New reporting duties for Corporate Social Responsibility

The German Act to Strengthen the Non-Financial Reporting of Companies in their Management Reports and Consolidated Management Reports (CSR Directive Transposition Act), obligates large companies for the first time to extend their annual and consolidated financial statements to include a “non-financial statement.” The law will already apply to the 2018 reporting season.

With the CSR Directive, the European legislature intends to introduce EU-wide minimum standards for reporting on social and environmental aspects as well as diversity at the management level of large companies. They are now to include additional non-financial statements – in the form of concepts or performance indicators – on environmental, labor, and social issues, as well as respect for human rights and the fight against corruption and bribery, as notes to the management report.

The CSR Directive Transposition Act applies to companies that are capital market-oriented, meet the requirements of a large corporation and employ an annual average of more than 500 employees.

The non-financial statement is to be prepared by the company’s executive board – even if, exceptionally, it is prepared and published separately outside of the management report. The non-financial report must then be examined by the supervisory board as part of its general monitoring duties, as well as the other components of the annual financial statements. The executive and supervisory boards of the relevant companies will have to deal with the extended reporting obligations for the first time in the 2018 reporting season.

Small and medium-sized enterprises have to prepare for the extra work involved with CSR reporting obligations, even if they are not themselves subject to reporting requirements.

It is estimated that only around 550 companies will be directly affected by the CSR Directive Transposition Act initially. This is by no means an all-clear for medium-sized companies, however. Even though the direct scope of the Act may be limited, the CSR Directive Transposition Act will also have an impact on medium-sized companies. The relevant companies will have to rely on the input and explanations of their business partners in order to meet their reporting obligations. As a result, companies that are not subject to the CSR reporting requirements will also have to collect information on relevant CSR topics – an additional effort that companies should prepare for at an early stage.

Your contacts are the experts from the Corporate/M&A Practice Group. Dr. Michael Sörgel, LL. M., Dr. Patrick Müller LL. M., and their team advise companies on mergers and acquisitions, joint venture projects, and restructuring issues. They also have experience in the areas of corporate governance and compliance.