In this article, we look at the Corporate Sustainability Reporting Directive (CSRD). Launched as a milestone of the European Union on the way to more transparency and bindingness in sustainability reporting, its implementation in Germany has been delayed. The associated uncertainties present many companies with challenges and important decisions. We shed light on the current status of implementation, possible consequences of a delay and provide clear recommendations on how companies can prepare strategically now.

‍Thecurrent status of CSRD implementation in Germany

The fact is that the CSRD should have been transposed into national law by July 6, 2024. However, this has not yet happened. Germany, together with 11 other EU member states, is therefore involved in infringement proceedings by the EU Commission. Although the government draft for the implementation of the CSRD has been available since July 2024, political instability, such as the break-up of the governing coalition, is preventing it from being adopted in a timely manner. Despite these delays, the CSRD remains binding as an EU directive. Even if companies are not directly obliged to implement the new requirements without a national transposition law, the European Sustainability Reporting Standards (ESRS) can already be applied voluntarily. Companies should seriously consider this option in order to prepare for the future.

What does the delay mean for companies?

1.continuation of the old legal situation‍

As long as the CSRD has not been implemented, the Non-Financial Reporting Directive (NFRD) and its national implementation in the German Commercial Code (HGB) will continue to apply. Companies must prepare their non-financial reports in accordance with the previous regulations. Integration into the management report is still optional.

2.no obligation to inspect

Without national implementation, the obligation to have sustainability reports audited will no longer apply for the 2024 financial year. Companies could decide not to have their reports audited, but risk losing credibility and trust among stakeholders.

3.inconsistent standards

Voluntary application of the ESRS is possible, but not mandatory. This could lead to a patchwork of different reporting standards, which would make comparability and quality of reporting more difficult.

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Why companies should still act

The delay in implementation must not be used as an excuse for inaction. After all, the introduction of the CSRD is certain - whether in 2024 or 2025 - and will entail far-reaching changes. Companies that do not react in time risk operational and reputational disadvantages. Early preparation has several advantages:‍

• ‍Credibilityand market position: A voluntarily prepared, ESRS-compliant report signals transparency and future orientation.‍
• Efficiency and resilience: Companies that adapt their internal processes at an early stage avoid bottlenecks and higher costs later on.
• ‍Regulatorycompliance: The legal uncertainties associated with delayed implementation are not a free pass. Companies should be prepared for potential repercussions.

Recommendations for companies

1. ‍Conduct a double materiality analysis: The double materiality analysis is at the heart of CSRD. It identifies which sustainability aspects are material - both in terms of their financial impact (financial materiality) and their impact on the environment and society (impact materiality). Companies should document this process in full and coordinate it with external auditors at an early stage.

2.establish ESG data management: Structured collection of ESG data is essential. The use of ESG software helps to collect data centrally, validate it and prepare it for audits. This allows data gaps to be identified and closed at an early stage.

3.test run of reporting: A test run of sustainability reporting simulates the entire process and uncovers weaknesses. This gives companies the opportunity to optimize processes before the first mandatory reporting.

4.develop internal competencies: The complexity of CSRD requires specialist knowledge. Companies should provide training for employees or involve external experts to ensure that the new requirements can be understood and implemented.

5.proactive communication with stakeholders: Transparency in the transition phase strengthens stakeholder trust. Companies should clearly communicate how they are dealing with the uncertainty and what measures they are taking to meet the requirements of the CSRD.

Personal comment

The delay in the implementation of the CSRD Implementation Act presents companies with a dilemma: on the one hand, they have no formal obligation to apply the European Sustainability Reporting Standards (ESRS) until the law comes into force. On the other hand, the lack of legal certainty leads to uncertainties in strategic alignment, especially for companies with subsidiaries in countries where the CSRD has already been implemented. Caution is required here in order to avoid possible disadvantages such as the premature start of transition periods.

However, experts such as Melanie Sack from the IDW in an interview with Haufe Sustainability emphasize the long-term importance of sustainability reporting. The CSRD will come - and with it the expectations of banks, investors and other stakeholders. Companies that stop their efforts now due to regulatory or financial pressure risk finding themselves in a dangerous position when the law comes into force. Particularly in view of Basel IV and the growing importance of sustainable financing, it is strategically wise to orientate oneself towards the ESRS now - even if this is currently still on a voluntary basis.

Our conclusion

The implementation of the CSRD in Germany may be a long time coming, but companies should not let this slow them down. Setting the right course early on will not only ensure regulatory compliance, but also sustainable success. Use the delay to position yourself optimally. The path may be challenging, but the benefits - from better access to capital to a stronger reputation - are undeniable.

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Sources: https://www.haufe.de/sustainability/debatte/verspaetete-csrd-umsetzung-folgen-fuer-unternehmen_575768_637506.html