CSRD implementation in Germany: current status and outlook

The CSRD is a directive adopted by the European Commission. A directive is a legal instrument of the European Union that obliges the member states to achieve a specific objective. In contrast to regulations (e.g. EU Taxonomy Regulation 2020/852), which apply directly in all member states, a directive only specifies the objective to be achieved. Within the framework of the directive, the member states themselves decide in what form and by what means this objective is transposed into national law (Art. 288 TFEU). 

Generally, member states are given two years to implement a directive. In individual cases, such as the CSRD (18 months), there may also be deviations from this timeframe. If this deadline is not met, the European Commission can initiate infringement proceedings. In doing so, it requests the state concerned to rectify the situation in a reasoned opinion. If this is not forthcoming, the case can be brought before the European Court of Justice (ECJ) (Article 258 TFEU). 

If a judgment is passed against the state, the ECJ can impose financial sanctions, for example in the form of lump sums or penalty payments, in order to enforce implementation (Article 260 TFEU).

In March 2024, the German Federal Ministry of Justice published an initial draft bill for the CSRD Implementation Act. On this basis, the Federal Government adopted a government draft (CSRD RegE) in July 2024, which was subsequently submitted to the Bundestag and Bundesrat for consultation. 

On September 27, 2024, the Bundesrat published its official statement on the CSRD RegE. During the consultations, which can be accessed via the German Bundestag's media library, the Bundesrat expressed concerns regarding the additional burdens imposed by the extensive reporting obligations for companies, among other things. In particular, it was criticized that the additional work involved could jeopardize economic transformation in Germany. The Bundesrat therefore called on the Bundestag to revise certain aspects of the draft law. In its counterstatement published on October 9th, the Bundestag stated that it would advocate a simplification of the reporting obligations at EU level, as the current directive offers member states little leeway for implementation.  

In view of the current political situation in Germany, it is less likely that the CSRD Implementation Act will come into force before the end of 2024. In order to comply with the directive and European requirements, the law would then have to be passed in 2025 under a new federal government.

On November 14, 2024, the Institute of Public Auditors in Germany (IDW) issued a statement based on a commissioned independent legal opinion on the uncertainties that exist in connection with the new reporting requirements of the CSRD, particularly for the 2024 reporting year. 

In principle, as long as an EU directive has not been transposed into national law, companies are not subject to any new national legal obligations. Retroactive application of the CSRD to completed financial years would not be constitutionally permissible. Therefore, if no transposition law is passed by December 31, 2024, the Non-Financial Reporting Directive (NFRD), which was implemented in Germany in 2017 in the form of the CSR-RUG, will remain in force for the time being. Large capital market-oriented companies, credit institutions and insurance companies with more than 500 employees would still have to report on sustainability issues in a non-financial statement or a non-financial report in accordance with Section 289c of the German Commercial Code (HGB). Auditors would still only be obliged to audit the formal submission of the reports. According to the CSR-RUG, there is no obligation to audit the content, but not doing so could impair the credibility and comparability of reporting. Many companies therefore opt for a voluntary review of the content of the sustainability report. The reporting obligation under Article 8 of the EU Taxonomy Regulation remains in place. 

However, according to the IDW statement, retroactive application could be proportionate and legally permissible for current financial years. This would mean that the CSRD would be binding for financial years beginning on or after January 1, 2025, even if it was implemented in 2025. For companies that are only required to report from this date anyway, delayed implementation in 2025 would therefore not have any major consequences. Due to the European Sustainability Reporting Standards (ESRS), which have already been adopted in 2023 and are directly applicable, no significant changes to the required reporting content are to be expected as a result of later implementation.  

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In view of the continuing legal uncertainty, companies that are already required to report in 2024 in particular should now consider the options arising from a delayed implementation of the CSRD together with their auditor. The decision on how to proceed with sustainability reporting for the 2024 financial year and whether it should be audited depends on the specific circumstances of the company and should be weighed up individually.