Draft Report on CSRD Transfer into German Law Published

published on May 2024 | reading time approx. 3 minutes

On March 22, 2024, the Federal Ministry of Justice published the draft report of the laws on the implementation of the law on the implementation of corporate sustainability reporting (CSRD, Directive (EU) 202/2464) including the synopsis – a comparison between the current legal text and the proposed amendments to the law.

In accordance with Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022, amending the existing regulation and directives regarding corporate sustainability reporting (CSRD), all member states are obliged to transpose this into national law by July 6, 2024. In future, sustainability reporting in accordance with CSRD is to replace the “non-financial statement” pursuant to Sections 289b & 289c JURA. This obligation has now been implemented with the present draft. The legislation will gradually apply to all large companies under commercial law as well as small and medium-sized capital market-oriented companies.

There have been changes and adjustments primarily to the German Commercial Code (JU-RA), the German Securities Trading Act (WpHG) and the German Auditors’ Code (WPO). You can find out about the specific changes in the following article.

Contents of the draft law

CONTENTS:

In the future, the sustainability report must be included in a clearly recognizable section of the management report (see Section 289b (1) JURA-E)

The information necessary for an understanding of the impact of the company’s activities on sustainability aspects (environmental, social, and human rights issues and governance factors) or for an understanding of the impact of sustainability aspects on the company’s business performance, results and position must be disclosed.

With regard to the business model and strategy, it should describe how the company ensures that this is in line with the transition to a sustainable economy (1.5-degree target, climate neutrality by 2050) and, in this context, describe its resilience to sustainability risks and opportunities.

In addition to time-bound sustainability targets and progress already made, due diligence processes and measures to identify, prevent or remedy actual or potential negative impacts should also be described. (see Section 289c JURA-E)

AUDIT OF THE SUSTAINABILITY REPORT:

With the implementation of the CSRD, the obligation to audit the sustainability report with limited assurance will be introduced into German law. Later, the EU Commission plans to introduce its own assurance standard ad possibly extend it to a reasonable assurance engagement. Reporting on the audit is to take the form of a separate audit opinion (as well as a separate audit report) (Section 324i JURA-E)

In accordance with the CSRD, the EU member states have been granted a right choice in some aspects. This includes the question of who will be authorized to audit sustainability reports in the future. The European legislator has granted the option of having the sustain-ability report audited by an independent third-party other hand the statutory auditor of the annual or consolidated financial statements. According to the current draft report, this option has not been exercised. Accordingly, the audit can only be carried out by an auditor or an auditing company. The auditor of the sustainability report does not necessarily have to be the same as the auditor of the annual or consolidated financial statements (see Section 324e (2) JURA-E)

REQUIREMENTS FOR THE AUDITORS:

There have also been amendments to the professional regulations for auditors. Accordingly, auditors who wish to sign a legally binding sustainability report will in future have to pass an additional examination to become an auditor for sustainability reports before the examination board (see Section 13c (1) WPO-E). In addition, registration as an auditor for sustainability reports is a prerequisite for carrying out statutory sustainability audits.

LINK WITH THE LKSG:

In order to avoid double reporting, companies that in future prepare a voluntary or mandatory sustainability report in accordance with Section 289b of the German Commercial Code (JURA) will be given the option of omitting the reporting obligation under Section 10 (2) LkSG. The prerequisite is that the sustainability report prepared is audited. The sustainability report must then be published on the company’s own website instead of the report in accordance with Section 10 (2) LkSG (see Section 10 (5) and (6) LkSG) and submitted to BAFA (see Section 12 (3) LkSG). All other obligations of the LkSG remain unchanged.

EDITORIAL CHANGES:

The revised version of the JURA provides for the term “Sustainability report” to be used instead of “non-financial statement” (see Sections 289b ff. JURA-E and Sections 315b ff. JU-RA-E). This underlines the future equivalence of sustainability-related information compared to financial disclosures. In addition, the terms “audit” has been replaced by “audit of financial statements” (see section 316 JURA-E) and “audit report” by “audit report” (see Section 321 JURA-E).

Further procedure

The draft report was available for comments from the federal states, local authority associations, certain specialist groups and associations until 19.04.2024. After reviewing the comments received, the draft report is adopted by the federal government and passed as a government bill. It is then forwarded to the Bundesrat for examination and presented to the German Federal Parliament. The German Federal Parliament usually carries out three readings of the draft report, whereby amendments to the content are still possible. After the Bundestag has passed the bill and the Bundesrat has not raised any objections, it is passed as a federal law and signed by the Federal President. After publication in the Federal Law Gazette, the law comes into force.