Answer ... In Germany, the most important sustainability disclosure requirements are regulated at the European level in the form of regulations or directives. It has become increasingly apparent in recent years that there is a great willingness for further harmonisation both in politics and in economic sectors.
Non-financial disclosure of companies and financial institutions: So far, the EU Non-Financial Reporting Directive (2014/95/EU) applies and lays down the rules on the disclosure of non-financial and diversity information by certain large companies. This directive amends the EU Accounting Directive (2013/34/EU). EU rules on non-financial reporting currently apply to large public interest companies with more than 500 employees. This covers approximately 11,700 large companies and groups across the European Union, including listed companies, banks, insurance companies and other companies designated by national authorities as public interest entities.
‘Public interest entities’ are undertakings within the scope of Article 1 and Annexes I and II of the NFRD. According to Articles 1(1) and 2(1) and Annexes I and II, the following types of undertakings are defined as public interest companies in Germany:
- stock corporations;
- partnerships limited by shares;
- limited liability companies;
- general partnerships; and
- limited partnerships.
Under the NFRD, large companies must publish information related to:
- environmental matters;
- social matters and treatment of employees;
- respect for human rights;
- anti-corruption and bribery; and
- diversity on company boards (in terms of age, gender, educational and professional background).
Germany had transposed the NFRD into national law through the Corporate Social Responsibility Directive Implementation Act.
In Germany, capital market-oriented corporations, insurance companies, credit institutions, limited partnerships and cooperatives must submit this report if they:
- have more than 500 employees; or
meet two out of three size criteria:
- €40 million in turnover;
- €20 million in total assets; and/or
- at least 250 employees.
The main provisions in this respect are Sections 289b to e of the Commercial Code.
In April 2021, it was decided to extend the scope of the NFRD to smaller companies and the proposal for the Corporate Sustainability Reporting Directive (CSRD) was issued, which:
- amends the existing reporting requirements of the NFRD, as the information companies report is insufficient;
- ensures that companies report the information that investors and other financial market participants need subject to the Sustainable Finance Disclosure Regulation (2019/2088) (SFDR) – see further below;
- extends the scope to all large companies and all companies listed on regulated markets without the previous 500-employee threshold (except listed micro-enterprises);
- requires the audit (assurance) of reported information;
- introduces more detailed reporting requirements and a requirement to report according to mandatory EU sustainability reporting standards;
- allows small and medium-sized enterprises to report according to standards that are simpler than the standards that will apply for large companies; and
- requires companies to digitally ‘tag’ the reported information so that it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.
In addition, the CSRD proposal amends the EU Transparency Directive (2004/109/EC) to:
- extend the scope of the sustainability reporting requirements to companies with securities listed on regulated markets; and
- clarify the supervisory regime for sustainability reporting by these companies.
The European Financial Reporting Advisory Group is responsible for developing draft reporting standards under the CSRD proposal. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives. In addition, the International Sustainability Standards Board published proposals on 31 March 2022 that build upon the recommendations of the Task Force on Climate-Related Financial Disclosures and incorporate industry-based disclosure requirements derived from Sustainability Accounting Standards Board standards.
Financial products-related disclosure: The objective of the Sustainable Finance Disclosure Regulation (SFDR) is to channel private investment towards sustainable investing while preventing ‘greenwashing’. The SFDR started to be phased in on 10 March 2021; regulatory reporting under Article 11 commenced on 1 January 2022. The European Commission adopted Regulatory Technical Standards (Delegated Regulation (EU) 2022/1288, SFDR RTS), which provide:
- details on the principal adverse impact statement on the financial market participants’ or advisers’ websites; and
pre-contractual and periodic disclosure templates, including on:
- sustainability indicators;
- asset allocation; and
- the extent of EU Taxonomy alignment by way of a key performance indicator.
The SFDR RTS will apply as of 1 January 2023.
They affect the following:
- financial market participants that are defined as investment firms, including asset managers which offer portfolio management services, pension providers and insurance-based investors, as well as qualifying venture capital and social entrepreneurship activities; and
- financial advisers.
Under the SFDR, these in-scope financial market participants and advisers must disclose sustainability-related information with respect to financial products (product-level and entity-level disclosure) on their websites as pre-contractual disclosures and reports. However, not all financial instruments are in scope. Certain financial instruments under the European Market in Financial Instruments Directive II (2014/65/EU), such as derivatives and securities with derivatives features, are still unregulated as such.