Sustainability Report: Scope of application for EU and third-country undertakings


The scope of companies that are obliged to submit a sustainability report is expanding.

Traceability, comparability and transparency are the basis for assessing the ESG performance of companies – for analysts as well as for investors and debt providers. The credibility of sustainability reporting has been enhanced by the obligation of an audited sustainability report.

The Corporate Sustainability Reporting Directive (CSRD) came into force on 5 January 2023. The CSRD, which has now been published in the Official Journal, specifies the scope of application of the CSRD, the possibilities for exemption from the reporting requirement within a group company and the interference of the reporting requirement for EU subsidiaries and EU branches of third-country undertakings. The CSRD also now provides indications for future governance measures to be implemented and reported on by companies.

Member States have to transpose the CSRD into national law by 6 July 2024. A draft of the respective German law can be expected in the course of 2023.

Status quo: A small group of companies is required to submit a non-financial statement

According to the currently applicable Non-Financial Reporting Directive (NFRD or so-called "CSR Directive"), large capital market-oriented companies, credit institutions or insurance companies, have been reporting on their sustainability activities in a non-financial statement or a separate report (e.g. DNK statement) since 1 January 2018 for the 2017 financial year. Since 1 January 2023 the non-financial statement has to include all six environmental goals of the taxonomy regulation.

Temporally staggered scope of application under the CSRD

Compared to the CSR Directive, the scope of application of the CSRD has now been extended to encompass a larger group of companies in stages as shown below. In terms of content, the reporting requirements for companies have also now been extended and specified in more detail compared to the CSR Directive.

The staggered scope of application:

Financial year (reporting)



1 January 2024 (2025)

EU companies that already submit a non-financial statement in accordance with the CSR Directive and are therefore large capital market-oriented companies that employ more than 500 employees on average per financial year (as well as certain credit institutions and insurance companies)

  • Companies are:

Corporations (German public limited company (AG), German partnership limited by shares (KGaA), German limited liability company (GmbH))
partnerships (German general partnership (OHG) or German limited partnership (KG)) where all direct or indirect partners have limited liability because they are an AG, a KGaA or a GmbH.


  • A capital market-oriented company is a company whose transferable securities are admitted for trading on a regulated market of a Member State.


  • A company is considered "large" if it exceeds two of the following three criteria on two consecutive reference dates (except in the case of a new establishment or transformation):
    • Balance-sheet total: EUR 20 million
    • Turnover: EUR 40 million
    • Average number of employees during the financial year: 250


  • A company is considered "small" if it does not exceed two of the following three criteria on two consecutive reference dates:
    • Balance-sheet total: EUR 4 million
    • Turnover: EUR 8 million
    • Average number of employees during the financial year: 50
    • The Member States can raise the thresholds up to the following amounts:

- Balance-sheet total up to EUR 6 million

- Turnover up to EUR 12 million

1 January 2025 (2026)

Large companies (independent of their capital market orientation)

1 January 2026 (2027)
(opt-out possibility until the financial year beginning on 1 January 2028)

In addition, small and medium-sized capital market-oriented companies (and certain institutions and insurance companies)

1 January 2028 (2029)

Third-country undertakings which

  • have achieved a consolidated turnover in the EU > EUR 150 million in the last two financial years
  • at least one subsidiary in the EU is
    • a large company,
    • a (small or medium-sized) capital market-oriented company


  • a branch with a turnover in the EU > EUR 40 million

Possibilities of exemption for subsidiaries

Subsidiaries may be exempt from their own reporting requirements if they and, where applicable, their subsidiaries are included in the consolidated sustainability reporting of a parent undertaking (EU or third-country undertaking) and this consolidated report is prepared in accordance with the standards set out in the CSRD. The parent undertaking may itself be subject to reporting requirements based on its corporate key figures or based on the consolidated corporate key figures of its subsidiaries.

If the subsidiary makes use of its exemption option, it must nevertheless make a brief statement in its management report that its parent undertaking has taken over the reporting and that it is exempt from the reporting requirement. The exempted subsidiary must include in this statement the name and registered office of the parent undertaking, the information that the reporting at parent level is carried out in accordance with the standards of the CSRD and the web link to the consolidated management report of the parent undertaking.

However, the exemption from the reporting requirement does not apply to large capital market-oriented subsidiaries. They must continue to report independently.

Particularities of reporting for EU subsidiaries and EU branches of a third-country undertaking

Large EU subsidiaries, small and medium sized capital market-oriented EU subsidiaries and EU branches from third-country undertakings with EU turnover of more than EUR 40 million are responsible for the publication of a sustainability report of the third-country undertaking prepared at group level.

The EU Commission is to set standards for the sustainability reporting of third-country undertakings by 30 June 2024, specifying what information the sustainability reports of third-country undertakings submitted by the EU subsidiary or EU branch must contain. If the third-country undertaking reports in accordance with the requirements of the CSRD and the EU standards that have been developed and established by then, the subsidiary can invoke the exemption from its own reporting requirement but is required to disclose and make available this sustainability report.

However, the respective EU subsidiary or EU branch remains obliged to report on its own if the third country undertaking does not report on all information required for the sustainability report in accordance with the CSRD. In this case, the EU subsidiary or EU branch must obtain the relevant information from the third-country undertaking.

Where the EU subsidiary or EU branch is not provided with all the information required under the CSRD by the third-country undertaking, even though the EU subsidiary or EU branch of that third-party undertaking has made its best efforts to do so, the EU subsidiary or EU branch must prepare and disclose the sustainability report of the third-country undertaking on the basis of the information available. Furthermore, it must provide a statement indicating that the third-country undertaking has not provided the other information required. The sustainability report must be disclosed together with an audit report of an accredited independent assurance provider or auditor.

If the third-country undertaking does not provide such an audit report to the EU subsidiary or EU branch, the EU subsidiary or EU branch must provide a statement indicating that the third-country undertaking has not provided the required audit report.

The sustainability reports of the third-country undertakings must be published on the website of the EU subsidiary or EU branch.

The CSRD is also relevant for undertaking not subject to reporting requirements

Undertakings outside the scope of application of the CSRD may be indirectly affected by the CSRD, for example, as a supplier or service provider to a reporting company or as a borrower from a credit institution subject to reporting requirements. The CSRD requires reporting undertakings to provide information on suppliers and service providers throughout their supply or value chain. Reporting undertakings will therefore also require their suppliers and service providers to disclose sustainability information.

Smaller and micro companies that do not have a sustainability report may find it increasingly difficult to obtain financing or insurance cover.

Compliance with the harmonised standards for sustainability reporting requires operational (governance) measures and time

Even though a reporting requirement will only become mandatory for non-capital market-oriented companies for the financial year 2025, these companies should also deal with sustainability reporting within good time. Setting ESG targets as part of the materiality analysis, implementing them, documenting the implementation and the monitoring requires time and an appropriate organisation. In addition to reporting requirements, companies should deal with the topic of ESG in general, as ESG is increasingly becoming a competitive factor and driver of corporate value.

It is also noteworthy that the CSRD now provides initial indicators of the operational and structural governance measures that companies need to take on their way to a sustainable corporate orientation. Therefore, the CSRD now stipulates that companies will be obliged to disclose certain governance factors in the future. The governance factors to be reported include, for example, information on the role of the administrative, management and supervisory bodies in relation to sustainability issues, their expertise and skills required to fulfil their role or their access to such expertise and skills, the existence of an incentive scheme for the relevant board members that is aligned with sustainability objectives, the main features of the company's internal control and risk management systems in relation to the sustainability reporting process, and on the maintenance and quality of relationships with customers, suppliers and communities affected by the company's activities, including payment practices.

It remains to be seen to what extent these features of corporate governance will be further elaborated by the Corporate Sustainability Due Diligence Directive (CSDD), which is expected in March 2023, and to what extent they will be supplemented by additional managerial duties.