Implementation of the CSRD in Germany

Background to CSRD implementation

The aim of the EU CSRD (Corporate Sustainability Reporting Directive) is to regulate corporate sustainability reporting and improve the quality, comparability and transparency of sustainability reports. Germany has been behind schedule with the implementation of the CSRD – (EU) 2022/2464 – since July 7, 2024.

On July 10, 2025, the Federal Ministry of Justice and Consumer Protection (BMJV) presented a draft bill on sustainability reporting by companies in German law (draft bill of a CSRD Implementation Act (RefE CSRD-UmsG)).

The sustainability reporting of companies introduced throughout the EU with the CSRD is intended to enable investors and consumers in particular to assess the sustainability contribution of companies and make better investment and consumption decisions as a result.

The directive, which will be adopted in 2022, is part of the European Green Deal and the EU Commission’s strategy for financing a sustainable economy. According to the German government, its draft underlines the objectives of the European Green Deal and supports the EU Commission’s omnibus relief package of 26.02.2025, which aims to avoid disproportionately high bureaucratic burdens for European companies.

Omnibus package and companies of the 1st/2nd/3rd wave

The draft bill already takes into account the postponement of sustainability reporting by companies of the so-called 2nd and 3rd wave by two years in each case. This postponement is based on the omnibus package on sustainability proposed by the EU Commission (stop-the-clock regulation), which, however, has not yet been adopted.

The following applies to the differentiation of companies according to the 1st/2nd/3rd wave:

• 1st wave companies already report in accordance with the Non-Financial Reporting Directive (NFRD)¹: they originally had to report for the first time in 2025 for the 2024 financial year. Simplifications to the legal framework and an increase in the threshold value are envisaged here. Companies with 501 to 1000 employees are to be exempted from reporting on the 2025 and 2026 financial years, as they would otherwise only be required to report for the associated short transition period.
• 2nd wave companies: Large companies in accordance with Section 267 (3) HGB that are not already required to report under the NFRD and meet two of three criteria (> 250 employees; > €20 million total assets; > €40 million revenue) would have had to report on the 2025 financial year for the first time in 2026.
• 3rd wave companies: In 2027, listed SMEs – with the exception of micro-enterprises – would have been required to report from the 2026 financial year.

Companies in the 2nd and 3rd wave will now only have to report on their financial years 2027 and 2028 respectively. The German government also expects that the legal framework will be considerably simplified by then and that many companies will be spared sustainability reporting obligations.

Audit of the sustainability report

Section 324b HGB-E contains the obligation to audit the sustainability report if the management report pursuant to Section 289b HGB or the group management report pursuant to Section 315b HGB is to be expanded to include a sustainability report or a group sustainability report.

§ Section 324c HGB-E defines the subject matter and scope of the audit of the sustainability report and the group sustainability report based on the model of Section 317 (1) sentence 2 HGB. Accordingly, the audit must be designed in such a way that misstatements and violations of statutory provisions and supplementary provisions of the articles of association or the articles of incorporation that have a material effect on the presentation of the net assets, financial position and results of operations of the corporation in accordance with Section 264 (2) HGB are detected with due professional care. These requirements for auditing sustainability reporting are new. Previously, it was only necessary to check whether the non-financial statement or the separate non-financial report had been submitted. In future, the content of the sustainability report must be audited in full. The review includes the question of whether the sustainability report complies with the reporting standards adopted in accordance with Article 29b or Article 29c of EU Directive 2022/2464 (Accounting Directive [Accounting Directive] – amended on December 14, 2022 by the CSRD) and the requirements of Article 8 of the Taxonomy Regulation.

This was implemented in the European Sustainability Reporting Standards (ESRS). The latter are issued as delegated acts by the EU Commission (Article 29b (1) sentence 1 of the Accounting Directive).

The ESRS specify the information that companies must report on in accordance with Articles 19a and 29a and, where applicable, the structure in which this information must be presented. Special standards for sustainability reporting apply to small and medium-sized enterprises in accordance with Article 29c of the Accounting Directive. These are, on the one hand, voluntarily applicable standards, which are also issued by the EU Commission via delegated acts and are referred to as VSME (Voluntary Sustainability Reporting Standard for non-listed small and medium sized enterprises) and, on the other hand, the European Sustainability Reporting Standards for SMEs (ESRS LSME, Listed Small and Medium Enterprises).

The ESRS LSME represent the standard for abridged reporting in accordance with Article 19a (6) of the Accounting Directive as amended by the Corporate Sustainability Reporting Directive and Section 289d HGB-E (RefE to the CSRD Implementation Act). This standard should be able to be used by capital market-oriented small and medium-sized enterprises as well as small and non-complex institutions (Article 4 (1) No. 145 of Regulation (EU) No. 575/2013) and captive insurance companies (Article 13 No. 2 of Directive 2009/138/EC).

Originally, the mandatory application of the LSME standard was intended for capital market-oriented SMEs. As the current draft legislation of the Omnibus Regulation presumably raises the thresholds for the reporting obligation (only for > 1,000 employees and either turnover > EUR 50 million or total assets > EUR 25 million), the obligation to apply and therefore the need for the LSME standard would no longer apply to capital market-oriented SMEs.²

The German Banking Industry (DK) rightly points out that the creation of the LSME ESRS was removed as part of the Omnibus Initiative, meaning that the option to apply the less complex LSME ESRS would be obsolete.3 VSME, on the other hand, is a voluntary standard for sustainability reporting for SMEs that are not directly subject to the reporting obligation under the “Corporate Sustainability Reporting Directive”.²

What happens now?

The omnibus package and the current legislative process are sometimes viewed critically. The DK points out that the draft legislation is a burden rather than a relief for many companies in view of the fact that the Omnibus Directive has not yet been finalized, the tight national timetable and the remaining uncertainties regarding the final EU requirements. According to a WeAreEurope survey, the “Corporate Sustainability Reporting Directive” is widely seen as a potential geopolitical advantage for Europe.

Although the EU directive was criticized for inadequate technical guidance, lack of proportionality for smaller companies and costly and time-consuming implementation, the concern that it would put affected EU companies at a competitive disadvantage was (surprisingly) the least mentioned of the potential obstacles discussed.

The omnibus packages and CSRD implementation are also not unproblematic for the financial world, as the sustainability reporting data of corporate clients is urgently needed, for example for the transition plans to be drawn up or the ESG ratings. In this respect, a rapid finalization of the omnibus packages and the regulatory framework for sustainability reporting is now necessary. All potentially affected companies need planning certainty here.

In our view, all companies that are likely to be affected by the implementation of the “Corporate Sustainability Reporting Directive” should quickly do their homework or continue the implementation measures that have already begun. The orderly development of sustainability reporting is preferable to a potentially hectic implementation at a later date.