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In the beginning of 2023, the implementation of the Act on Corporate Due Diligence for the Prevention of Human Rights Violations in Supply Chains represented a significant milestone for German businesses. It marked the first instance where German SMEs were legally required to ensure the protection of human rights throughout their international supply chains.
In early 2023, the enactment of the Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten) marked a pivotal moment for German enterprises. For the first time, companies were legally mandated to uphold human rights in their global supply chains. The Act focuses on establishing a robust risk management system to identify, prevent, or minimize human rights violations and environmental damage.
Corporate Due Diligence Act: Expanding Scope and Impact
Initially applicable to enterprises with a workforce of 3,000 or more, the Act’s reach extends to include enterprises with a minimum of 1,000 employees from 2024. This underscores a significant shift toward corporate accountability and sustainability.
Corporate Sustainability Reporting Directive (CSRD): A Game-Changer for Reporting Standards
From January 1, 2024, the CSRD will usher in a new era of sustainability reporting for German companies. Those subject to the Non-Financial Reporting Directive will be the first to report, with capital market-oriented SMEs following suit.
Changing Landscape of Sustainability Reporting: CSRD Implications
The CSRD mandates comprehensive reporting on sustainability aspects—environmental, social, and corporate governance—using binding EU standards. This shift applies not only to large corporations but to all publicly listed companies (excluding micro-enterprises). Smaller businesses may also feel an indirect impact as they supply necessary data to reporting entities. Furthermore, digital labeling and external verification of sustainability information will become obligatory.
Understanding the CSRD Reporting Requirements
The reporting obligation timeline is phased. Public interest entities with over 500 employees report in 2025, followed by large companies not initially covered in 2026. Listed SMEs, excluding micro-entities, along with small credit institutions and captive insurance companies, commence reporting in 2027, unless granted a deferral option until 2028. Companies from third countries meeting specific criteria must report from 2029.
CSRD Reporting Content: A Shift Towards Dual Materiality
Under CSRD, reports must consider dual materiality, addressing both the company’s impact on society, the environment, and climate, as well as external influences on the company, such as financial implications of climate change or biodiversity loss. Companies must also report sustainability targets and key figures, following the European Sustainability Reporting Standards (ESRS).
Digital Transformation in Reporting
The CSRD introduces digital tagging, aligning with the ESEF Regulation. Companies will upload financial and sustainability reports to an EU-wide digital database known as the “European Single Access Point.”
Beyond Numbers: The Essence of Sustainability Reporting
Sustainability reporting is not just about figures and policies; it’s about building a proficient workforce and a well-structured data ecosystem. A well-organized ecosystem allows for the extraction of valuable insights contributing to the sustainability and prosperity of businesses.
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