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Germany is firmly maintaining its commitment to transparent ESG reporting and sustainability practices. Considering recent global and European regulations, 2025 is bound to bring in new directives as well as solid cues from existing legislation.
The state of ESG reporting in Germany
Most of Germany’s corporations have already shown their interest and active involvement in ESG practices—aligning with expectations from international frameworks like the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation.
The main priority for German firms remains environmental and governance issues. Hence, their next move is to implement strong policies when it comes to climate action, energy efficiency, and governance organizations.
A comparative study highlighted that German firms first focus on the environmental and social aspects of ESG. In Germany, these aspects are prioritized more often than with some US-based companies.
Siemens Healthineers, for example, has picked a couple of clear goals under the Science Based Targets initiative (SBTi). They’ll use these targets to prioritize long-term climate strategies to achieve carbon neutrality by 2030. Their focus reflects Germany’s broader national commitment to sustainability. It also reflects a strong response to the constantly changing legal requirements as well as investors' expectations.
But despite Germany’s dedication to ESG, there are always new directives the country struggles to keep up with as some of the older frameworks lose their impact. Dr. Jörg Klein notes that Germany was especially late in adhering to the Corporate Sustainability Reporting Directive (CSRD):
Disclosures you need to comply with in Germany
Corporate Sustainability Reporting Directive (CSRD)
The CSRD is one of the most important recent changes impacting the way ESG disclosure is done in the European Union, and implicitly in Germany. This directive has expanded its scope to non-financial reporting for all large and public-interest-oriented companies in Germany. For this directive, companies have to report as per the European Sustainability Reporting Standards (ESRS).
Who needs to comply:
- Large companies that have more than 250 employees, or a turnover of more than €40 million, as well as organizations with more than €20 million in assets.
- Listed companies and some non-listed companies like SMEs that are of significant public interest.
What the requirements are:
- Disclosure of environmental, social, and governance factors, including the risks various sustainability issues can bring.
- Reporting on the impact of the company’s operations on sustainability goals, such as climate change and social issues.
- Integration with the company’s annual report and audited by external parties.
When it starts:
In Germany, CSRD compliance is going to gradually roll on for different companies based on their size and market direction. The first reports based on CSRD requirements should be sent by 2025 for the 2024 fiscal year so data collection should have already started.
EU Taxonomy Regulation
The EU Taxonomy Regulation wants to guide companies so they can tell whether their economic activities are environmentally sustainable. This regulation classifies environmentally sustainable economic activities and will change once more the way in which companies report their contributions to the general EU climate goals. German industries have already started to integrate taxonomy criteria into reporting, expressing alignment based on turnover and capital expenditure.
Who needs to comply:
- Large companies that are also subject to the CSRD and financial institutions.
What the requirements are:
- Companies need to analyze and share what percentage of their revenue, expenditure, and operating expenses is aligned with the EU Taxonomy's criteria for environmentally sustainable activities.
When it starts:
The Taxonomy Regulation is already in action. Expect disclosures to require more details by 2025.
Supply Chain Due Diligence Act (LkSG)
The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz) requires large companies to ensure they closely follow human rights and environmental standards in their respective supply chains.
Who needs to comply:
- Companies with 3,000 or more employees (at the moment). Will also apply to companies with at least 1,000 employees in the future.
What the requirements are:
- Companies must start working on their due diligence to find, prevent, and mitigate risks when it comes to human rights violations and environmental damage in their supply chains.
- Annual reporting on these due diligence efforts is mandatory.
When it starts:
This applies from the beginning of 2023 with regular reporting being mandatory.
EU Deforestation Regulation
This EU regulation was first launched to prevent deforestation-derived commodities from entering the EU market. German companies must follow this ESG directive and guarantee that their products don’t contribute to deforestation risks.
Who needs to comply:
- Businesses importing or producing commodities that pose deforestation risks, such as soy, palm oil, coffee, cocoa, and wood.
What the requirements are:
- Companies must find and report on the origin of these commodities.
- They should also conduct transparent due diligence to confirm their compliance with anti-deforestation requirements.
When it starts:
The regulation’s implementation schedule varies by commodity type, with staggered deadlines based on risk levels and reporting requirements.
The future of ESG in Germany
Large corporations in Germany, especially those already required to report under the CSRD, will face additional burdens as they work to align their operations with the EU Taxonomy and other regulations. However, these regulations also bring new opportunities for them to attract ESG-focused investors or stakeholders and improve their brand’s reputation.
By better understanding and complying with these ESG disclosure requirements, German companies (or those selling into Germany) will avoid heavy legal consequences and fines. Additionally, you can set yourself up for success as a leader in sustainability and corporate responsibility.
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