The EU Corporate Sustainability Reporting Directive (CSRD), which was adopted on 28 November 2022, reveals parallels to the German Supply Chain Due Diligence Act (LkSG) and the draft Corporate Sustainability Due Diligence Directive, which has been thwarted for the time being.
Duties
The CSRD stipulates that annual reports must contain information that shows the impact of the company’s activities on sustainability aspects.
As already provided for in the LkSG, the CSRD requires a report on the performance of risk analyses and the implementation of preventive and remedial measures. However, the CSRD’s requirements are more goal-oriented. Among other things, companies must be measured by whether independently defined KPIs have been achieved and whether preventive and remedial measures have been successful. Compared to the protected legal positions of the LkSG, the CSRD requires more comprehensive “sustainability aspects” to be taken into account, including, for example, climate-related targets (1.5°C target, climate neutrality by 2050), governance factors (lobbying), and more extensive human rights standards (e.g. the UN Convention on the Rights of Persons with Disabilities and the UN Declaration on the Rights of Indigenous Peoples).
Addressees
The first-time reporting obligation for the respective previous financial year applies to
- large companies (more than 500 employees) already subject to the Accounting Directive, in 2025;
- smaller companies (more than 250 employees and/or sales of € 40 million and/or total assets of € 20 million) that are not subject to the Accounting Directive, in 2026;
- listed SMEs (except microenterprises) and small and non-complex credit institutions and self-insurance companies, in 2027;
- non-European companies that have net sales in the EU of more than € 150 million and at least one subsidiary or branch in the EU, in 2028.
For companies in the “third group” (SMEs), simplified reporting obligations and the possibility of an “opt-out” until 2028 are envisaged, the conditions for which are to be specified in a delegated act by 31 October 2023.
Effects
For companies to which the LkSG applies, the main changes are in the scope of the risk analysis and the criteria for preventive and remedial measures. The reporting obligation under the CSRD, on the other hand, should not pose an insurmountable hurdle if the obligations under the LkSG are implemented systematically and properly – especially with regard to documentation – and if suppliers have a comprehensive contractual obligation.
Companies that are not addressees of the LkSG but are subject to the scope of the CSRD face greater challenges. This is because the due diligence requirements must first be implemented in order to fulfill the reporting obligation.
Conclusion
More extensive due diligence requirements for more companies: at the interface between transparency, taxonomy and sustainability, the implementation of the CSRD will mean a tightening of the LkSG.
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