Sustainability reporting in transition: current developments and tools at a glance

​As a result of the staggered entry into force of the Corporate Sustainability Reporting Directive (CSRD), the majority of companies in the user group will be obliged to disclose environmental, social and governance information in the form of a CSRD-compliant sustainability report from the 2025 financial year at the latest. This means that the companies concerned no longer have much time to carry out the materiality assessment, implement the necessary reporting processes, collect data and prepare the report. In addition, there are legal uncertainties resulting from the numerous regulatory interpretations, lack of definitions and pending legislation. This makes it even more important for decision-makers and those responsible in the company to stay informed about the latest developments in sustainability reporting. We have summarized the status of current legislation, useful tools and FAQ documents as well as planned further regulatory requirements in the following: 

 

Although the CSRD must be applied by the first companies (large capital market-oriented companies with more than 500 employees) from January 1, 2024, the EU member states have officially been given until July 6, 2024 to implement the regulation at national level. In Germany, implementation was initiated by the publication of the ministerial draft on March 22, 2024​, on which the federal states, associations and the public had until April 19, 2024 to submit comments. On July 24, 2024, the CSRD government draft was finally adopted by the Federal Cabinet. Although the directive was not implemented on time, the aim is for the law to enter into force in 2024. Essentially, the government draft provides for a 1:1 implementation of the CSRD, with only a few points (e.g. voting rights) being more specific. You can find details on this in our detailed article on the CSRD government draft​. 

After a 16 page corrigendum  to the first set of the ESRS was issued on April 18, 2024, with corrections to incorrect references, spelling mistakes and other obvious errors, an updated German version of the ESRS was published in the form of a second corrigendum on August 9, 2024. Although the content of the correction does not involve any significant changes, the elimination of translation-related ambiguities contributes to a better understanding of certain terms and passages. For example, the term “policies” (previously “Strategien”), which is frequently used in the ESRS, is translated as “Konzepte” in the correction and is thus now also linguistically differentiated from “strategies” (still “Strategien”) in the German version. It is also worth mentioning that the official names of the two standards S1 (from “Eigene Belegschaft” to “Arbeitskräfte des Unternehmens”) and G1 (from “Unternehmenspolitik” to “Unternehmensführung”) have been adjusted.

 

On August 7, the EU Commission published an  FAQ Document („Draft Commission Notice“) on the interpretation of certain regulations on sustainability reporting. According to the Commission, the FAQ document is intended to provide companies with more certainty and clarity with regard to reporting requirements and to reduce the administrative burden of implementing the relevant legislation. In addition to an overview of the future requirements for companies and auditors, the document contains a total of 90 FAQs on the sustainability information to be reported (e.g. detailed questions on the start of application, exemptions, value chain or disclosure language), on the audit of sustainability reporting, on intangible resources, the requirements for companies from third countries and on the Sustainable Finance Disclosure Regulation (SFDR).

 

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The online Online Q&A Platform of the European Financial Reporting Advisory Group (EFRAG), which was launched in October 2023, is also intended to provide support for companies subject to CSRD reporting requirements. Users of the ESRS can submit all questions on the interpretation and application of the standards here. In a clearly defined process, the questions are first categorized by EFRAG and then systematically answered. This can take the form of additional explanations or implementation guidance, for example.  

Several sets of explanations have already been published over the course of the year based on the ideas on the platform. These are now collected in a continuously updated central document („Compilation of Explanations“). he 93 explanations that have now been published between January and July 2024 deal with specific issues relating to materiality assessment, carbon accounting and S1 indicators, for example. If specific questions arise during CSRD implementation in connection with individual disclosure requirements or data points (e.g. interpretations or definitions), it may be worth taking a look at the questions document. 

 

Another result of EFRAG's work in connection with the submissions on the Q&A platform is the first three ESRS Implementation Guidance documents, which were finally published on May 31, 2024, after a long consultation and revision period. The implementation guidance is intended to support companies in implementing the ESRS requirements in a targeted and timely manner – EFRAG therefore attaches great importance to ensuring that the guidance is as practice-oriented as possible. 

In terms of content, the first two guidance documents IG 1 and IG 2 deal with the implementation of the materiality assessment (IG 1 – Materiality Assessment Implementation Guidance) and the consideration of the value chain in the materiality assessment and reporting (IG 2 – Value Chain Implementation Guidance). The third guidance, IG 3, is a comprehensive Excel file in which all data points from the first set of ESRS are listed and classified (IG 3 – List of ESRS Datapoints). It is advisable for companies to use this list as a basis for data point derivation and the subsequent gap analysis.​  

The provision of implementation guidance is fundamentally given high priority in EFRAG's work program, which is why a fourth guidance document (IG 4) on the preparation of transition plans has already been under development for some time. Furthermore, based on the input received on the Q&A platform, EFRAG is continuously analyzing which other topics should be addressed in the form of implementation guides in the future. 

 

From January 1, 2026 – with the option of a voluntary deferral until January 1, 2028 – listed SMEs (Listed Small and Medium-sized Enterprises – LSMEs) will also be obliged to prepare a CSRD-compliant sustainability report. As the EU Commission also considers the scope and complexity of the ESRS to be applied by large companies to be very high, EFRAG was commissioned to develop proportionate ESRS for listed SMEs. EFRAG complied with this mandate and published the draft for SMEs​ (ESRS LSME ED) on January 21, 2024, which could be commented on as part of a public consultation until May 21, 2024. Compared to the first set of ESRS, the number of data points to be reported has been significantly reduced in the LSME draft; further simplifications concern, for example, the structure, which provides for more centralized disclosures, or the voluntary nature of reporting on positive impacts and opportunities. The draft is currently being revised on the basis of feedback from the consultation phase and a field test. The final draft will then be submitted to the EU Commission, which will make further revisions if necessary and adopt the final version (like the first set of ESRS) as a delegated act and thus directly applicable EU law. 

 

In addition to reporting on the sector-agnostic ESRS, the CSRD requires companies to disclose information relating to the sector in which they operate. As part of this, EFRAG was tasked with developing sector-specific standards, which were originally due to be adopted by the EU Commission by June 30, 2024. Due to the tight schedule and the prioritization of the implementation guidance and other working aids for the first set of ESRS, the deadline for the adoption of this second set has been postponed to June 30, 2026. Meanwhile, EFRAG has initiated a multi-year standard-setting program that is expected to lead to the publication of around 40 sector-specific standards. The initial focus will be on sectors with a particularly high environmental impact – so-called high-impact sectors, which include mining, quarrying and the oil and gas sector, for example – as well as the financial sector. The first drafts are currently still under development and will be subject to public consultation once they have been published. EFRAG aims to submit the first set of sector-specific ESRS to the EU Commission by November 2025. It remains to be seen when the sector-specific reporting requirements will ultimately have to be implemented.