New rules for management reports - Disclosure obligations with respect to intangible resources
As part of the implementation of the CSRD in the Commercial Code (Handelsgesetzbuch, HGB), as of the 2024 financial year, the disclosure obligations with respect to intangible resources constitute a requirement for inclusion in the management report that goes far beyond sustainability aspects. Section 289(3a) HGB is not even yet on the radar of many companies because most of them will only have to report on sustainability from the 2025 financial year.
New rules under Section 289(3a) HGB
The CSRD (Directive (EU) 2022/2464 on Corporate Sustainability Reporting for Undertakings in the Member States of the EU) had to be transposed into national law by 6.7.2024. The German Federal Government is complying with this obligation via the draft law of 16.8.2024, Lower house of German parliament (Bundestag, BT) printed matter 385/24. In the draft law, the German Federal Chancellor points out to the Bundesrat [upper house of German parliament] that the draft law is especially urgent because the EU transposition deadline has ended and, therefore, the parliamentary deliberations should start immediately and be swiftly completed.
According to the new section 289(3a) HGB, which will be introduced, the key intangible resources have to be stated in the management report. In doing so, an explanation has to be provided about the extent to which the business model of the company fundamentally depends on these resources and how these resources constitute a source of value creation for the company. The key intangible resources are those without physical substance on which the business model of the company fundamentally depends and which constitute a source of value creation for the company. The standard does not require these intangible resources to relate to sustainability aspects.
Scope of application
In their management reports, under the new Section 289(3a) HGB, large as well as capital market-oriented companies will have to include information about intangible resources without physical substance. For the 2024 financial year, companies will have to start to disclose such intangible resources that are important for the company’s business model and constitute a source of value creation. According to the CSRD (= Corporate Sustainability Reporting Directive), the new reporting requirement aims to present a company’s non-physical value drivers that lead to differences between a company’s market value and its book value. Many intangible resources are related to sustainability, which is why the reporting requirement also forms a part of sustainability reporting.
Reporting on intangible resources
In the context of corporate reporting, intangible resources (such as, for example, intellectual property, patents or licences) are increasingly gaining in importance. Furthermore, the report could include information about
- employee skills and experience,
- the attitude towards the company,
- the motivation for improving processes, or else information about
- the quality of the relationships between the corporation and its stakeholders, including customers, suppliers and other stakeholders that are affected by the business activities of the company.
There are currently no specific requirements either from the EU Commission or from German lawmakers. However, in order to define the contents of such a report it is possible to draw on academically-developed category systems.
Proposals and initiatives
‘Value Reporting’ aims to reduce the gap between book value and market value through supplementary information. In addition, there are specific proposals, such as, the ‘Intellectual Capital Statement’ from the German working group ‘Accounting and Reporting of Intangible Assets’ (WGARIA) that envisions voluntary reporting on intangible assets. This working group has developed the categories and examples shown in Table 1. The International Integrated Reporting Council (IIRC) makes a distinction between three categories of disclosures, as can be seen in Table 2
Categories and report contents according to WGARIA
Human Capital
Level of employee training / Employee know-how / Experience of employees / Quality of governance / Functioning internal company knowledge base / Working atmosphere
Customer Capital
Customer lists / Market shares / Customer satisfaction / Brands / Long-term supply contracts
Supplier Capital
Favourable contracts (e.g., for the procurement of scare raw materials) / Development of collaborative strategies with suppliers
Investor Capital
Favourable conditions when raising capital on account of a good credit rating /
Excellent reputation (brand) on the capital market because of good investor relations activities /
Low capital costs due to transparent and reliable financial market communications
Innovation Capital
New software / Patents / Active agents, substances / Films / Formulas
Process Capital
Functioning distribution network / Good communications network / Effective quality management system
Location Capital
Good transport infrastructure for employees and goods / Local tax advantages / High social security standards / High level of training
Categories and report contents according to IIRC
Human Capital
Willingness to align with and support the governance framework, risk management approach and ethical values /
Ability of employees to understand, develop and implement the company’s strategy /
Loyalties and motivations of the employees for improving processes, products and services, including the abilities to lead, manage and collaborate
Social and Relationship Capital
Shared norms, common values and collective behaviours /
Key stakeholder relationships and the trust as well as the commitment (willingness that a company has developed and that it strives to protect with external stakeholders) /
Intangible assets associated with the brands and reputation that a company has developed /
A company’s social licence to operate
Intellectual Capital
Intellectual property, such as patents, copyrights, software, other rights and licences /
Organisational capital, such as a knowledge edge, systems, procedures and protocols
Business model and value creation
According to the European Sustainability Reporting Standards (ESRS) that can be used here, the business model is defined as a company’s system of or capabilities for transforming inputs (e.g., intangible resources), through business activities, into outputs and outcomes in order to achieve the company’s goals and create values.
An intangible resource normally constitutes a source of value creation for the company, the shareholders or other stakeholders. This term will likewise be defined by drawing on various reporting concepts (for example, the IIRC).
