Do good – and be obliged to talk about it?

The implementation of the EU Directive on corporate social responsibility into German law

By Prof. Robert von Steinau-Steinrück and Stephan Sura

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In 1961, German writer and journalist Georg-Volkmar Graf Zedtwitz von Arnim, who was also one of the first public relations officers in Germany, published his personal guidelines for goodwill advertising under a title which hence became a key principle for every undertaking’s public relations work: “Do good and talk about it”. Nowadays, this maxim is omnipresent, since corporate social responsibility issues have become a major task for every large enterprise. In 2014, the European Parliament and Council enacted Directive 2014/95/EU, the “CSR Directive”, regarding the disclosure of non-financial and diversity information of certain large undertakings and groups. With a little bit of delay, this Directive has recently been implemented into German law and now actually constitutes a legal obligation for affected undertakings to reveal their “good things”. The implementation of the CSR Directive – a public relations’ gift or a legislative curse?


On April 11, 2017, the CSR Directive Implementation Act (CSR-Richtlinien-Umsetzungsgesetz) was announced and came into effect (German Federal Law Gazette I 2017, p. 802). The underlying EU Directive 2014/95/EU obliges certain large undertakings to include information about their CSR activities in their management reports and therefore to disclose them, e.g. respect for workers’ rights or environmental matters. Originally, the Directive was to be implemented into domestic law prior to December 2016; a first draft for concrete implementation in Germany by the Federal Ministry of Justice (Bundesministerium der Justiz und für Verbraucherschutz, BMJV) had already been drawn up in April 2015. Due to controversial discussions during the legislative process, in particular concerning the limitation of its scope to large capital market-oriented undertakings, the corresponding exclusion of medium-sized companies and the intensity of audits by supervisory boards, the Act’s timelines were rendered unachievable.

In the end, the Directive was adopted almost word for word, mainly through changes in the German Commercial Code (Handelsgesetzbuch, HGB). With the implementation of the Directive, the legislator incorporates the social demand for sustainable and transparent responsibility of corporations into the legal framework: large undertakings as well as certain credit institutions and insurance companies now also have to account for their non-financial issues. At the same time, they should already be more aware of their responsibilities and take them into account when making internal decisions.

Scope of application

Although the Act’s implementation was delayed, its provisions will apply retroactively to all fiscal years beginning after December 31, 2016. Above all, the new obligations for non-financial disclosures only apply to a certain circle of major undertakings. Due to the new Section 289b (1) German Commercial Code, these are all corporations, limited liability partnerships (pursuant to Section 264a German Commercial Code) and cooperatives of public interest that are:

  1. “large”, meaning having an annual balance sheet of more than €20
    million or revenues of more than €40 million in the twelve months before the reporting date (Section 267 [3] 1 German Commercial Code),
  2. capital market-oriented according to Section 264d German Commercial Code, and
  3. employing an annual average of more than 500 employees.

The size criteria have to be met for two successive fiscal years. Pursuant to Section 315b (1) German Commercial Code, parent companies also have to publish a non-financial report if they are not already obliged to publish a group report containing this information (Section 11 Disclosure Act [Publizitätsgesetz, PublG]) and if they match the size criteria, except that being “large” is defined for them by balance sheets and revenues exceeding the threshold values of Section 293 (1) 1 no. 1 and 2 German Commercial Code in their consolidated financial statement. Furthermore, company groups can be released from an individual disclosure when their relevant non-financial activities are already covered by the non-financial disclosure of the group management report.

Regardless of their capital market-orientation, all credit institutions and insurance companies with more than 500 employees have to extend their management report with the non-financial disclosure (Sections 340a [1a], 340i [5] and Sections 341a [1a], 341j [4] German Commercial Code). For 2017, the total number of affected undertakings will be around 550, containing approximately 50% of non-capital-market-oriented banks and insurance companies.


Non-financial disclosure must accompany the (group) management report. A sustainability-serving perspective appears alongside the disclosure of the financial development with the purpose of reviewing the business activities’ consequences on non-financial aspects. As an element of the main management re-port, the non-financial disclosure is intended for the same addressees, which means not only investors, but also employees, customers, suppliers or the public at large. Becoming part of the management report also implies that the non-financial disclosure is committed to the regulations of the German accounting standards (Deutsche Rechnungslegungsstandards, DRS), which demand, for example, completeness, reliability, balance, clarity, structure and essentiality in a management report (DRS 20).

The Implementation Act opens up three different ways to disclose non-financial information: their integration into different sections of the management report, the grouping of all non-financial details in a separate chapter, or issuing an entire individual non-financial activity report. The same options are available for the non-financial disclosure within a group management report, where a parent company can also include its individual disclosure in a potential main group report on nonfinancial issues, Section 315b (1) 3 German Commercial Code. When creating the non-financial report, undertakings are free to use national or international frameworks of sustainability or corporate reporting such as the German Sustainability Code (Deutscher Nachhaltigkeitskodex), the G4 Sustainability Reporting Guidelines of the Global Reporting Initiative (soon: GRI Standards) or the Integrated Reporting Concept of the International Integrated Reporting Council (IIRC). Here, Section 289d German Commercial Code introduces a principle of “apply or explain”, in which an undertaking has to declare either which framework it has used or why it did not apply one at all.


The CSR Directive and thus its Implementation Act oblige the disclosure of information on certain non-financial activities, for which Section 289c German Commercial Code stipulates minimum contents. Through this framework, undertakings are able to address the relevant information about their activities, while at the same time the provision ensures comparability between the reports. To support the understanding and context of the information, every disclosure has to provide a brief description of the business model, including the significant characteristics of the undertaking such as organizational structures, market sectors, location(s), products and services or distribution processes. In diversified groups or undertakings, a description of all the different businesses and their potential connections is evident. Undertakings using IIRC- or DRS 20-standards for their reporting will satisfy the requirements in any case.

According to Section 289c (2) German Commercial Code, the concrete non-financial information then has to contain, at the very least, details on:

  1. environmental matters (such as the consumption of water or air pollution caused by production processes),
  2. workers’ issues (such as safety regulations or gender equality within the undertaking),
  3. social concerns,
  4. respect for human rights and
  5. measures to combat corruption and bribery (such as prevention instruments).

Providing further voluntary information in addition to the minimum contents is always possible; nevertheless, additional issues can also be required when they are substantial for the undertaking’s particular business model. Pursuant to Section 315c (1) German Commercial Code, these specifications also apply to all nonfinancial disclosures on a group level.

The concrete details which have to be disclosed for each non-financial aspect are settled by Section 289c (3) German Commercial Code: For every single non-financial activity, all pursued concepts (including due diligence processes), their (current) results, corresponding significant risks including approaches to deal with them and the most important non-financial performance indicators to measure attainment have to be specified. Especially disclosing the concepts of non-financial activities covers a main reporting issue, as undertakings are obliged to declare their goals and the procedures to achieve them. If the undertaking does not pursue any aim for one of the aforementioned non-financial fields, maybe because it has no bearing on the business model, it has to explain why (“comply or explain”). On the other hand, certain concepts can also refer to more than one field.

In general, the disclosure has to state all relevant information that is necessary for understanding the business performance, the operating results, the undertaking’s situation and the activities’ consequences for the non-financial aspects. If necessary, it should also contain the related values within the annual financial statement. In this respect, the provision limits the duty to report to its relation with business development and therefore partly reflects the obligations already existing according to Section 289 (3) German Commercial Code. Back-to-front, information only concerning the understanding of the consequences of business activities on non-financial issues is not part of the minimum requirements regarding non-financial disclosure, even if they can be mandatory in an individual sustainability report.

Alongside the introduction of the obligation to report, the Implementation Act also transforms the Directive’s claim for an extended management declaration on the undertaking’s diversity politics (Sections 289f [2] no. 6 and 315d German Commercial Code).

Unfavorable information

Section 289e German Commercial Code allows rare exceptions for omitting certain unfavorable information in the non-financial report. However, the use of this provision is tied to the restrictive conditions that the related information concerns prospective developments or issues the undertaking is currently negotiating about, that the disclosure of the information can cause a substantial disadvantage to the undertaking, and that the report nevertheless still reflects an actual and reasonable understanding of the consequences of non-financial activities on business performance, the operating results and the undertaking’s situation, even with the exclusion of the concrete information deemed unfavorable. If the reasons for waiving the information no longer apply after the release of the non-financial disclosure, they have to become part of the following year’s report (Section 289e [2] German Commercial Code).

Auditing range

Non-financial disclosure is only subject to formal examination, meaning that an auditor only performs a general check that the disclosure has been made, Section 317 (2) 4-5 German Commercial Code. An explicit content-related auditing duty was not implemented, as the CSR Directive did not contain such an obligation either. That being said, undertakings are able to arrange a voluntary audit of the contents – but if they do so, they also have to publish the results, beginning after December 31, 2018 (Sections 289b [4], 315b [4] German Commercial Code).

Importance is given to a content-related audit by the supervisory board’s monitoring and review duties, Sections 111, 171 German Stock Corporation Act (Aktiengesetz, AktG). Being part of the management report, non-financial disclosure is captured succinctly by these obligations. If the undertaking has chosen to issue an individual non-financial activity report outside of the management report, the board of directors has to submit it to the supervisory board as well (Section 170 [1] German Stock Corporation Act). In this case, the supervisory board cannot rely on the auditor’s examination. Due to the rigorous sanctions of Sections 331 et seq. German Commercial Code, including fines, penalty fees and even imprisonment for the directors or supervisory board members, an external audit pursuant to Section 111 (2) German Stock Corporation Act can be arranged. This option was added subsequently during the Implementation Act’s emergence; it can be assumed that most supervisory boards will make use of it.


Beyond the controversies regarding the scope of the Directive’s implementation, the German legislator has granted high formal flexibility to affected undertakings in how they can frame their non-financial disclosures in detail. As they can fulfill the formal requirements for the disclosure in different ways, administrative effort will not increase unduly when undertakings are already reporting on their CSR activities, especially when they are using official reporting frameworks. In cases where they have not yet done so, they are able to choose the less laborious method for their individual practice. Further-more, undertakings are generally free to address their essential non-financial issues, only including the downside of very restrictive conditions for concealing unpleasant or unpopular parts of them. The obligations of the CSR Directive Implementation Act therefore represent a Janus-faced duty: Undertakings are now able to present their CSR activities within a more official framework along with their management reports while at the same time the related legal provisions make it harder to embellish unfavorable aspects of them.