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Accounting & Finance
12. Jan 2026
WP/StB Daniel Scheffbuch

The status quo of the sustainability reporting regulations

Collage aus vierblättrigem Kleeblatt, Symbolen zur Nachhaltigkeitsberichterstattung und Jahreszahl 2026

Important EU Directives on sustainability reporting were supposed to be implemented into German national law through changes to the rules for the management report in the Commercial Code (Handelsgesetzbuch, HGB) already in 2024. After this process was stopped at the end of 2024, in 2025, the reduction in scope, complexity and area of applicability of the underlying EU requirements was the subject of debate throughout the entire year. In the following section we explain what is applicable as of 1.1.2026 and what can be expected for 2026.

The original CSRD and its partial application

The Corporate Sustainability Reporting Directive (CSRD) is the EU Directive for comprehensive and standardised sustainability reporting that replaced the previously applicable NFRD (Non-Financial Reporting Directive). The aim is to create transparency for the ESG factors (environmental, social and governance). This should be done on the basis of the European Sustainability Reporting Standards (ESRS).

Large, capital market-oriented companies in the EU (large EU PIEs) were addressed in the so-called Wave 1 of the implementation of the new requirements. In the past, these large EU PIEs had based their reporting on the NFRD and on very different standards. Those responsible for sustainability reports had assumed that the CSRD would be transposed into national law in 2024 and substantiated through the ESRS and that reporting for the 2024 financial year based on the new requirements would happen in 2025 for the first time. That is why the large EU PIEs had already aligned their internal processes with the requirements of the CSRD and ESRS. At the end of 2024, when the CSRD had still not been implemented in the HGB it was too late to revert back to the NFRD - also because more than half the EU Member States had already implemented the CSRD and reporting based on the ESRS had become state of the art on the capital market. The large German PIEs have therefore applied, to the greatest extent possible, the ESRS that have hitherto been valid.

Interim conclusion

Even at the end of 2025, the corresponding amendments to the HGB had still not been adopted; consequently, the current legal framework for the non-financial reporting requirement is still valid for the 2025 financial year.

Changes to the CSRD and the ESRS

During 2025, the ESRS, also referred to as ESRS 1.0, were completely revised. 
In ESRS 2.0 the sustainability reporting process has been greatly simplified and the disclosure requirements reduced by around two thirds. Following the preliminary agreement, on 9.12.2025, in the so-called trilogue procedure (EU Commission, EU Council and EU Parliament), on 16.12.2025, with the assent of the EU Parliament, the scope of applicability of affected companies was ultimately reduced and the first time application of the guidelines for sustainability reporting was postponed. For the 2025 financial year, German companies can continue to use the previous guidelines for their sustainability reporting, or to apply the ESRS voluntarily, fully or only partially.

Subsequent to the trilogue procedure, the changes to the rules for management reports under the HGB that are foreseeable for 2026 mean that it is likely that the following will apply to companies:

Wave 1

Large, capital market-oriented companies with more than 1,000 employees and revenues above €450m (Wave 1) will have to report for the first time in 2026 on the 2025 financial year. Until the ESRS 2.0 are adopted, the sustainability reports will generally have to be prepared on the basis of ESRS 1.0.

Wave 2

Large, non-capital market-oriented companies with more than 1,000 employees and revenues above €450m (Wave 2) will have to report for the first time in 2027 on the 2026 financial year. They can then apply the ESRS 2.0. 

Wave 3

Small, capital market-oriented companies with fewer than 1,000 employees or revenues below €450m (Wave 3) will have to report for the first time in 2028 on the 2027 financial year. They can apply the ESRS 2.0. 

VSME

All other companies can base their reports on the Voluntary Sustainability Reporting Standards for Small and Medium-sized Enterprises (VSME). These standards were developed by the EFRAG and they allow SMEs to report on their sustainability activities. 

Changes to the CSDDD

The Corporate Sustainability Due Diligence Directive (CSDDD), also known as the EU Supply Chain Act, has likewise been amended.

  • The scope of applicability has been limited to companies with more than 5,000 employees and revenues above €1.5bn.
  • The affected companies will have to apply the new guidelines as of July 2029.

EU Taxonomy 

The EU Taxonomy creates a single classification system that is based on clearly defined criteria in order to determine which economic activities under which conditions would be regarded as environmentally sustainable by the EU. To this end, disclosures on revenues, investments, and business expenses must be provided in mathematical and statistical forms. As the disclosure requirements will be revised within the framework of ESRS 2.0, it can be expected that there will likewise be a reduction in the scope and complexity with regard to the EU Taxonomy

  • The reporting obligation under the Taxonomy Regulation should be interpreted analogously to sustainability reporting.
  • Only companies within the scope of applicability of the CSRD with more than 1,000 employees and revenues above €450m will be obliged to use the Taxonomy.
  • This will apply as of 1.1.2026 and thus for the first time for the 2025 financial year.

Outlook

Even though many companies fall outside of the scope of applicability of the CSRD, the CSDDD and the EU Taxonomy and the content requirements have been reduced, in particular, through the ESRS 2.0, such companies should nevertheless concern themselves with non-financial reporting. Up to now, financial reporting standards for SMEs have not normally been of great importance, however, it is likely that this will be different in the case of the VSME.

Recommendation 

Since it may be expected that stakeholders will require a minimum level of non-financial reporting, the requirements under the VSME could offer a pragmatic approach; that is why there will be a detailed report on this in one of the following issues of our Magazine.