CSRD - Legal consequences and risks for affected companies

The Corporate Sustainability Reporting Directive (CSRD) (Directive (EU) 2022/2464) expands the requirements for non-financial reporting for affected companies and ensures more comprehensive sustainability-related reporting. In future, the non-financial statement will be a mandatory part of the management report.

Main objectives of the CSRD

1. Equality with financial reporting: Sustainability reporting is placed on the same level as financial reporting.
2. Improved comparability and access to information: Increased transparency and comparability of sustainability information.

The CSRD makes sustainability reporting a mandatory component of the management report and is subject to an external audit obligation. The directive supplements qualitative requirements with quantitative ones and introduces more detailed reporting, including the anchoring of dual materiality (Art. 1 No. 4 Para. 2, No. 7 CSRD).

By extending the existing European regulations, the CSRD integrates extensive disclosure obligations into the accounting of numerous companies. This leads to more comprehensive and systematic sustainability reporting.

Timetable for the introduction of the CSRD by 2028

The Corporate Sustainability Reporting Directive (CSRD) will be rolled out gradually until the 2028 reporting year. The scope of application expands as follows depending on the reporting year:

• Reporting year 2024: Companies already covered by the NFRD and public interest entities (capital market-oriented) with more than 500 employees
• Reporting year 2025: All other large companies under accounting law, including non-capital market-oriented companies
• Reporting year 2026: Capital market-oriented SMEs, unless they make use of the option to defer until 2028.

The CSRD gradually expands the reporting obligations in order to ensure more comprehensive and standardized sustainability reporting.

Legal framework of the CSRD: Freedoms of the member states

The CSRD must be independently transposed into national law by the EU member states. The deadline for this is July 6, 2024.

No uniform sanctions

Member states have the freedom to set their own penalties or fines for non-compliance with the CSRD, which means that there will be no uniform European sanctions framework or catalog. This allows countries to take national specificities into account while complying with EU-wide sustainability reporting standards.

Implementation of the CSRD: current status and legal risks in Germany

Germany has not yet transposed the CSRD into national law. However, the Federal Ministry of Justice (BMJ) published a draft bill on March 22, 2024, meaning that a decision on the final law will be made by July 6, 2024 at the latest. The legislative process still requires comments, the government draft, readings in the Bundestag and the adoption of the final law.

Risks for companies

Affected companies or their executive bodies (board members or managing directors) may be exposed to the risk of criminal liability or fines under commercial law pursuant to Sections 331 or 334, 335 HGB if they do not comply with the requirements of the CSRD.

Overview of legal risks in the event of non-compliance with the CSRD

General civil and criminal law risks

Why companies should start preparing for the CSRD now

1. Minimizing liability risks

Companies and their governing bodies can minimize or even completely prevent liability risks by collecting detailed data and complying with the requirements of the CSRD. Comprehensive and transparent sustainability reporting therefore helps to demonstrate compliance with legal requirements. Compliance with CSRD requirements increases the credibility and trust of stakeholders through clear reporting and provides legal certainty. By accurately recording and disclosing sustainability data in accordance with the CSRD, companies can protect themselves legally.

2. Prevent greenwashing and protect reputation

Companies can be confronted with accusations of greenwashing at any time due to the development of sustainability-related reporting. Greenwashing not only leads to a loss of trust among customers and investors, but can also have legal consequences. These accusations can lead to considerable social damage and a significant loss of reputation. In order to avoid these risks, transparent and honest sustainability reporting is essential. The regulated implementation of the European legal requirements of the CSRD helps to prevent such constellations and ensure the credibility of companies.

3. Competitive advantage

Companies that adapt to CSRD at an early stage can position themselves as pioneers in sustainability. This strengthens their market position and improves their image with customers, investors and other stakeholders.

4. Improved data quality

Timely adaptation of internal systems for data collection and processing improves the quality of sustainability data.
This enables more precise and transparent reporting.

5. Strategic planning

Adapting to the CSRD offers companies the opportunity to rethink their sustainability strategy holistically and set long-term goals that meet both legal requirements and stakeholder expectations.

Successful preparation for the CSRD with Tanso

Tanso helps companies to meet the requirements of CSRD and achieve sustainability goals through audit-compliant and integrated ESRS reporting to the highest standards. Our focus on data-intensive categories (e.g. corporate carbon footprint) enables Tanso not only to report in accordance with standards, but also to actively engage in the management and optimization of ESG performance.