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Sustainability reporting in small and medium-sized companies


In addition to economic aspects, sustainability reporting informs stakeholders about the company's ecological and social concerns. Especially in the context of climate change, interest in sustainability reports has been growing steadily for years. In this context, the directive on sustainability reporting „Corporate Sustainability Reporting Directive (CSRD)“ for companies in the EU leads to a significant expansion of the obligated companies.

Today only publicly traded companies with more than 500 employees were required to prepare a so-called “Non-Financial Statement”. This Non-Financial Statement at least had to contain information on environmental, social and employee issues, respect for human rights and the fight against corruption and bribery. Starting January 2024, all capital market oriented companies (except micro-corporations) will be affected by these requirements. According to § 264d HGB, a company is defined as capital market oriented if it makes use of an organized market within the meaning of § 2 para. 11 WpHG through securities issued by it or has applied for admission of such securities to trading on an organized market. In addition, all large (including non-capital market-oriented) corporations will be required to report on sustainability beginning in fiscal year 2025.

Capital market oriented small and medium sized enterprises (SMEs) with fewer than 500 employees on average per year or those that are not classified as large within the meaning of § 267 para. 3 HGB are also required to report on sustainability from January 1, 2026. However, up to 2028 it may still be waived if the necessary value chain information is not yet available. However, it is necessary to explain what efforts have been made to obtain the information and why this information could not be obtained, and to also explain the plans for how the company will obtain this information in the future. Additional indirect information disclosure obligations for SMEs may arise if the SME is part of the supply chain of a company that is obligated to due diligence and sustainability reporting via the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz - LkSG) and/or the CSRD-E.

In terms of content, sustainability reporting should cover both the effects of the environment on the company ("outside-in" perspective) and the effects of the company on its environment ("inside-out" perspective). The latter has hardly been the focus of reporting until now. As a result, the scope of reporting content will be significantly expanded. SMEs in particular must therefore implement suitable reporting systems at an early stage. In future, sustainability reporting must be included in the (group) management report. The reporting alternative of a separate statement no longer applies.

Beginning 2024 there will also be a statutory obligation to audit sustainability reporting in the management report. Initially only an audit with limited assurance is still planned. The result of the limited assurance engagement includes a statement in the audit opinion that no matters have come to the attention of the auditor that would lead the auditor to conclude that the reporting has not been prepared, in all material respects, in accordance with the relevant standards. The audit focuses on the reliability of the data collection and reporting processes (including the ICS).

The transformation of the classic industrial society to a modern age of renewable energies has found its way into numerous international agreements and national laws in the past few years. Even medium-sized companies cannot escape this trend for much longer. Beyond regulatory requirements, social and economic pressure will inevitably lead to an increase in voluntary sustainability reporting. SMEs should therefore start the process of integrating sustainability issues into (auditable) reporting, control, and monitoring systems at an early stage.