The Corporate Sustainability Reporting Directive (CSRD) is an EU directive on sustainability reporting. It entered into force on 5 January 2023 and is considered a further development of the previous Non-Financial Reporting Directive (NFRD). It aims to make non-financial and financial reporting homogeneous. In addition, this leads to a significant expansion of enterprises subject to reporting requirements. Previously, the NFRD only covered about 500 enterprises in Germany, whereas the CSRD will cover about 15,000 in the future. The regulations provide for sustainability information as a mandatory part of the management report. The basis will be uniform, mandatory EU standards, i.e. the European Sustainability Reporting Standards (ESRS).

The CSRD entered into force at EU level on 5 January 2023. The directive will be transposed into German law by June 2024 and will lead to the extension of the reporting obligation to large enterprises, i.e. all enterprises that fulfil at least two of the following three characteristics:

• Balance sheet total: at least EUR 20 million
• Net sales revenue: at least EUR 40 million
• Average number of employees: at least 250

For such enterprises, a reporting obligation applies to all financial years beginning after 31 December 2024. For capital market-oriented enterprises, mandatory reporting in accordance with the new requirements is already mandatory for all financial years beginning after 31 December 2023 (exception: capital market-oriented SMEs, for which the obligation only applies to financial years beginning after 31 December 2025). 

The EU taxonomy provides a classification system for environmentally sustainable economic activities. On the basis of predefined criteria, a sector-specific classification is to be made as to whether an enterprise reports “green” sales revenues, investments or operating expenses. The requirements were already applicable to capital market-oriented enterprises for the first time for financial year 2021. Through the CSRD, the mandatory classification will be extended to a significantly wider circle of users and become part of future sustainability reporting.

The reporting of sustainability information in the management report covers the issues of environmental, social and governance. The scope will be determined individually on the basis of double materiality. For this purpose, concrete key performance indicators (KPIs) must be defined and subjected to a target/actual analysis and evaluation. Planned measures and potential risks must also be described in this context. Additional mandatory components include a description of the enterprise’s business model and strategic orientation as well as its sustainability risks and opportunities. Information along the value chain must also be included here.

Through the principle of double materiality, sustainability issues will be covered from two perspectives:

• Inside out perspective: What impact does the respective entrepreneurial action have on e.g. people, society and the environment?
• Outside in perspective: What opportunities/risks arise for the business model and the development of the enterprise, e.g. due to climate change, legal requirements.

An issue will be classified as material and thus subject to reporting requirements as soon as one of the two perspectives is classified as material in the assessment. Reporting must then be carried out in accordance with the uniform requirements of the European Sustainability Reporting Standards (ESRS).