1. The EU Green Deal promotes transparency

A key pillar of the EU Green Deal, the European strategy for climate-friendly growth, is the development of sustainable finance. The aim is to redirect capital flows specifically into investment projects in environmental and climate protection that are necessary to achieve climate neutrality by 2050. The European Union has therefore adopted new regulations on sustainability reporting in order to make sustainability criteria for investment decisions more transparent and easier to compare. The three most important new EU regulations on corporate transparency are (BDI/DRSC, 2024, FfE, 2022):

• The EU taxonomy defines criteria for when an economic activity is considered sustainable (Hagenberg, 2024).
• The EU Sustainable Finance Disclosure Regulation (SFDR) formulates disclosure obligations for financial market participants and financial advisors at company and product level (Katzer, 2024a).
• The EU Corporate Sustainability Reporting Directive (CSRD) is another key instrument on the path to a sustainable economy (DIHK, 2024a) and is explained in more detail below (Katzer, 2024b).

This article provides an overview of what CSRD is all about and presents figures from a company survey on what companies in North Rhine-Westphalia (NRW) and Germany have already initiated in this area. The following article is based on the publication by Neligan et al. (2024), which was produced as part of Sci4Climate.NRW.

 

2. The CSRD significantly expands reporting obligations

Since 2017, the Non-financial Reporting Directive (NFRD) has required large public interest entities with more than 500 employees to publish a non-financial statement containing information about their business activities. In this statement, they must disclose how they deal with social and environmental challenges or explain why they do not report on them. These include topics such as environmental protection, social and employee-related/employee rights aspects, human rights, anti-corruption and bribery and diversity on supervisory boards.

The CSRD significantly expands the existing directive in order to provide reliable and comparable sustainability information for the assessment of non-financial corporate performance. The aim is not only to introduce binding EU standards for sustainability reporting, but also to gradually oblige significantly more companies to publish a sustainability report. These reporting requirements will be successively expanded (BMAS, 2024):

• for financial years beginning on or after January 1, 2024: public interest entities with more than 500 employees that were previously required to submit a non-financial statement in accordance with the CSR Directive (Non-Financial Reporting Directive)
• for financial years beginning on or after January 1, 2025: all other large companies under accounting law
• for financial years starting from January 1, 2026: additionally capital market-oriented SMEs. These companies can apply for a deferral until 2028. Capital market-oriented micro-enterprises (less than 10 employees) are not affected.

The extensions will increase the number of companies subject to reporting requirements in Germany from 500 companies to date to around 15,000 companies (DIHK, 2024; UBA, 2024). However, in a statement for the Ministry of Justice, the National Regulatory Control Council points out that the bureaucratic costs of the EU directive will burden the German economy with 1.6 billion euros annually (NKR, 2024).

However, Germany has not yet transposed this regulation into national law by the deadline. According to EU regulations, national implementation was required by July 6, 2024. In March 2024, a draft bill was presented by the Federal Ministry of Justice, which essentially implements the EU directive. It was also envisaged that the due diligence report under the German Supply Chain Due Diligence Act could be omitted in future if a sustainability report is prepared and published in accordance with the CSRD rules. This government draft was approved by the Federal Cabinet on July 24, 2024 and the plan was to pass the law in the Bundestag by the end of the year. Due to the new elections on February 23, 2025, it is currently unlikely that this will happen before autumn 2025. The European Commission has already initiated infringement proceedings against Germany on September 26, 2024 (Herzog, 2024). Despite the existing legal uncertainties and possible amendments or additions to the CSRD Implementation Act, many companies are already preparing for this sustainability reporting obligation.

 

3. Where do companies stand in terms of reporting?

In spring 2024, almost 900 companies, including 187 from NRW, in the business-related service and industrial sectors with at least one employee subject to social security contributions were asked whether, for whom and how they prepare sustainability reports. This took place as part of the IW Future Panel for the SCI4climate.NRW project. 

As the survey shows, numerous companies are already producing sustainability reports voluntarily or are planning to do so. In NRW, a good one in four companies produce or plan to produce a report on a mandatory or voluntary basis. Nationwide, this figure is three in ten companies (Neligan et al., 2024). For Germany, it can be seen that the proportion of companies that prepare a report now or in the future increases significantly with company size. Around one in three small companies (1 to 49 employees) voluntarily prepare or plan to prepare a report. Among large companies (250 employees or more), which have been legally obliged to do so since the beginning of 2025, the figure is nine out of ten. However, at the time of the survey in 2024, only large companies of public interest with more than 500 employees were affected by the statutory reporting obligation, meaning that some of these large companies were still preparing such reports voluntarily. This is not surprising, as many of these companies are gradually becoming subject to reporting requirements and are preparing for this in advance. Due to the small number of cases at NRW level, this size differentiation is not shown for NRW, although the picture is likely to be similar.  

The aim of corporate sustainability reporting is to inform various stakeholders about sustainability aspects. Based on 41 companies in NRW and 177 for the nationwide comparison, the picture in NRW is similar to the national average. Sustainability reports are aimed in particular at direct business partners, for example due to requirements on the part of customers and clients (NRW: 71%, DE: 72%). However, they are also prepared for employees and the public (NRW: 47%, DE: 51%) as well as for external investors in order to obtain better financing conditions from banks and on the capital market (NRW: 17%; DE; 23%). Under the SFDR, banks are obliged to take sustainability criteria into account when granting loans to companies, meaning that comparable sustainability reports from companies are becoming increasingly relevant, regardless of whether a company is obliged to prepare a sustainability report under the CSRD or not. The figures for Germany as a whole show that While only one in two of the small companies with up to 49 employees that prepare a sustainability report do so for their employees and the public, more than three quarters of the larger companies do so. The result for companies in NRW is also very similar here.

When asked about the measures that companies have taken or are planning to take to implement sustainability reporting, it is clear that in around one in two companies (NRW: 45%, DE: 53%), employees are already responsible for sustainability-related tasks or will be in the future without having received special training for this (Figure 1). This applies in particular to small companies with up to 49 employees. In NRW, a good half of companies rely on specific further training - a higher proportion than the German average (40%). Across Germany, 45% of companies that already produce a sustainability report have provided their employees with specific training. This is a strategy that large companies in particular are pursuing. Among those companies that are only planning to report so far, the figure is just under two-fifths. 

Around one-fifth of companies that already implement or plan to implement reporting use external service providers such as consulting firms or auditing companies to prepare the reports. While small companies do or plan to do this much less frequently (20%), medium-sized companies (50 to 249 employees) in particular (40%) and large companies (250 employees or more) (almost a third) use such a solution outside the company much more frequently. Only a few companies have hired qualified staff specifically for this purpose (NRW: 12%; DE: 8%) or are planning to do so (NRW: 2%; DE: 3%). This proportion of companies that already do or plan to do this increases significantly across Germany with the size of the company: from 4% (up to 49 employees) to 15% (50 to 250 employees) to 26% (250 employees or more).

 

4. Conclusion

The EU Sustainability Reporting Directive (CSRD) is intended to increase the transparency, quality and comparability of corporate activities so that investors and other stakeholders can use the reporting standards to better assess the credit risks and environmental friendliness of the projects presented by investors and compare them with similar projects. However, the costs and administrative burden of the additional obligations are considerable and lead to a lack of acceptance. Especially as the lowering of the thresholds will not only mean that far more companies will be subject to direct reporting obligations, but will also require their suppliers to provide corresponding information. 

Companies subject to reporting requirements must face up to this task and have the choice between training existing staff, hiring new staff with specific skills or purchasing external services (consulting) or tools and software for reporting. Depending on the depth of reporting, SMEs also face the same necessity as large companies and must invest in personnel or external services. However, the survey results indicate that smaller companies in particular only have limited resources to hire new staff, train their existing staff or make use of external service providers. The CSRD's ESG requirement should therefore be revised, in particular to reduce the effort required to survey small and medium-sized suppliers along the value chain (DIHK, 2024b). This has now also reached the EU Commission: With the Compass for Competitiveness published on January 29, 2025, the European Commission is aiming to drastically reduce the regulatory and administrative burden through simplification. As a first step, the CSRD as well as the EU Supply Chain Directive (CSDDD) and the EU taxonomy are to be simplified. To this end, the aim is to explicitly prevent smaller companies along the supply chain from being indirectly exposed to excessive reporting requirements due to the “trickle-down effect” (European Commission, 2025).