Sustainability Reporting – Transparency through recognized Standards

What is sustainability reporting and why is it important?

Sustainability reporting is the process by which companies systematically document and make transparent their social, environmental and economic impacts. It takes into account not only the company’s impact on sustainability issues, but also how these issues may affect the company.

Reporting not only serves to comply with legal requirements, but also provides a valuable basis for strategic decisions, improves stakeholder confidence and strengthens the company’s image.

In an increasingly sustainability-oriented economy, reporting enables companies to improve their environmental and social performance and promote sustainable development.

Who is affected and what are the requirements?

Most companies can report voluntarily in accordance with standards such as GRI or DNK.

From 2025, however, the CSRD will oblige around 15,000 companies in Germany and 50,000 in Europe to report on sustainability. This affects large listed companies with more than 500 employees and a turnover of at least 40 million euros or a balance sheet total of more than 20 million euros.

From 2026, the reporting obligation will also apply to large limited liability companies with more than 250 employees and a turnover of more than 50 million euros. From 2027, listed SMEs as well as smaller banks and insurance companies will also be obliged to report if they meet certain criteria. From 2029, all non-EU companies with a turnover of over 150 million euros in the EU and a branch or subsidiary in the EU must report.

These companies must disclose their sustainability performance transparently and in accordance with international standards in the areas of environmental, social and governance (ESG), including CO2 emissions, human rights and working conditions.

Important regulatory requirements and standards

In Europe, the most important regulatory requirements in the area of sustainability reporting are the CSRD (Corporate Sustainability Reporting Directive). The CSRD replaced the previous NFRD (Non-Financial Reporting Directive) on January 1, 2024 and significantly expands the group of companies subject to reporting requirements.

The CSRD regulates who must report, while the ESRS (European Sustainability Reporting Standards) define what exactly must be disclosed. The ESRS are intended to ensure uniform and comprehensive sustainability reporting for companies in Europe, with a particular emphasis on the integration of ESG factors.

They consist of two general standards (ESRS 1 and 2), which cover overarching reporting requirements such as strategy, business model and value chain, as well as ten topic-specific standards for environment, social and governance. Further sector-specific standards will follow in the future.

In addition to the mandatory European requirements, there are voluntary reporting standards such as the GRI standard (Global Reporting Initiative) and the DNK (German Sustainability Code).

The GRI standard is a globally recognized standard that is used internationally and offers a broad ESG focus and helps companies to make their impact on the environment and society transparent and thus promote sustainable development.

The DNK serves as a simple but effective standard for smaller companies (SMEs) and helps to present sustainability performance even without large resources. It is primarily aimed at German companies that are looking for structured but less complex sustainability reporting.

Differences and similarities between the standards

Although there are different standards for sustainability reporting, they follow similar basic principles: Transparency, comparability and the disclosure of ESG data. Nevertheless, they differ in scope, target group and legal bindingness:

• ESRS (European Sustainability Reporting Standards): These standards are legally binding and extremely detailed. They comprehensively cover environmental, social and governance issues and contain specific requirements on dual materiality and the integration of the EU taxonomy. Companies must provide quantitative and qualitative information, with a strong focus on regulatory compliance.
• GRI (Global Reporting Initiative): Internationally recognized and flexible to apply. The GRI standard focuses on a company’s impact on the environment and society (inside-out perspective), while ESRS also considers financial risks through sustainability factors (outside-in). GRI is particularly relevant for companies that want to report voluntarily, independently of EU requirements.
• DNK (German Sustainability Code): A less comprehensive, low-cost standard that is particularly widespread in German-speaking countries. It offers companies a simple way to disclose their sustainability performance, but does not follow international standards as strictly and is not as detailed as ESRS or GRI.

While ESRS contains the most comprehensive and detailed requirements, as they require specific disclosure obligations and deeper integration into the corporate strategy, GRI offers an internationally widespread alternative with a strong focus on the social and environmental impact of companies and voluntary transparency.

DNK, on the other hand, is especially designed for smaller companies that have no experience with sustainability reporting and want to communicate their sustainability efforts with little effort.

Key European programs and their impact

The European Union has launched a number of initiatives and regulations to encourage companies and financial actors to improve their sustainability practices and ensure transparent reporting. These programs contribute to achieving climate goals and promoting a sustainable economy. They cover different areas, from detailed sustainability reporting to promoting sustainable investment and tackling environmental issues such as deforestation.

The most important European programs in the area of sustainability reporting and policy are:

• European Green Deal: Framework strategy to reduce greenhouse gases by 55% by 2030 and achieve climate neutrality by 2050.
• Corporate Sustainability Reporting Directive (CSRD): Expands reporting obligations and requires companies to disclose their sustainability impact in accordance with the European Sustainability Reporting Standards (ESRS).
• Non-Financial Reporting Directive (NFRD): Predecessor of the CSRD, which has so far obliged around 11,700 companies to report on sustainability.
• EU Taxonomy: Classification system for sustainable economic activities to avoid greenwashing.
• Sustainable Finance Disclosure Regulation (SFDR): Regulation on transparency in the financial sector to promote sustainable investments.
• Corporate Sustainability Due Diligence Directive (CSDDD): Obligates companies to exercise due diligence in the supply chain with regard to environmental and human rights standards.
• EU Deforestation Regulation (EUDR): Restricts the import of products associated with deforestation.
• Empowering Consumers for the Green Transition (EmpCo): Strengthens consumer rights through transparency on sustainable products.
• Green Claims Directive (GCD): Regulates environmental claims made by companies to prevent misleading sustainability promises.

Key components of sustainable reporting

The key components of sustainable reporting include:

1. Environmental: CO2 emissions, water consumption, waste management, biodiversity protection.
2. Social: working conditions, human rights, equal opportunities, local communities.
3. Corporate governance: Business ethics, transparency, anti-corruption measures, supervisory boards.
4. Economic sustainability: Long-term value creation, resilience to market changes.
5. Targets and key figures: Target definitions and measurable indicators to track progress.

In addition to this traditional content, the CSRD defines additional requirements, its own key components, which significantly shape the framework and quality of reporting. These include, for example, dual materiality, in which both the company’s impact on the environment and society (inside-out) and the financial risks and opportunities arising from sustainability issues (outside-in) must be assessed. The sustainability issues assessed as material in the analysis must be disclosed in the subsequent reporting.

The digitalization of the report data (XHTML format in accordance with the ESEF Regulation and machine-readability of the information for use in the European Single Access Point) and its integration into the management report as a separate section are also mandatory. In addition, the CSRD introduces an external audit requirement by an accredited, independent auditor for sustainability information, which is gradually being tightened.

These extended requirements ensure that sustainability information is not only structured and comprehensible, but also comparable, transparent, digitally accessible and verifiable – and therefore meets the expectations of regulators, investors and other stakeholders.

The EU taxonomy: importance and sustainable financial structures

The EU taxonomy is a key instrument for promoting sustainable investment. It defines which economic activities are considered sustainable based on their contribution to the EU’s climate targets and other sustainability goals. It has far-reaching implications for financial markets, as investors and financial institutions are increasingly obliged to invest only in taxonomy-compliant activities.

For companies, the taxonomy means that they must disclose their activities and projects in relation to sustainability criteria in order to increase the transparency and reliability of their sustainability performance.

Interaction between sustainability reporting and the EU taxonomy

The EU taxonomy and various sustainability reporting standards – such as CSRD/ESRS, GRI or the German Sustainability Code (DNK) – pursue different but complementary objectives.

Similarities and overlaps:

• All reporting standards and the EU taxonomy serve to ensure transparency, the comparability of sustainability performance and the avoidance of greenwashing.
• In practice, the content of the EU taxonomy is often integrated into sustainability reports – particularly in the context of the CSRD, which explicitly requires taxonomy-compliant disclosure.
• International standards such as the GRI also promote the disclosure of climate-related and environmental data, which creates an indirect link to the taxonomy.
• By including taxonomy-relevant information in GRI or DNK reports, companies can voluntarily create transparency – especially if they want to convince investors or stakeholders with sustainable activities.

Differences in objectives and scope of application:

• The EU taxonomy is a classification system for economic activities designed to help investors identify truly sustainable investments.
• Sustainability reporting – whether according to ESRS, GRI or DNK – deals with the overall sustainability of a company: strategies, risks, opportunities, impacts and key performance indicators in relation to the environment, social issues and corporate governance.
• While CSRD/ESRS includes a mandatory integration of the taxonomy requirements, this remains voluntary for GRI or DNK, although it is recommended – especially for internationally active or investor-oriented companies.
• The GRI standard is used internationally and covers a wide range of topics, while the DNK is used more in German-speaking countries and offers a more compact, accessible form – especially for smaller companies.