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Germany streamlines corporate sustainability rules: CSRD implementation welcomed

Germany has initiated the integration of the European Union's Corporate Sustainability Reporting Directive (CSRD) into national law, a move receiving positive reactions from various industry groups. The Federal Justice Ministry's draft, which adheres strictly to European Union (EU) guidelines without additional national stipulations, aims for a straightforward ‘one-to-one’ implementation.

Germany streamlines corporate sustainability rules_ CSRD implementation welcomed_Landscape view of The Black Forest area in Germany_visual 1Landscape view of The Black Forest (Schwarzwald),a large forested mountain range in the state of Baden-Württemberg in southwest Germany. AI generated picture.

This approach, open for consultation in Germany until 19 April, and approved in a final form until July, is particularly favoured by the Deutsches Aktieninstitut and the Verband der Chemischen Industrie (the Association of the Chemicals Industry) (VCI), representing major German industries. Both bodies have highlighted the benefits of avoiding redundant reporting by exempting companies covered under CSRD from the obligations of Germany’s national supply chain due diligence law.

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The CSRD, which took effect on 5 January 2023, is a pivotal piece of EU legislation designed to enhance transparency in how businesses report their environmental and social impacts. The directive obliges EU companies, as well as EU subsidiaries of non-EU entities, to disclose their Environmental, Social, and Governance (ESG) activities and to report on the influence of these activities on their operational performance.

The CSRD was introduced under the European Commission's Sustainable Finance Package and significantly broadens the scope and detail of reporting compared to its precursor, the Non-Financial Reporting Directive (NFRD). Central to the CSRD is the principle of double materiality; this requires companies not only to detail how their operations affect the environment and society but also to report on how sustainability-related risks and opportunities could impact their financial stability. This includes, for instance, reporting on energy consumption and associated costs alongside emissions data and environmental impact reduction targets and the financial implications of achieving these targets.

To ensure the reliability and thoroughness of these disclosures, the CSRD mandates that all sustainability reports be audited by a third party. This requirement is intended to bolster investor and public confidence by providing accurate and comprehensive information on companies’ sustainability practices and performance.

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To further ease the corporate burden for German companies, the VCI has suggested deferring the CSRD reporting timeline to offer businesses realistic preparation periods. Meanwhile, the Deutsches Aktieninstitut has proposed enhancements for auditing practices, recommending that companies’ regular financial auditors should also be allowed to handle sustainability auditing unless otherwise decided by a general assembly.

Despite the overall support for the CSRD's direct transposition, the national standards body, the DRSC, has faced NGO criticism. They argue that the DRSC needs a clear mandate for developing sustainability standards. The Justice Ministry, however, has refrained from commenting directly on these critiques.

As Germany works towards finalising its CSRD framework by the July deadline, the goal remains to streamline the process and reduce administrative overhead, aligning with broader EU efforts for enhanced corporate sustainability reporting.

At DGB Group, our approach to sustainability is thorough and informed by our broad experience in collaborating with leading institutions and organisations worldwide. This experience underscores our dedication to crafting meaningful and verified carbon projects that deliver benefits across all stakeholder groups. As we advance toward a more sustainable future, it is crucial for companies to embed sustainability within their strategic frameworks. In doing so, they not only fuel their own growth but also enhance the health of our planet and the welfare of its societies. Through a united commitment to sustainability, we aim to foster a world where economic growth, social welfare, and environmental conservation are interconnected and mutually reinforcing.

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