CSRD: New rules for reporting on corporate social responsibility

Sustainability is the key issue of the 21st century. This applies both to climate protection and "clean" investment as well as to good, socially responsible, i.e. sustainable corporate governance. This is often summarized under the term Corporate Social Responsibility (CSR). Corporate social responsibility describes the voluntary contribution of business to sustainable development that goes beyond the legal requirements. CSR is therefore a key concept of corporate ethics and is expressed, for example, in the promotion of work-life balance, diversity and inclusion management, the prevention of misconduct through auditing and compliance mechanisms and climate risks, or in the implementation of mission statements and codes of conduct, risk management and even whistleblowing systems.

CSRD: new directive on corporate sustainability reporting

Important: Shareholders and stakeholders are increasingly demanding that companies include an appropriate and measurable representation of corporate social responsibility in their reporting. In addition, asset managers must also measure and evaluate such risks and opportunities in their portfolio as part of their fiduciary duty. Professional sustainability reporting therefore makes a decisive contribution to business success - and is also politically required. The change in sustainability reporting is now in the starting blocks.

The new directive on corporate sustainability reporting, the Corporate Sustainability Reporting Directive (CSRD), revises the disclosure of non-financial information and ensures the robustness of companies' obligations by introducing the following innovations:

• Extension of the scope of application to all large companies and all companies listed on a regulated market (with the exception of listed micro-enterprises);
• Requirement for an audit of sustainability reporting;
• more detailed and standardized requirements for companies' disclosure obligations;
• Improving access to information by requiring publication in a separate section of companies' management reports.

Transition to a sustainable economy to be promoted

"These changes will increase corporate accountability, prevent diverging national standards and facilitate the transition to a sustainable economy," says the European Commission. And further: "The proposal aims to close gaps in the existing rules on the disclosure of non-financial information, the quality and comparability of which have so far been insufficient to allow investors to take proper account of them. These shortcomings hinder the transition to a sustainable economy. This Directive confirms the European Union's pioneering role in setting sustainable standards. The harmonization of sustainability data is made possible by the establishment of sustainability reporting standards adopted by the European Commission by means of a delegated act, following technical advice from the European Financial Reporting Advisory Group (EFRAG) and several European agencies."

Disclosure of information on non-financial aspects of companies

The German Sustainability Code reports: "The CSR Directive Implementation Act requires the disclosure of information on non-financial aspects, at least on environmental, employee and social matters, respect for human rights and the fight against corruption and bribery. In this context, the information on the individual non-financial aspects that is necessary for an understanding of the course of business, the business results and the situation of the company as well as the effects of its activities on the non-financial aspects must be provided."

The new CSR Directive follows the so-called double materiality perspective. This means that companies must clarify the impact of sustainability aspects on the economic situation of the company and the impact of operations on sustainability aspects. CSRD-compliant reporting therefore includes stating the sustainability goals, describing the role of the Management Board and Supervisory Board, an overview of the company's most important adverse effects and the intangible resources not yet recognized in the balance sheet.

Around 15,000 companies in Germany must implement CSRD reporting obligations

The new directive affects a large number of companies. The EU Commission's draft Corporate Sustainability Reporting Directive means that from 2024, non-capital market-oriented companies will also have to report on social and environmental aspects if they meet two of the following three criteria: 

• Balance sheet total > 20 million euros
• Net sales > 40 million euros
• Number of employees > 250

It is estimated that around 50,000 companies in the EU will be affected by the new rules. In Germany, the CSRD Directive affects around 15,000 companies that will have to report on the year 2024 from 2025. Based on these regulations, a company with a balance sheet date of December 31, 2023 must prepare the CSR report for the 2023 financial year by April 1, 2024. This means that companies that have to comply with the CSRD obligations should prepare for implementation at an early stage.

Services relating to the Corporate Sustainability Reporting Directive

We at Höppner Management & Consultant support you in fulfilling the Corporate Sustainability Reporting Directive with the following services:

• Status analysis: We check which elements of the mandatory legal provisions have already been implemented in your company and where there is room for improvement.
• Materiality analysis: We review non-financial topics or business activities and key areas of activity (taking into account official standards/initiatives such as GRI, OECD, GHGP, SBTIs, etc.); the exclusion of immaterial non-financial topics is documented with reasons. We carry out the "double materiality" check on the basis of these topics.
• Data management: collection of performance indicators
• Sustainability management: Together we implement the requirements of one or more guidelines in your company and set up a team for this if necessary. 
• Reporting: The actual reporting relates to the results from data management and sustainability management. We supply guideline-compliant text modules. 

Generally speaking, sustainability and CSR performance is an important factor for all stakeholders. Sustainability indicators for measuring this performance are fundamental and significant variables of corporate success, and sustainable, socially responsible business practices are more important than ever for a future-proof organization.

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Image source: © Photo by Marek Piwnicki on Unsplash