The Corporate Sustainability Reporting Directive (CSRD reporting obligation) presents companies with various hurdles due to the high requirements for reporting on sustainability issues, as errors in this area can entail considerable liability risks. This affects both the company itself and its management bodies, in particular the members of the management and supervisory boards. The CSRD reporting obligation comprises standards that are defined by the EU Commission and will apply to a further 15,000 German companies from January 2024provided they meet two of these three criteria:
- If they employ more than 250 employees
- If their balance sheet total is higher than 20 million euros
- If your net turnover is over 40 million euros
Time pressure, lack of data and resources as the most common hurdles to CSRD reporting requirements
One Survey by PwC Germany among the newly affected companies in October 2023 has now revealed that around a quarter do not yet have a sustainability strategy. After all, around 60 %s already collect KPIs for the CSRD reporting obligation. Particular hurdles to implementation include the organization being overwhelmed by the new processes and insufficient data quality and availability. There is also an unclear interpretation of the CSRD and the reporting standards, which makes implementation more difficult. Additional factors are the Time pressure, lack of resources in data collection or reporting.
Strategy development as the first challenge
Companies that will be affected by the extended and stricter CSRD reporting obligation from 2024 should remove these hurdles now and do not delay reporting for so longuntil there is no room for maneuver at all. The first step is to assess the company's impact on the environment and society and draw up a sustainability statement. A Cross-departmental approach is unavoidable. Subsequently, a comprehensive data-based evaluation of all reliable sources should describe the company's current situation before any new measures are introduced that are in line with the company's strategy. Sustainability strategy corresponding KPIs are defined. Such effective ESG governance contributes to this, Minimize liability risks. This requires appropriate organization and clear processes to fulfill the CSRD requirements. Training and regular updates are also a means of ensuring that all employees in the company are informed about the requirements and responsibilities in connection with the CSRD.
Errors in the CSRD reporting obligation are severely penalized
Companies affected for the first time should not take CSRD reporting obligations lightly, as errors in the reports can have serious consequences for the company. There is a threat of Fines, claims for damages from competitors, investors and customers, as well as significant Loss of reputation and trust. Experts assume that in the event of improper reporting up to 5 % of annual turnover or 10 million euros could be levied solely as a penalty.
The Executive Board is primarily responsible for the CSRD report by organizing the company in such a way that the reporting obligations can be fulfilled. If irregularities occur, the Executive Board is liable both to the company and possibly under criminal law. The Supervisory Board has duties in connection with ESG and the CSRD and can also be held liable if it breaches its monitoring duties.
Overcoming the first hurdles of the CSRD reporting obligation through measures
Overall, the CSRD reporting obligation presents many German companies with new challenges and hurdles. Time pressure, insufficient data and resources are the main problems with implementation. Affected companies should Develop a sustainability strategy at an early stage and Introduce clear processesto minimize liability risks. The use of renewable energies, the introduction of energy management systems and the integration of clear and valid monitoring tools are also extremely helpful in achieving the targets more easily. Errors in reporting obligations can lead to fines, claims for damages and loss of reputation. Management and supervisory boards bear the main responsibility and should prepare themselves well in order to avoid legal and financial risks.