So far, only a few companies have been required to report on the impact of their business activities on human rights and the environment on a binding basis. In Germany, only about 550 capital market-oriented companies fall within the scope of the law on non-financial reporting, the so-called CSR-RUG. Within the EU, only around 11,700 companies are required to disclose non-financial information under the CSR Directive adopted in 2014. The new EU Sustainability Reporting Directive (CSRD), which will replace the CSR Directive under the NFRD from January 1, 2024, is ushering in a new era. In the following, you will learn which thresholds determine whether companies are affected and what the timetable looks like.

The goal of the new CSRD is to "protect, preserve, enhance the EU's natural capital and safeguard the health and well-being of citizens from environmental risks and impacts." In order to achieve these goals, the group of companies subject to reporting requirements will be expanded several times over, among other things. In Germany alone, up to 15,000 companies will fall within the scope of the directive in the future. Within and outside the EU, this new reporting obligation will apply to up to 50,000 companies, with the introduction of the extended reporting obligations to be staggered over time.

Which companies will be affected by the CSRD starting when?

The first companies to be affected will be those that are already subject to reporting requirements under the CSR RUG. These are large corporations as defined by the German Commercial Code (HGB), which are capital market-oriented and have an annual average of more than 500 employees, as well as credit institutions and insurance companies that meet the latter two criteria. These companies must prepare their annual report for the reporting year 2024 in accordance with the new reporting standards and publish it in 2025.

From January 1, 2025, the extended reporting obligation will then also apply to all other large limited liability companies as well as credit institutions and insurance companies that have not previously been subject to reporting requirements within the meaning of the CSR RUG, provided they meet at least two of the following three characteristics as of the balance sheet date:

- Balance sheet total: at least €20 million
- Net sales: at least €40 million
- Average of at least 250 employees during the fiscal year.

These companies must prepare and publish their report for fiscal year 2025 in 2026 in accordance with the new requirements.

For capital market-oriented small and medium-sized enterprises, so-called SMEs, and non-complex credit institutions as well as captive (re)insurance companies, the requirements apply from January 1, 2026, with mandatory reporting in 2027.

Excluded from the listed SMEs are so-called micro-entities. These are companies that meet at least two of the following three characteristics on the balance sheet date:

- Balance sheet total: maximum €350,000
- Net sales: maximum €700,000
- Average maximum of 10 employees during the fiscal year.

The listed SMEs, due to their smaller size, more limited resources and taking into account the difficult economic environment due to COVID-19, are also given the option to be exempt from reporting during a transition period of two years. To do so, they must briefly explain in their management report why they are not yet able to comply with their obligation. If such an SME allows itself to be provisionally exempted from reporting, it must publish its first report for the 2028 reporting year in 2029.

The CSRD for companies based outside the EU.

In order to create a level playing field for EU and non-EU companies, sustainability reporting also includes groups with parent companies based outside the EU. These non-EU companies will fall within the scope of the directive from 01.01.2028 if they generate net sales of more than €150 million within the EU and have a large or capital market-oriented subsidiary in the EU. If these conditions are met, the subsidiary, acting on behalf of the parent company with its registered office outside the EU, is obliged to publish a - in case of doubt abridged - sustainability report for the first time in 2029.

The same obligation applies to branches of companies or groups headquartered outside the EU if their net sales in the previous year exceeded €40 million.

In both of the aforementioned cases, however, the companies or groups must have generated net sales of more than €150 million in each of the last two years in the territory of the Union.

If the subsidiary or branch is unable to fulfill its reporting obligation due to a lack of accessible information, the report must state that the parent company located outside the EU has not provided the necessary information.

Otherwise, subsidiaries whose parent company is domiciled in the territory of the Union are exempt from reporting; however, this does not apply to large capital market-oriented subsidiaries. Similarly, if there is a significant difference between the risks and their effects at the parent company and the subsidiary, the subsidiary's risks and effects must be listed separately in the parent company's group management report.

Further information on the CSRD

What does the Corporate Sustainability Directive (CSRD) mean for my company? Read our blog post for more important information on sustainability reporting under the CSRD.

Read more in our blog article

How DQS can support you

DQS is your partner in the external verification of sustainability reports. Starting in 2023, our German subsidiary CFS will offer training on CSRD and sustainability reporting according to the ESRS standards. After the CSRD comes into force, we will conduct external audits of sustainability reports prepared according to the ESRS standards from 2025. We also offer gap assessments for the ESRS standards.

Feel free to contact us with any questions or to discuss future projects.

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Michael Wiedmann

From June 2017 to December 2020, Michael Wiedmann was a compliance lawyer in the Frankfurt office of Norton Rose Fulbright. Prior to that, he held a wide variety of management positions at METRO Group for two decades; including Chief Compliance Officer, Senior Vice President Public Affairs, Head of Corporate Development/ General Manager, General Counsel and Company Secretary. He has extensive experience in compliance, governance and corporate matters, which he brings to bear in advising his clients, particularly in the development and design of compliance management systems. In addition to his involvement with the German Institute for Compliance e.V. (DICO) as co-chairman of the CSR/Human Rights working group, Michael Wiedmann regularly publishes on the topics of human rights and whistleblowing. Furthermore, he is a member of the executive committee of the German Wettbewerbszentrale in Bad Homburg, which combats unfair commercial practices.


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