for small and medium-sized enterprises ("SMEs") that fall within the scope of the CSRD. EFRAG has also launched a consultation on its draft voluntary standard for SMEs that do not fall within the scope of the CSRD.

EFRAG had already supported the European legislators in the past in further concretising the CSRD. It developed the European Sustainability Reporting Standards ("ESRS") and so prepared their adoption (Commission Delegated Regulation (EU) 2023/2772).

In addition to reporting in accordance with the ESRS, SMEs covered by the CSRD also have the option under the CSRD to make use of an exemption and simplify their reporting. As with the ESRS, the CSRD only provides key points for the exemption for SMEs under the CSRD as to what information this reporting should contain. This information has now been specified in more detail in the form of the draft of the ERFAG through the so-called ESRS for Listed Small- and Medium-Sized Entreprises, the "ESRS LSME".

The fact that EFRAG is developing these standards and publishing them for consultation corresponds to the procedure already familiar from the ESRS and is therefore not surprising.
However, EFRAG's move to publish a draft for consultation at the same time as the ESRS at the end of January 2024, which is aimed at SMEs not covered by the CSRD, came as a surprise: With the so-called Voluntary ESRS for Non-Listed Small- and Medium-Sized Enterprises the "VSME ESRS", EFRAG is addressing all those companies that are not covered by the CSRD and thus the aforementioned concretisations (i.e., ESRS and ESRS LSME), but which nevertheless wish to take similar measures. As a possible area of application, EFRAG states, among other things, that the provision of information can contribute to satisfying the demand for data from lenders and investors and can therefore make it easier for companies to access funding. EFRAG also sees a possible area of application in meeting the data requirements of large companies that demand sustainability information from their suppliers.

More information on green/sustainable financing can be found at here and here.

II. Draft bill on the implementation of the CSRD

As the CSRD is a directive, it is not directly applicable but must be transposed into national law. At the end of March 2024, the German Federal Ministry of Justice presented a draft bill to transpose the CSRD into German law.

Most of the adjustments are made in the accounting regulations of the German Commercial Code (HGB). The draft bill provides for a largely fully harmonised implementation of the CSRD regulations. The regulations will become relevant for (parent) companies for financial years starting after 1 January 2024 at the earliest, if these (parent) companies are already required to include sustainability information in their annual financial statements (more precisely, the management report) based on the implementation of the Non-Financial Reporting Directive (NFRD). Just as envisaged in the CSRD, the scope of application will be successively expanded in subsequent years according to the draft bill.

The draft bill also contains amendments to the Supply Chain Sustainability Obligations Act. According to this, parts of the reporting obligations are to be omitted if a company (voluntarily) prepares a sustainability report and this is then also audited. A comparable regulation was not necessary in the CSRD itself, as the German Supply Chain Due Diligence Act was an advance under German law.

The approach of the Federal Ministry of Justice to the implementation of the CSRD is not surprising. In view of the short deadline that remains until the middle of the year to apply the sometimes complex regulations (e.g. the ESRS or the ESRS LSME that has now been put out for consultation), it appears that the focus here is on efficient and ultimately effective implementation. The regulations are already very complex at EU level, which would increase the complexity for companies operating in Germany if Germany were to take a special path and could ultimately lead to a disadvantage for Germany as a business location.