New EU Guidelines for Sustainability Reports
Since the beginning of this year (2025), approximately 15,000 German companies must prepare sustainability reports. The European regulations on sustainability reporting (CSRD) and the forthcoming rules on supply chain legislation (CSDDD) entail additional administrative burdens for numerous businesses. Whilst the ESG objectives of a modern, resource-efficient economy within the framework of the Green Deal and the Paris Climate Agreement are broadly accepted, the topic is causing considerable uncertainty in business practice.
Thresholds and Timeline of Reporting Obligations
The sustainability reporting obligation affects companies that exceed two of the following three thresholds:
- 250 employees on average during the year
- €25 million balance sheet total
- €50 million turnover in the twelve months preceding the balance sheet date
This applies to both individual companies and parent companies of a group that exceed these criteria on a consolidated level. Lower thresholds apply to capital market-oriented companies. Here, exceeding two of the following values is sufficient:
- 10 employees on average during the year
- €450,000 balance sheet total
- €900,000 turnover
The timeline is pressing for many companies. Firms that have previously been reporting on non-financial matters had to submit sustainability reports for the year 2024 already. All other affected companies must publish their first report this year for 2025. Capital market-oriented SMEs will generally be subject to the reporting obligation from 2026, unless they make use of a two-year deferral option.
The reports must be included as a separate section in the management report and are subject to review by a sustainability auditor. In terms of content, the reporting standards cover ecological topics such as climate change and environmental pollution, as well as social standards and corporate governance standards.
European Supply Chain Directive and its Implications
The European Supply Chain Directive (CSDDD) will complement the German Supply Chain Due Diligence Act (LkSG) in the future. According to estimates, more than 5,000 companies across the EU (approximately 1,500 in Germany) will be directly affected by the CSDDD. The directive applies to companies with at least 1,000 employees and a global net turnover of more than €450 million.
Particularly notable is the mandatory requirement for affected companies to prepare a climate plan. This should ensure that companies align their business model with the transition to a sustainable economy, the limitation of global warming to 1.5 degrees Celsius, and the goal of climate neutrality. The plan must specify interim climate targets as well as any involvement in activities related to coal, oil, and gas, and must be updated annually.
Unlike the German law, the European directive also provides for civil liability for violations. Staggered transition periods between 2027 and 2029 are envisaged for implementation.
Even though small and medium-sized enterprises do not appear to be directly affected at first glance, the directly obligated companies will transfer their obligations to all businesses in their supply or activity chain. Thus, medium-sized enterprises will also be at least indirectly affected by the CSDDD.
For proper and timely implementation, it is advisable to develop a timeline and action plan. The larger the company, the more quickly the issue should be addressed. In addition to internal company measures, external support for training or specialised expertise, as well as IT-supported solutions for data preparation and evaluation, may also be useful.
Source: Trade Journal ‘Markt und Mittelstand‘
Photo: doidam10
