Chatting with Moritz Sckaer: DAX Companies Adapt to European Standards amidst Legal Void - Focus on a Broader Audience
Frankfurt
By Sabine Reifenberger, Frankfurt
ESG report demand increases for easier comprehension among Dax companies
While the German government has yet to embrace the European Corporate Sustainability Reporting Directive (CSRD) into domestic law, DAX companies are adapting to the European sustainability reporting standards, as per an analysis by Forvis Mazars. Although the standards are in force, some companies are still refining their report's readability.
The unexpected twist in the 2024 reporting season for many companies: the collapse of the government coalition meant that the CSRD was not converted into German law as planned. However, many major corporations had already extensively prepared themselves for CSRD implementation with uniform European reporting standards, the European Sustainability Reporting Standards (ESRS). Despite the absence of national legislation, the large multinationals are continuing on this path. This forward momentum is evidenced in the evaluation "CSRD Implementation in the DAX 40" by Forvis Mazars, which was first made available to the Financial Times prior to publication. For this analysis, the 34 sustainability reports submitted by DAX companies as of the end of March were examined.
Companies Move Ahead Despite Regulatory Overhang
Proactive Compliance
- Anticipating Requirements: Many DAX-listed companies are complying with CSRD requirements before any formal, domestic enforcement, acknowledging that the directive has been formalized as EU law and will apply across the European Union, including Germany[2][4]. They are tapping into their existing corporate infrastructure and sustainability proficiency to collect required data.
- Reporting Readiness: Large German companies are already subject to international and voluntary sustainability reporting standards, as well as previous EU directives like the Non-Financial Reporting Directive (NFRD). The CSRD, which replaces the NFRD, broadens and deepens these requirements, but DAX companies have grown accustomed to navigating intricate reporting landscapes[2].
- Engaging in Policy Shaping: Germany has voiced concerns about regulatory complexity and administrative burdens, but not against sustainability reporting itself. Key players have raised concerns about overlapping frameworks and the cost of compliance, but major German firms remain eager to align with EU standards[1][5].
Obstacles and Tactical Adjustments
- Burden of Compliance: The German government and business sector have underscored the substantial burden of CSRD’s reporting requirements, with large companies needing to provide up to 1,000 data points. Despite these concerns, DAX companies are enhancing their sustainability reporting capabilities, often ahead of regulatory deadlines[1].
- Policy Push for Simplification: German authorities have proposed reforms to streamline reporting and delay implementation deadlines, aiming to ease the transition and reduce the burden, particularly for smaller firms. However, DAX companies, being large and multinational, are less likely to be affected by these delays and continue to prepare for full compliance[1][5].
- Strategic Shift to EU-Level Regulation: The recent German coalition agreement indicates a commitment to EU-level regulation, including replacing the national Supply Chain Act with the CSDDD (the due diligence equivalent to CSRD). This signals a move toward uniform, pan-European sustainability standards, which DAX companies are well-positioned to implement[5].
Central Reporting Requirements and Company Actions
- Double Materiality: DAX companies are evaluating both the environmental and social impact of their operations, as well as the sustainability risks posed to their business models—an approach compulsory under the CSRD[2].
- Scope 3 Emissions: The disclosure of indirect (scope 3) emissions is a cornerstone of CSRD’s requirements, and DAX companies are innovating in data collection and reporting techniques to address this challenge[2].
- Increased Transparency and Stakeholder Engagement: There is a growing emphasis on transparency, stakeholder communication, and investment expectations alignment, which is driving DAX companies to strengthen their sustainability disclosures even before the directive becomes fully enforced in German law[2][5].
Summary Table
| Aspect | DAX Company Approach | Regulatory Environment ||-------------------------|----------------------------------------------------------|-------------------------------------------------|| Reporting Preparation | Anticipating requirements, leveraging existing expertise | CSRD finalized as EU law, German framework pending[2][4] || Administrative Burden | Mitigating with investments in process/data management | German government seeks simplification/delay[1][5] || Policy Influence | Engaging in policy-making, advocating for streamlined standards | Coalition supports EU-regulations over national law[5] || Key CSRD Requirements | Double materiality, scope 3 emissions, stakeholder comms | CSRD mandates detailed, expanded reporting[2] |
Although the lack of a finalized domestic legal framework for the CSRD, DAX companies are actively adapting to EU sustainability reporting standards by preparing for the enhanced requirements, collaborating with policymakers, and investing in the essential systems and practices.
In light of the pending conversion of the European Corporate Sustainability Reporting Directive (CSRD) into German law, DAX companies are proactively adopting environmental-science-based sustainability reporting standards, recognizing the applicability of these standards across the European Union. Simultaneously, these companies are actively involving themselves in shaping the policy landscape, advocating for simplified reporting and aligning with the broader business trend of integrating financial and environmental-science considerations.
