More bureaucracy amid efforts to reduce it: new sustainability reporting requirements for German companies.
The German cabinet has approved a draft law requiring companies to submit annual sustainability reports. This move aims to implement an EU directive into German law.
Federal Minister of Justice Marco Buschmann expressed his dissatisfaction with this development last Wednesday, stating, “It’s no secret that I’m not happy about this,” the FDP politician said.
The draft law, introduced by the federal cabinet on Wednesday, seeks to integrate the EU’s CSR Directive into German legislation. This would significantly increase the number of companies required to produce comprehensive sustainability reports, providing investors and banks with more insight for sustainable investments.
Criticism from the business community
The business community has voiced strong opposition. Marie-Christine Ostermann, President of the Association of Family Entrepreneurs, referred to the measure as a “bureaucratic monster.” She remarked, “The effort is simply too high,” adding that the requirement to prove sustainable practices is disproportionate and leads to substantial additional costs.
The German Chamber of Industry and Commerce (DIHK) also called for a revision of the EU directive. DIHK Deputy General Manager Achim Dercks stated that the burdens on affected companies need to be reduced.
Significant costs for companies
According to the federal government, approximately 14,600 German companies will be subject to the new reporting requirements by 2028. This figure is much higher than the number affected by Germany’s supply chain law, which has also faced criticism for excessive bureaucracy. Last year, the supply chain law affected about 5,200 companies with branches in Germany.
The costs for businesses due to these sustainability reports are significant. The government estimates an annual cost of 1.58 billion euros by 2028, averaging 100,000 euros per company per year.
Detailed reporting requirements
The required reports are extensive. The Cologne-based company Planted has developed software to assist in creating these reports. Jan Borchert from Planted explained that the reports cover the categories of environment, social issues, and corporate governance.
“In the environmental sector, for example, there’s a lot about climate protection,” Borchert said. This includes whether a company has a CO2 balance, what it looks like, and if the company has a strategy to reduce CO2.
“In the social sector, it’s a lot about employees – whether, for example, all genders are treated equally in training opportunities.” Corporate governance involves how companies deal with suppliers, Borchert added.
Up to 1,200 data points are queried, with many questions potentially filtered out initially through a “double materiality analysis.” This process takes a company about a quarter to complete and forms the basis for more detailed examination. The final report also needs confirmation from an auditor, which constitutes a significant portion of the costs.
Environmental groups support the reporting requirement
Various environmental organizations support the EU directive and the reporting requirement in principle, saying it strengthens the focus on sustainability. WWF calls it a guideline for concrete climate goals in companies, and Germanwatch believes that with support, small and medium-sized enterprises can also benefit from the CSR Directive.
A balancing act between transparency and burden
The sustainability reporting requirement for companies presents a balance between increased transparency and significant costs and time investment. Justice Minister Buschmann acknowledges a “drastic additional burden for companies.”
Despite the government’s commitment to reducing bureaucracy, aiming for fewer reporting obligations, business representatives remain skeptical. The sustainability reporting obligation is seen as counterproductive to these efforts.
Buschmann assured that the EU directive will be implemented “as minimally invasive and bureaucracy-free as possible,” stressing that reducing bureaucracy remains an ongoing challenge. He emphasized that successful bureaucracy reduction requires cooperation not just in Berlin but also in Brussels.
To avoid double bureaucracy, the government plans to allow companies submitting sustainability reports to forgo a separate report on supply chains.
