Since the collapse of the traffic light coalition government, there has been uncertainty in the corporate world as to how the sustainability reporting regulation will develop. The EU Corporate Sustainability Reporting Directive (CSRD) should have been nationally transposed in Germany by 6 July 2024. A government draft was presented in Berlin at the end of July, and a public hearing was held in the Bundestag's Legal Affairs Committee in October. But the adoption of the law in the Bundestag planned for 8 November was interrupted by the break-up of the governing coalition two days earlier.

The CSRD is now expected to be transposed into German law in the course of 2025, following the new Bundestag elections on 23 February. Already in September the EU Commission initiated infringement proceedings against Germany, which could end up before the European Court of Justice in a worst-case scenario. Despite all the uncertainty, however, it is not expected that implementation in Germany will be delayed by more than a year. The CSRD had been implemented in 18 member states by 2 December, according to an analysis by auditing and consulting firm EY; six countries, like Germany, have so far presented a draft transposition law.

Even if the previous regulations on so-called non-financial reporting currently apply in Germany, providing the framework for explanations on Environmental, Social and Governance issues, those responsible in finance departments should not let their efforts towards ESG reporting according to EU requirements slip.

„Regardless of the delay in the CSRD transposition law, we advise companies to deal with the EU sustainability reporting standards at an early stage, even if their application is not yet legally binding,“ says Melanie Sack, Spokeswoman of the Executive Board of the Institute of Public Auditors in Germany (IDW). The implementation of the CSRD has only been postponed. „Many stakeholders, especially banks, already expect companies to provide transparent sustainability reporting,“ warns Sack.

Even if the regulation has not yet been activated nationally, companies may voluntarily submit a complete sustainability report according to the EU European Sustainability Reporting Standards. The companies can also have this audited. This allows them not only to inform their investors, but also to exempt their foreign subsidiaries from reporting obligations. „If no centralised voluntary CSRD report is prepared, the subsidiaries concerned in those countries where the CSRD has already been implemented would in any case have to prepare a report themselves, provided they fall within the scope of application,“ explains Mansur Pour Rafsendjani, partner at Noerr.

The majority of very large companies, which would have been the first to be obliged to report for financial year 2024, have not delayed their sustainability reporting projects. Thus there is little to prevent them from publishing these reports.

Even if large corporations have mostly – grudgingly – come to terms with the CSRD rules, associations and politicians are once again fundamentally questioning the scope of regulation once again. In a recent letter to Brussels, four ministers from the current German coalition government emphasised the need for a significant reduction, to avoid an unnecessary burden for companies.

Auditors are also emphasising that the need for additional guidance on the application of the European Sustainability Reporting Standards is very high – despite the implementation guidance published at the end of May. The European Financial Reporting Advisory Group (Efrag) set up by the EU is therefore working on further guidance, and has set up a Q&A process that is being actively used: More than 750 enquiries had been received by the beginning of December 2024. The Institute of Public Auditors in Germany is also assisting with a Q&A paper that discusses the consequences of the lack of CSRD implementation.

The message has been received in Brussels. Following the meeting of EU heads of state and government with the European Commission in Budapest on 8 November 2024, the Budapest Declaration on the „New Deal for European Competitiveness“ was published. In it, the European Commission announced, among other things, its intention to significantly reduce reporting obligations – with a target of at least 25%, to be implemented in the first half of 2025. Small and medium-sized enterprises (SMEs) in particular are to get some relief.

As part of the streamlining process, the EU also wants to remove redundant and overlapping reporting obligations from the CSRD, the Supply Chain Law, and the taxonomy. Ultimately, the plan is to summarise the existing and future European ESG reporting obligations in an „omnibus“ regulation. However, Brussels intends to retain the substantive content of the legal provisions.

With regard to further standards, such as sector-specific requirements for sustainability reports, Efrag is currently driving with the handbrake on, given the heated discussions. Nevertheless, the EU backed standard setter recently published its „Voluntary Sustainability Reporting Standard for non-listed SMEs“ (VSME standard).

The VSME standard is intended to provide companies that do not fall within the scope of the CSRD with a standardised set of tools for ESG reporting. This group has also been confronted with numerous, largely uncoordinated, questionnaires and ESG data requests – from lenders, customers and other business partners. Here, too, the following applies to reporting: Volunteers step forward!