Sustainability reporting is an integral part of corporate governance worldwide, reflecting the environmental, social, and economic risks, opportunities, and impacts of a business. Germany, a leading European economy, has set robust frameworks for sustainability reporting, driven by domestic legislation, European Union directives, and the growing demand for transparency from stakeholders.
Germany has long been at the forefront of sustainability and corporate responsibility. Its strong environmental ethos, robust industrial base, and commitment to international standards advances it closer towards sustainable development goals. The roots of corporate environmental accountability in Germany can be traced back to the environmental movements of the 1970s and 1980s, spurred by events such as environmental degradation and industrial pollution. Germany implemented some of the earliest environmental protection laws, including the Federal Emmission Control Act of 1974, which laid the groundwork for corporate environmental accountability.
Leading German companies, especially in high-impact industries like chemicals and manufacturing, then began publishing environmental reports voluntarily, focusing on pollution reduction and resource efficiency. Over the years, formalized corporate environmental reporting grew in number as businesses sought to address increasing stakeholder concerns about their ecological impacts. With the introduction of reporting standards and requirements, reports went beyond environmental metrics and started integrating social issues, such as employee welfare, diversity, and community engagement. Today, sustainability reporting in Germany has evolved from a voluntary activity to a legal requirement for certain companies.
Rooted in the country’s environmental awareness and supported by strong regulatory systems, Germany has established a legacy of leadership in corporate sustainability.
The evolution of sustainability reporting in Germany reflects the interplay between domestic policies, global influences, and societal demands for greater transparency and accountability. Germany's sustainability reporting requirements are anchored in several legal instruments, each supporting the other towards sustainable development.
Adopted in 2017, this law transposes the EU Non-Financial Reporting Directive (NFRD) into German law. It mandates large entities with over 500 employees to disclose non-financial information, ensuring that stakeholders understand the company’s environmental and social impact.
The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) is designed to ensure companies operating in Germany take responsibility for human rights and environmental standards throughout their supply chains. It came into force on January 1, 2023. Annual due diligence reporting under the LkSG is required for companies with 3,000 or more employees yet the threshold has decreased to 1,000 or more employees last January 2024. The law does not solely target German firms but also applies to foreign companies with branch offices in Germany, ensuring that its impact extends across global supply chains.
The primary focus of the LkSG is to safeguard human rights and protect the environment. Companies are required to address risks such as forced labor, child labor, discrimination, unsafe working conditions, and unlawful wage practices. Environmental risks are also prioritized, particularly those that directly impact human health, such as pollution from hazardous waste or the destruction of vital natural resources.
The CSRD, which replaces the NFRD, represents a significant shift in sustainability reporting across Europe, including Germany. It expands the scope to include smaller entities and requires the use of European Sustainability Reporting Standards (ESRS). Companies must provide detailed and standardized data on sustainability metrics, enabling better comparability and decision-making for investors and stakeholders.
The core of sustainability reporting lies in providing comprehensive, transparent, and accurate information about a company’s environmental, social, and governance (ESG) impacts. By addressing these key areas comprehensively, companies in Germany can not only meet regulatory requirements but also demonstrate leadership in sustainability, aligning their operations with global ESG expectations.
Companies are required to report on their environmental impacts and mitigation efforts, including resource use, impact on biodiversity, and energy consumption and even transitions to low-carbon economies. When it comes to resource management, this includes information on the use of natural resources, waste management, and circular economy initiatives. In addition, disclosures on land use, deforestation, and conservation efforts can also be included in the environmental disclosures, citing risks, opportunities, and current and potential impact on the planet.
Companies must also begin reporting on their energy consumption and their greenhouse gas emissions as regulations continue to evolve. This includes measuring Scope 1, 2, and 3 emissions and also disclosing energy use, efficiency measures, and renewable energy adoption.
Social metrics focus on the company’s impact on its employees, supply chain, and the wider community. Important disclosures include data on workforce diversity, health and safety, and professional development opportunities. Companies can also cite contributions to societal well-being through local development projects and philanthropic activities.
Sustainable supply chain transparency is also a rising trend in reporting with regulations calling for companies to disclose any harmful activity and impact they have caused in their value chain. With the CSRD, companies should now report their risks, opportunities, and impact, including measures to prevent violations in operations and supply chains, such as mechanisms for addressing grievances.
Governance reporting highlights the internal structures and policies that ensure ethical and sustainable practices. This includes details on the board structure, roles, and responsibilities in overseeing ESG issues. Sustainability risk management systems are also disclosed in the report, elaborating on systems used to identify and mitigate ESG-related risks, such as climate change and supply chain vulnerabilities.
Germany's sustainability reporting regulations primarily target large companies, particularly those in high-impact sectors such as manufacturing, energy, and financial services. The CSRD broadens this scope, incorporating medium-sized enterprises listed on EU-regulated markets and non-European companies with substantial operations in the EU. With the CSRD and the European Sustainability Reporting Standards (ESRS) in place, the following companies need to comply:
While the regulatory landscape continues to evolve, German businesses have a clear opportunity to lead by example in fostering transparency and accountability. By adopting both mandatory and voluntary frameworks, companies not only ensure compliance but also demonstrate their commitment to a sustainable future. Through innovation and strategic foresight, Germany remains a key player in the global push toward corporate sustainability.
At Keslio, we are deeply passionate about sustainability reporting, having the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios.
To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
