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Germany

Governance

Corporate Governance

The CS3D was published in the Official Journal on 5 July 2024 and entered into force on 25 July 2024.

It will apply to in-scope companies on a staggered basis, and Member States have until 26 July 2026 to transpose  it into national law. 

The CS3D will apply to large EU and non-EU companies and parent companies doing business in the EU on a staggered basis, allowing smaller companies more time to make any necessary changes to allow them to properly adhere to the requirements. 

The requirements will come into force on the following timescale:

26 July 2027:

  • EU companies with a global turnover of greater than EUR 1,500 million and more than 5,000 employees.
  • Non-EU companies with an EU turnover of greater than EUR 1,500 million

26 July 2028:

  • EU companies with a global turnover of greater than EUR 900 million and more than 3,000 employees
  • Non-EU companies with an EU turnover of greater than EUR 900 million

26 July 2029:

  • All other companies in scope:
    • EU companies with a global turnover of greater than EUR 450 million and more than 1,000 employees
    • Non-EU companies with an EU turnover of greater than EUR 450 million
    • EU companies / EU ultimate parent companies of a group with a net worldwide turnover in excess of EUR 80 million and a franchise or licence business model in the EU with royalties amounting to more than EUR 22.5 million
    • Non-EU companies / non-EU ultimate parent companies of a group with a net EU turnover in excess of EUR 80 million AND a franchise or licence business model in the EU with royalties amounting to more than EUR 22.5 million 

The CS3D will only apply to companies who remain in scope for two consecutive financial years. 

Under Article 2 of CSDDD, an ultimate parent company whose main activity is holding shares in operational subsidiaries may apply for an exemption from its CS3D obligations, provided that (i) it does not engage in taking management, operational or financial decisions affecting the group or its operational subsidiaries; and (ii) one of its EU subsidiaries is designated to comply with the CS3D requirements on its behalf. The parent and subsidiary will be jointly liable for compliance. 

Small and medium-sized companies are not covered by the CS3D but may be indirectly affected as business partners in value chains.

The CS3D is a flagship piece of EU legislation, aimed at ensuring companies operating in the EU are performing detailed and comprehensive corporate due diligence across their own operations, those of their subsidiaries, and across their “chain(s) of activities” in a consistent and verifiable manner.

Duties and obligations under the CS3D

The Directive sets out a “duty of due diligence”,  requiring in-scope companies to undertake due diligence for actual or potential adverse human rights and environmental impacts in their own operations, those of their subsidiaries and in their chains of activities (direct and indirect established business relationships). There are a number of ‘core’ obligations that in-scope companies must meet as laid down in Articles 7-16 of the Directive:

  • Integrating due diligence into their policies and risk management systems.
  • Identifying and assessing actual or potential adverse impacts and, where necessary, prioritising actual and potential adverse impacts.
  • Preventing and mitigating potential adverse impacts, and bringing actual adverse impacts to an end and minimising their extent.
  • Providing remediation for actual adverse impacts.
  • Carrying out meaningful engagement with stakeholders. 
  • Establishing and maintaining a notification mechanism and a complaints procedure.
  • Monitoring the effectiveness of their due diligence policy and measures.
  • Publicly communicating on due diligence. 

The obligations and requirements set out above are expanded upon within the text of the Articles, and qualified and explained by the later Articles and accompanying policy documents/FAQs. 

In-scope companies are also required to adopt and implement a climate change mitigation plan to ensure their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement.  

The Directive is designed to operate in harmony with the Corporate Sustainability Reporting Directive (“CSRD”), and as such, does not impose any significant disclosure obligations for companies that are already compliant with the CSRD. Companies in-scope for the CS3D but not in-scope for the CSRD must publish an annual report, the exact content of which will be specified by the EU through delegated acts, by 2027 at the latest.   

Implementation by Member States

Member States are required to bring the CS3D into national law by 26 July 2026, although it is expected that many Member States will start legislating sooner. Member States will be required to appoint national supervising authorities who will be responsible for supervising the new rules and who will have significant powers 

Each Member State will be required to implement the core requirements of the CS3D into their national law, but the Directive leaves room for the Member States to set more stringent due diligence requirements should they wish. Stakeholders should therefore be careful to make sure they abide by the laws of each Member State (many of which have pre-existing sustainability due diligence laws), as well as the core obligations set out in the EU legislation.

Penalties/Fines

Under the Directive,  Member States’ respective supervisory authorities will have powers enabling them to require companies to provide further information, to conduct compliance investigations, and to allow inspections of the relevant companies.  Failures of compliance will entitle the supervisory authorities to exercise all or any of the following powers:

  • To order:
    • The cessation of any infringement
    • That the company not repeat the infringement
    • Provision of remediation to any stakeholders affected
  • To impose financial or other penalties. The maximum penalty allowable under the legislation is 5% of the worldwide turnover of the entity in question from the preceding financial year.  This penalty may be increased according to the formulation of the laws implemented by particular Member States.
  • To impose relevant interim measures to avoid an imminent risk of severe harm arising from the infringement.

The CS3D also creates a regulated civil liability regime whereby natural persons/entities/other stakeholders will have the opportunity to take legal action for damages suffered that could have been avoided with appropriate due diligence measures. 

Financial undertakings

Financial undertakings have an exclusion from part of the CS3D obligations in relation to their downstream chain of activities.

Proposals for change in sustainability reporting in the EU omnibus simplification package

As a response to competitiveness concerns, on 26 February 2025, the European Commission proposed a number of amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Taxonomy Regulation (EU Taxonomy) and the Carbon Border Adjustment Mechanism (CBAM).  These proposals, referred together as the “omnibus simplification package”, are intended to simplify and eliminate overlaps and contradictions in sustainability reporting and due diligence and form part of a wider simplification process for EU legislation. Please see a summary of the Commission’s proposals in our briefing here. To confirm, the Commission’s omnibus proposals are not automatically in force, but instead will require tri-partite agreement between the Council and the European Parliament. Since the Commission’s announcement in February, the co-legislators agreed to delay the implementation of the CSRD through the “Stop-The-Clock” Directive, which entered into force in April 2025 (please see our briefing here). The co-legislators will now need to seek agreement in respect of the outstanding proposed amendments (including which companies fall in scope of the CSRD and CSDDD requirements). The EU Council announced their final negotiation position on 23 June 2025, whereas the EU Parliament are due to hold the plenary voting to finalise their negotiation position in October 2025. Once the EU Parliament established their agreed position, then the three co-legislators will move to tri-partite negotiations before agreeing to a final form of legislative amendments. As such, it remains to be seen what the final form of the Omnibus package will be. 

In the meantime, the Commission instructed has instructed EFRAG (the appointed body in charge of drafting / advising the Commission on the final form of the reporting standards) to begin the process for simplifying the existing European Sustainability Reporting Standards (the “ESRS”), which in-scope EU companies must comply with when preparing their CSRD reports. For reference, as the ESRS have been implemented through the Commission’s delegated acts, therefore these do not require the express approval of the EU Council or Parliament (although the co-legislators do have power to revoke the delegation or to express objections). EFRAG has until 31 November 2025 to publish their final recommendations for the simplification of the ESRS. Please see a summary of EFRAG’s work plan and latest progress report on the ESRS simplification process in our briefing here. 

Further Reading

The European Commission has published a helpful set of FAQs here. 

For more information, please see the below articles:

Environmental
Social
Governance

Non-financial reporting

Further to the “Stop-The-Clock” Directive introduced in April 2025 (as part of the EU omnibus simplification package, as detailed below), the rules start applying in the following increments:

  • For financial years commencing on/after 1 January 2024: Large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with the relevant reports due in 2025;
  • For financial years commencing on/after 1 January 2027:
    • Large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €50 million in turnover and/or €25 million in total assets), with the relevant reports due in 2026;
    • Listed small and medium sized enterprises (SMEs) and other undertakings (small and non-complex credit institutions and captive insurance undertakings), with the relevant reports due in 2027. SMEs can opt-out until 2028.
  • For financial years commencing on/after 1 January 2028: Non-EU companies with net sales in the EU of more than €150 million that have at least one in-scope EU subsidiary or branch in the EU that generates more than €40 million turnover, with the relevant reports due in 2029.

      Listed companies, large companies, and global companies with significant EU operations in particular.

      The CSRD is a flagship piece of legislation that, once brought into national law, will impose tighter reporting standards and obligations on in scope companies in relation to their disclosure of pertinent sustainability information.

      The CSRD replaces the Non Financial Reporting Directive (NFRD), and is aimed at, amongst other things, addressing shortcomings in the existing legislation, and expanding the scope of the disclosure required by the relevant entities.

      The CSRD introduces more detailed reporting requirements in relation to companies’ environmental, social,  and human rights impacts.  The stated aim of the legislation is to “modernise and strengthen the rules concerning the social and environmental information that companies have to report ….. to ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.”

      To ensure the relevant companies are providing reliable information, they will be subject to independent auditing and certification. The legislation aims to put financial and sustainability reporting on equal footings, and give investors access to similarly granular sustainability data as they would have financial information.  

      The reporting standards required are enshrined in the European Sustainability Reporting Standards (ESRS), which the European commission adopted on 31 July 2023. A detailed article on the ESRS can be found here.

      Transposition Status

      For a summary of the transposition status of the CSRD, please see the Hogan Lovells CSRD Transposition Tracker here. 

      Proposals for change in sustainability reporting in the EU omnibus simplification package

      As a response to competitiveness concerns, on 26 February 2025, the European Commission proposed a number of amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Taxonomy Regulation (EU Taxonomy) and the Carbon Border Adjustment Mechanism (CBAM).  These proposals, referred together as the “omnibus simplification package”, are intended to simplify and eliminate overlaps and contradictions in sustainability reporting and due diligence and form part of a wider simplification process for EU legislation. Please see a summary of the Commission’s proposals, in our briefing here. To confirm, the Commission’s omnibus proposals are not automatically in force, but instead will require tri-partite agreement between the Council and the European Parliament. Since the Commission’s announcement in February, the co-legislators agreed to delay the implementation of the CSRD through the “Stop-The-Clock” Directive, which entered into force in April 2025 (please see our briefing here). The co-legislators will now need to seek agreement in respect of the outstanding proposed amendments (including which companies fall in scope of the CSRD and CSDDD requirements). The EU Council announced their final negotiation position on 23 June 2025, whereas the EU Parliament are due to hold the plenary voting to finalise their negotiation position in October 2025. Once the EU Parliament established their agreed position, then the three co-legislators will move to tri-partite negotiations before agreeing to a final form of legislative amendments. As such, it remains to be seen what the final form of the Omnibus package will be.  

      In the meantime, the Commission instructed has instructed EFRAG (the appointed body in charge of drafting / advising the Commission on the final form of the reporting standards) to begin the process for simplifying the existing European Sustainability Reporting Standards (the “ESRS”), which in-scope EU companies must comply with when preparing their CSRD reports. For reference, as the ESRS have been implemented through the Commission’s delegated acts, therefore these do not require the express approval of the EU Council or Parliament (although the co-legislators do have power to revoke the delegation or to express objections). EFRAG has until 31 November 2025 to publish their final recommendations for the simplification of the ESRS. Please see a summary of EFRAG’s work plan and latest progress report on the ESRS simplification process in our briefing here.

      Governance

      Taxonomy, sustainable finance, sustainability reporting

      Entered into force on 12 July 2020

      • large and listed companies subject to the Corporate Sustainability Reporting Directive (CSRD) (see here for more detail);
      • financial market participants subject to the Sustainable Finance Disclosure Regulation (SFDR) (see here for more detail); and
      • EU member states and public authorities.

      Although compliance with the Taxonomy is obligatory only for in scope entities, a growing number of smaller enterprises and companies voluntarily adhere to the Taxonomy’s principles.  Reasons for voluntary compliance might be to align with competitors, to future-proof against regulatory changes or to meet investor expectations when looking for finance.   

      The Taxonomy forms part of the “European Green Deal”, a set of policy initiatives designed to make the EU climate neutral by 2050.  The Taxonomy establishes criteria “for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment is environmentally sustainable”. This information is aimed at helping investors to make informed sustainable investment decisions and also to address greenwashing risks.  

      The implementation of the Taxonomy was, at least in part, in response to concerns from investors, regulators, and companies, that terms such as ‘green’, ‘sustainable’, or ‘environmental’ were inconsistently and incorrectly applied to investment products and economic activities, to the detriment of both investors and the environmental objectives of the Green Deal.  The Taxonomy is intended to provide common definitions which can be used across the sustainable finance framework.

      The Taxonomy sets out four overarching conditions that must be met for an economic activity to qualify as environmentally sustainable.  To qualify, an activity must:

      1. substantially contribute to at least one environmental objective (see further below);
      2. do no significant harm to any of the other environmental objectives;
      3. comply with the minimum safeguards set out in Article 18 (alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights); and
      4. comply with the technical screening criteria (“TSC”).

      The six environmental objectives under the Taxonomy are:

      1. climate change mitigation;
      2. climate change adaptation;
      3. the sustainable use and protection of water and marine resources;
      4. the transition to a circular economy;
      5. pollution prevention and control; and
      6. the protection and restoration of biodiversity and ecosystems.

      Delegated Regulations

      The following are relevant to the EU Taxonomy, and help to define and particularise its terms and requirements.  The full detail of the Delegated Regulations is beyond the scope of this note but the links below direct to certain of the underlying legislation and further information. 

      • Taxonomy Climate Delegated Act (Delegated Regulation (EU) 2021/2139): in force since 1 January 2022 (as amended);
      • Taxonomy Environmental Delegated Act (Commission Delegated Regulation (EU) 2023/2486) in force since 1 January 2024;
      • Taxonomy Disclosures Delegated Act (Delegated Regulation (EU) 2021/2178) in force since 1 January 2024; and
      • Final Commission Notice (C/2025/1373 dated 5 March 2025) on the interpretation and implementation of certain legal provisions of the EU Taxonomy Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and the EU Taxonomy Disclosures Delegated Act (Taxonomy FAQs).

      On 27 June 2023, the Commission announced its latest sustainable finance package, which included adoption of new technical screening criteria for:

      1. activities contributing to the non-climate environmental objectives; and
      2. activities relating to new economic sectors.

      More detail can be found on the delegated regulations here.

      Reporting Requirements

      The Taxonomy requires in-scope entities to report on the extent to which their activities are Taxonomy-aligned. The reporting requirements are specified in the Taxonomy Disclosures Delegated Act (adopted in July 2021), which sets out the content, methodology and presentation of information to be disclosed by non-financial and financial entities subject to the CSRD. The Act set outs key performance indicators (KPIs) related to turnover, capital expenditure and operational expenditures for non-financial companies who must then report what percentage of the KPIs are copied to the Taxonomy-aligned economic activities. In addition, the Act sets out specific indicators for asset managers, banks and insurance companies that will need to disclose the proportion of taxonomy-aligned economic activities in their financial activities. For more detail see here.

      Recent developments

      Proposals for change in the EU omnibus simplification package

      In response to competitiveness concerns, on 26 February 2025, the European Commission proposed a number of amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Taxonomy Regulation (EU Taxonomy) and the Carbon Border Adjustment Mechanism (CBAM).  These proposals, referred together as the “omnibus simplification package”, are intended to simplify and eliminate overlaps and contradictions in sustainability reporting and due diligence and form part of a wider simplification process for EU legislation.

      Please see a summary of the Commission’s proposals in our briefing here. To confirm, the Commission’s omnibus proposals are not automatically in force, but instead will require tri-partite agreement between the Council and the European Parliament. The EU Council announced their final negotiation position on 23 June 2025, whereas the EU Parliament are due to hold the plenary voting to finalise their negotiation position in October 2025. Once the EU Parliament have established their agreed position, then the three co-legislators will move to tri-partite negotiations before agreeing to a final form of legislative amendments. As such, it remains to be seen what the final form of the Omnibus package will be. For recent updates on its progress, see our briefings here.

      Proposed changes to EU Taxonomy Delegated Acts

      As part of the Commission’s proposed omnibus amendments, on 26 Feb 2025 it also published a draft delegated act amending the Taxonomy Disclosures, Climate and Environmental Delegated Acts.  On 4 July 2025, the Commission adopted the delegated act. The delegated act is not yet in force.

      The main simplification measures comprise of provisions that: 

      • financial and non-financial companies are exempt from assessing Taxonomy-eligibility and alignment for economic activities that are not financially material for their business. For non-financial companies, activities are considered non-material if they account for less than 10% of a company's total revenue, capital expenditure (CapEx) or operational expenditure (OpEx);
      • non-financial companies are also exempt from assessing Taxonomy alignment for their entire OpEx when it is considered non-material for their business model;
      • for financial companies, key performance indicators (KPIs) like the green asset ratio (GAR) for banks are simplified and they are granted an option not to report detailed Taxonomy KPIs for two years;
      • taxonomy reporting templates are streamlined by cutting the number of reported data points by 64% for non-financial companies and by 89% for financial companies; and
      • the criteria for ‘do no significant harm' to pollution prevention and control related to the use and presence of chemicals are simplified. 

      Next, the European Parliament and Council will scrutinise the delegated act for four months (extendable to six months) and the amendments will apply once the scrutiny period is over. The simplification measures laid out in the delegated act will apply as of 1 January 2026 and will cover the 2025 financial year.

      Enforcement and penalties 

      Article 22 of the Taxonomy states that ”Member States shall lay down the rules on measures and penalties applicable to infringements of Articles 5,6 and 7. The measures and penalties provided for shall be effective, proportionate and dissuasive.” Therefore, the national law and regulator within each EU Member State jurisdiction should be consulted to determine the exact consequences of non-compliance.

      Environmental
      Governance

      Financial reporting

      Entry into force: 10 March 2021

      Application: 

      • Level 1 (high level and principles based requirements on a comply or explain basis) since 10 March 2021.
      • Level 2 (more detailed disclosure requirements in relation to regulatory technical standards) since January 2022.

      Financial advisers and financial market participants

      The SFDR is part of the EU Commission’s “Action Plan on Sustainable Growth”, and is intended to complement the EU Taxonomy Regulations and the EU Regulatory Technical Standards. The SFDR is designed to enable investors and consumers to make informed investment decisions with respect to the ESG credentials of the funds, assets, or products they are investing in/purchasing, with a view to investors making decisions that contribute to sustainable growth in the financial sector. It is hoped that its adoption will provide clarity and consistency as to the language used by FMPs when selling investment products, especially those described as ‘sustainable’ or ‘ESG focused’, or a number of other adjacent terms. In particular, the Commission hopes to eliminate ‘greenwashing’ from the investment landscape, and force FMPs to make undertake proper due diligence as to the nature of the underlying products they are selling and/or providing.

      Product level classification

      The SFDR requires FMPs, whenever they are offering financial products purporting to be one of the below, to make certain disclosures as to the natures of the relevant products, which will either fall into Articles 8 or 9 of the Regulation:

      • Those promoting environmental and/or social characteristics, and those for which the investee company follows ‘good governance practices’ (Article 8 products)
        • The Regulation does not specifically define ‘environmental and/or social characteristics’, nor ‘good governance practices’, but gives a number of examples of activities that would be regarded as contributing to each area. 
      • Those having sustainable investments as an objective (Article 9 products)
      • Sustainable investments products specifically relating to carbon emissions reductions (Article 9(3) products).

      The mandatory disclosure requirements for FMPs to promote Article 8 and Article 9 products differ substantially, with Article 9 products subject to more stringent disclosure obligations.  Distinguishing between Article 8 and Article 9 products is critical for FMPs to ensure they adhere to the requirements of the SFDR.  The disclosure rules are complex, with disclosure at a granular level required, particularly for Article 9 companies, the detail of which is beyond the scope of this note. For more information, see details of the regulation here.

      Firm level classification

      Article 3 of the Regulation also requires in scope entities/individuals to publish, on their website, three broad categories of information in relation to the integration of sustainability risks into their investment process, both at the firm and product levels:

      1. Principal adverse impact (Article 4) - how investments might create or lead to possible adverse impacts in relation to a range of sustainability factors.  This requirement is by far and away the hardest and most complicated for firms to navigate, as it requires access to detailed ESG data, which most firms do not generate during the normal course of their business.  A notable feature of Article 4 is the requirement to explain the provenance of the ESG data, or, where data is unavailable, explain why the data is unavailable, and provide best estimates in its place. 

      Under this heading, in-scope companies must report on 14 different sustainability related factors, ranging across a spectrum of ESG risks.

      Included in this is the key requirement for in scope entities to understand and report on the Scope 1, 2, and 3 emissions for companies they have invested in.  As detailed elsewhere on the GVT, Scope 1 emissions are those directly produced by the company, Scope 2 emissions are those produced by energy it purchases for its direct use (for example, the emissions deriving from the purchase of electricity), and Scope 3 emissions are those for which the company is responsible for up and down its value chain. For FMPs, the vast majority of their emissions will be categorised as Scope 3, given their economic activities do not involve energy intensive means of production.

      Scope 3 emissions are also the most difficult to track and assess. For more information on Scope 1/2/3 emissions measuring, see here.

      2. Remuneration (Article 5) – in scope FMPs must publish a statement stating how sustainability risks are taken into account in their remuneration policy. 

      3. Sustainability risk policy (Article 6) - how ESG risk is considered in the investment process and how these risks are taken into account in any and all investment decisions. This must detail the ‘likely impacts’ of those risks on the returns of the products they are providing or advising on.  Even in circumstances where there are no risks identified, or where the risks are ‘not relevant’, FMPs must make clear why these risks are not relevant.

      These Article 4-6 disclosures must be made:

      • in the relevant documentation for a specific financial product; and
      • on the FMP’s website.

      Comply or explain policy

      Under the comply or explain rule, if an FMP does not consider the ESG/sustainability impact(s) of its decisions/investments, it must publish a statement this effect on their website and give clear and detailed reasons for failing to comply with the requirement under the Regulation.

      The Regulation may also require additional disclosure of sustainability information in relation to certain financial products purporting to promote ESG objectives.

      Stakeholder consultation

      In late 2023, the Commission launched a consultation through which stakeholders could provide feedback on the implementation of the SFDR, alongside their suggestions for future changes/amendments. On 3 May 2024 the Commission published a summary of the responses received, which highlighted the need to ensure consistency across EU sustainability regulation and legislation, as well as providing clarity on the exact disclosures required under the SFDR. For more detail, please see the summary here, as well as this article. It is anticipated that further consultations will follow.

      For more information generally, please see these articles (and this analysis piece):

      Governance

      Corporate Governance

      Voluntary standards

      PE funds, venture capital

      BVK Guidelines for Disclosure and Transparency are voluntary and their implementation is monitored by the PE association itself, not by an independent commission.

      PE funds such as Blackstone and Carlyle Group have adopted this standard.

      Governance

      Corporate Governance

      In force

      Manufacturers and distributors of portable batteries and users of batteries

      The Act came into force on 1 January 2021 and regulates the return and environmentally sound recycling of batteries sold in Germany. Manufacturers and importers who initially place batteries or accumulators on the market are obliged to register with the Waste Electrical Equipment Register Foundation and to participate in a return system. Distributors are obliged to ensure that they merely sell batteries from registered companies and are obliged to take back used batteries free of charge.

      Governance

      Corporate Governance

      In force

      Manufacturers of electrical or electronic equipment, distributors with sales areas of more than 400 square meters, online distributors, fulfilment services and grocery stores with sales areas of more than 800 square metres if they offer electrical equipment on a regular basis.

      The Act regulates the sale, return and the environmentally sound disposal of electrical and electronic equipment. The act transposes the Directive 2012/19/EU into German law and came into force in 2005 and was amended in 2015 and 2022. In particular, consumers shall be able to return used electronic equipment free of charge.

      Governance

      Corporate Governance

      In force

      All final distributors

      The First Act Amending the Packaging Act prohibits the distribution of plastic carrier bags with a thickness of 0.015 to 0,05 millimetres if dispensed in the checkout area. In case of violation, a fine up to EUR 100.000 may be imposed.

      Governance

      Corporate governance policy, financial reporting

      In force since 2017, implemented into Member States’ national laws between 2019 and 2020.  On-shored into UK law before the UK’s exit from the European Union via the European Union (Withdrawal) Act 2018.  

      Companies which have their registered office in a Member State (or the UK) and whose shares are admitted to trading on a regulated market situated or operating within a Member State (or the UK).

      It is worth noting that there a number of exemptions available for non EU/UK issuers, in circumstances where a company’s compliance with SRD II may come into conflict with other third party transaction related legislation/regulation.

      SRD II, which was passed by the European Parliament in 2017, amended the original Shareholders Rights Directive (“SRD I”), which had been in force since 2007.  The original legislation was passed in an attempt to promote “…the exercise of shareholder rights at general meetings of companies with registered offices in the European Union and the shares of which are admitted to training on a regulated market in the EU”.  

      The key stated purpose of SRD II is to facilitate, require, and encourage: (i) shareholder engagement; (ii) transparency in relation to shareholder holdings, directors remuneration, and related party transactions; and (iii) ensure that board-level remuneration is sufficiently aligned with company performance and share price. 

      The substantive changes brought in by SRD II are to Article 3 of SRD I, requiring Member States to implement secondary legislation providing for enhanced rights and obligations for in scope companies and shareholders in the form of:

      • identification (at the request of the relevant entity) of shareholders holding more than 0.5% of the registered share capital of the relevant entity by intermediaries, and that intermediaries communicate the information requested “without delay”. individual Member States have the right to lower this threshold, and the majority of Member States have no threshold (in particular Germany, France, Spain, and the UK);
      • disclosure of directors’ remuneration;
      • disclosure of related party transactions (the definition of a “related party” is derived from the Internation Financial Reporting Standards (IAS 24));
      • further obligations for intermediaries (similar/identical to those imposed on in scope entities), including requirements to:
        • transmit information without delay between companies and shareholders;
        • facilitate the exercise of shareholder rights; and
        • publicly disclose any charges for providing these services.
      • facilitation of the exercise of shareholder rights; and
      • transparency of institutional investors, asset managers, and proxy advisors.

      The EU passed a further Implementing Regulation (EU 2018/1212) on 4 September 2018 (in force from 3 September 2020), the provisions of which set out minimum requirements and formats for information passing between issuers and shareholders.  This was passed in an attempt to standardise these requirements between Member States, and to ensure that stakeholders faced equivalent requirements across Member States, and were not unfairly prejudiced by differing disclosure and administration requirements depending on the location of their registered office(s) within the EU. 

      The detail of the implementation of this directive by each Member State is outside the scope of this note, but it is worth noting that the national level legislation is largely consistent across the EU.

      Enforcement and penalties

      Penalties for non compliance with SRD II vary jurisdiction by jurisdiction. The Directive only states that penalties should be “sufficiently dissuasive and proportionate”.  Penalties are generally financial, e.g. the Italian implementing legislation allows for fines of up to EUR 150,000 for the most serious breaches. 

      Environmental
      Governance

      Financial reporting

      Published by the EC on 21 April 2021.

      Application: rules expected to start applying from around October 2022.

      Firms within the scope of MiFID, AIFMD and UCITS.

      The proposed amendments set out obligations on investment funds, mutual funds, alternative investment funds (AIFs), investment firms, insurance firms and brokers, and reinsurance companies to provide clients with clear advice on ESG risks and opportunities attached to their investments.

      Find out more:

      MiFID Delegated Regulation

      Delegated Directive

      AIFMD Delegated Regulation

      UCITS Implementing Directive

      Environmental
      Governance

      Corporate governance policy

      Entry into force: 2 August 2022

      Management companies and credit institutions

      The Delegated Regulation concerns integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms.

      Environmental
      Governance

      Corporate governance policy

      Entry into force: 2 August 2022

      Any alternative investment fund.

      The Delegated Regulation concerns sustainability risks and sustainability factors to be taken into account by alternative investment fund managers.

      Environmental
      Governance

      Corporate governance policy

      Entry into force: 2 August 2022

      Any insurance and reinsurance undertaking.

      The Delegated Regulation concerns the integration of sustainability risks into the governance of insurance and reinsurance undertakings.

      The Delegated Regulation provides for the integration of sustainability risks in the prudent person principle. In particular, when dealing with risks arising from investments, insurance and reinsurance undertakings shall take into account sustainability risks. More precisely they shall take into account the potential long-term impact of their investment strategy and decisions on sustainability factors and, where relevant, that strategy and those decisions of an insurance undertaking shall reflect the sustainability preferences of its customers taken into account in the product approval process referred to in Article 4 of Commission Delegated Regulation (EU) 2017/2358 (product oversight and governance requirements for insurance undertakings and insurance distributors).

      Environmental
      Governance

      Corporate governance policy

      Entry into force: 2 August 2022

      Any insurance undertaking and distributor of insurance products.

      The Delegated Regulation concerns the integration of sustainability factors, sustainability risks, and sustainability preferences into product control and product governance requirements for insurance companies and distributors of insurance products and into conduct of business rules and investment advice for insurance investment products.

      Environmental
      Governance

      Corporate governance and financial policy

      Entry into force: Member States shall implement the Directive by 22 November 2022.

      Any Member State

      The Delegated Directive concerns the integration of sustainability factors into product governance obligations (safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits).

      Environmental
      Governance

      Corporate governance and financial policy

      Entry into force: Member States shall implement the Directive by 2 August 2022

      Any Member State

      The Delegated Directive concerns sustainability risks and sustainability factors to be taken into account for undertakings for collective investment in transferable securities (UCITS).

      In particular, management companies should, when identifying the types of conflicts of interest the existence of which may damage the interests of a UCITS, include conflicts of interest that may arise as a result of the integration of sustainability risks in their processes, systems and internal controls. Those conflicts may include conflicts arising from remuneration or personal transactions of relevant staff, conflicts of interest that could give rise to greenwashing, mis-selling or misrepresentation of investment strategies and conflicts of interests between different UCITS managed by the same management company.

      Social

      Social policy

      In force

      People with disabilities

      The Participation Strengthening Act aims to achieve further improvements and more participation opportunities for people with disabilities. In addition, social benefits are to be made legally secure via the education and participation package and simplified, electronic applications for short-time work are to be made possible.

      Social

      Social policy

      In force

      All soldiers of the German Armed Forces and the National People's Army (NVA) who have been discriminated against under service law.

      For soldiers of the Bundeswehr, the period from May 8, 1945 to July 3, 2000 applies; for soldiers of the NVA, the period up to October 3, 1990 applies.

      The law provides for the rehabilitation of soldiers who have been convicted of consensual homosexual acts by military service courts. Also included are soldiers who have suffered disadvantages under service law, such as denied promotions. Soldiers who have suffered disadvantages because of their homosexuality are also to be rehabilitated.

      The German armed forces, the discrimination of homosexual soldiers was officially practiced until the year 2000.

      Social

      Social policy

      In force

      Foreign employees

      The present Act transposes EU Directive 2018/957 into German law. This directive provides for equal treatment of domestic and foreign employees. Collective agreements that are generally binding throughout Germany, are then to apply to all sectors and then, in accordance with the Employee Posting Act, are also to be applied to employers from abroad who employ people in Germany. This means that benefits in kind or allowances will also be paid to these workers.

      The law also regulates better treatment of employees for the reimbursement of expenses and the minimum requirements for accommodation provided by the employer.

      Social

      Social policy

      Entry into force: 8 December 2020

      Consolidated version adopted on 22 March 2021.

      EU persons, companies incorporated or constituted under the law of an EU Member State, non-EU companies in respect of any business done in whole or in part within the EU.

      In December 2020, the Council adopted the EU’s first global human rights sanctions regime. This new regime allows the EU to impose travel bans and financial sanctions on individuals, entities and bodies (including state and non-state actors) responsible for, involved in or associated with serious human rights violations and abuses worldwide, irrespective of where they occurred.

      Social

      Social Policy

      In force (Member States are required to implement the Directive)

      Any member State

      Under the new rules, workers are, inter alia, entitled to greater predictability regarding assignments and working hours. They will also be entitled to receive timely and more complete information about essential aspects of their work, such as their place of work and pay. The new rules will particularly benefit some 2-3 million workers with precarious forms of employment.

      Social

      Social policy

      Directive entered into force on 6 June 2023

      Employers in the public and private sectors.

      The Directive sets out pay transparency measures, such as pay information for job seekers, a right to know the pay levels for employees doing the same work, as well as gender pay gap reporting obligations for companies with at least 150 employees. The Directive also strengthens the tools for employees to claim their rights and facilitates access to justice. Employees will also have the right to compensation for discrimination in pay. To some extent, the measures go beyond the current provisions of the German Pay Transparency Act (Entgelttransparenzgesetz) already in force in Germany since July 2017. The member states have up to three years from the entry into force of the directive to transpose the provisions into national law.

      Social

      Social policy

      In force

      People with disabilities

      The Participation Strengthening Act aims to achieve further improvements and more participation opportunities for people with disabilities. In addition, social benefits are to be made legally secure via the education and participation package and simplified, electronic applications for short-time work are to be made possible.

      Social

      Social policy

      In force

      Foreign employees

      The present Act transposes EU Directive 2018/957 into German law. This directive provides for equal treatment of domestic and foreign employees. Collective agreements that are generally binding throughout Germany, are then to apply to all sectors and then, in accordance with the Employee Posting Act, are also to be applied to employers from abroad who employ people in Germany. This means that benefits in kind or allowances will also be paid to these workers.

      The law also regulates better treatment of employees for the reimbursement of expenses and the minimum requirements for accommodation provided by the employer.

      Social

      Social Policy

      In force since August 2022

      Employers in the public and private sectors

      Following the European Directive on Transparent and Predictable Working Conditions (Evidence Directive), the German Act on the Evidence of Working Conditions (Nachweisgesetz) was updated and entered into force in August 2022. The recast amends the requirements for informing employees in writing about the conditions applicable to their employment relationships. This includes an extension of the list of subjects with respect to which the employee must be informed in writing by their employer. In addition, the employer's non-compliance with the information requirements can now constitute an administrative offence punishable with a fine. A peculiarity in Germany is that the information must be signed by the employer in wet-ink, excluding electronic signature processes and increasing the administrative burden.

      Social

      Social Policy

      Proposal of the German Ministry of Labour and Social Affairs

      Employers in the public and private sectors

      In May 2019, the European Court of Justice decided on the employers' duty to record the beginning, end and duration of daily working time of their employees in an objective, reliable and accessible system (ECJ C-55/18 – [CCOO]). It was disputed whether this obligation already applied directly to employers in the member states or whether it required implementation in national law. In a decision of September 2022, the German Federal Labour Court took the view that corresponding record-keeping obligations already arise directly from existing German law on occupational health and safety, interpreted in conformity with EU law (BAG 1 ABR 22/21). As a result, the Federal Ministry of Labour and Social Affairs announced a draft law for the first quarter of 2023 to implement the requirements set by the European Court of Justice and the Federal Labour Court. According to an initial draft bill to update the German Working Time Act (Arbeitszeitgesetz) published by the Ministry in April 2023, employers shall be obliged to record the beginning, end and duration of their employees' daily working time. The documentation is to be done electronically. The employee shall also have the right to be informed by the employer about the recorded working time and to receive a copy of these records. It remains to be seen when and in what form the Working Time Act will eventually be reformed.

      Social

      Social Policy

      Binding court decision

      Employers in the public and private sectors

      According to a recent decision of the Federal Labour Court (BAG 9 AZR 266/20), employees´ untaken holiday entitlements only become time-barred subject to certain information requirements to be observed by employers. In order to trigger the applicable limitation period, the employer must fulfil its unwritten duty of initiative and its obligation to inform. Therefore, the employer must request the employee to make use of the holiday entitlement in kind and clearly and regularly inform the employee that the holiday entitlement will be forfeited if it is not taken.

      With regard to the statutory minimum holidays, this results from an interpretation of the expiry periods of Section 7 of the German Federal Vacation Act and Section 199 para. 1 no. 1 of the German Civil Code (BGB), which regulates the start of limitation periods, in accordance with Art. 7 of Directive 2003/88/EC. These principles also apply to additional holiday entitlements granted to employees on a contractual basis unless there are clear indications that the additional holidays are to be forfeited irrespective of the burden of initiative or the duties to cooperate.

      Environmental

      Waste and Recycling, Circular Economy, European Green Deal

      In force.

      The PPWR was published in the EU Official Journal on 22 January 2025 and entered into force on 11 February 2025. After a transitional period of 18 months, starting from 12 August 2026 most provisions of the PPWR will take effect. However, different deadlines are specified for certain provisions and some requirements will come into force gradually between 2026 and 2040, through delegated acts.

      The PPWR applies to all packaging, regardless of the material used, and to all packaging waste, whether such packaging is used in or originates from industry, other manufacturing, retail, distribution, offices, services, or households.

      The PPWR aims to minimise the quantities of packaging and waste generated while lowering the use of primary raw materials and fostering the transition to a circular, sustainable and competitive economy.

      By replacing the Packaging and Packaging Waste Directive 94/62/EC (“PPWD”), the new regulation is intended to harmonise diverse national measures further and to strengthen the internal market for secondary raw materials, manufacturing, recycling and reuse. Specifically, it aims to:

      • prevent and reduce packaging waste, including through more reuse and refill systems;
      • make all packaging on the EU market recyclable in an economically viable way by 2030;
      • safely increase the use of recycled plastics in packaging; and
      • decrease the use of virgin materials in packaging and put the sector on track to climate neutrality by 2050.

      The PPWR establishes a new set of requirements in line with Europe's waste rules that cover the entire packaging life cycle – from product design to waste handling.

      By 2030, the measures are expected to significantly reduce greenhouse gas emissions and water use, while preventing and reducing the adverse impacts of packaging and packaging waste on the environment and human health. The new rules include:

      • restrictions on certain single-use plastics, such as pre-packed fruit and vegetables weighing less than 1.5 kg and individual portions of condiments, sauces, and sugar in hotels, bars and restaurants;
      • minimising the weight and volume of packaging and avoiding unnecessary packaging;
      • 2030 and 2040 targets for a minimum percentage of recycled content in packaging;
      • a requirement for take-away businesses to offer customers the option to bring their own containers at no extra cost; and
      • minimising the presence of “substances of concern”, including restrictions on packaging containing per- and polyfluorinated alkyl substances (PFAS) if they exceed certain thresholds.

      Enforcement and penalties

      The requirements in the PPWR will be further specified in harmonised standards for packaging, guidelines, and subsequent adoption of implementing and delegated acts.

      By 12 February 2027, the regulation requires that each Member State shall lay down effective, proportionate, and dissuasive penalties in national law for infringements of the PPWR and shall take all measures necessary to ensure that they are implemented.

      For more information, please see this helpful European Commission page here.

      Environmental

      Environmental policy

      In force

      Setting national climate protection targets

      The purpose of this law is to ensure the fulfilment of national climate protection targets and compliance with European targets in order to protect against the effects of global climate change. The basis for this is the obligation under the Paris Agreement based on the United Nations Framework Convention on Climate Change.

      The climate protection targets of the 2019 law were tightened in 2021 following the ruling of the Federal Constitutional Court. Thus, the interim target for 2030 has been increased from the current 55 to 65 percent greenhouse gas reduction compared to 1990. Germany is to be climate-neutral by 2045.

      Environmental

      Environmental policy

      In force

      Producers, traders, federal institutions

      The law aims to prevent waste and use resources more efficiently. Five rules are particularly important

      • Preventing the destruction of returned products
      • Priority for recycled products in federal institutions
      • Retailers to share cleaning costs
      • Stricter requirements for recycling
      • Waste must be collected separately 4. stricter requirements for recycling
      Environmental

      Environmental policy

      In force

      Construction of buildings

      This Act regulates the construction of and equipment with the preparatory line infrastructure and charging infrastructure for electromobility in buildings to be constructed and existing buildings.

      This Act does not apply to non-residential buildings owned and predominantly used by small and medium-sized enterprises.

      Environmental

      Corporate standards

      In force

      Savings banks

      Sustainability management of the savings banks encompasses objectives and measures in customer business, human resources, business operations, financing and the institutions' own investments, as well as in local promotional activities. The Savings Banks' understanding of sustainability is based on the United Nations Principles for Responsible Banking of the Finance Initiative of the United Nations Environment Programme (UNEP).

      Environmental

      Financial reporting

      Entry into force: 10 December 2019

      Benchmark administrators

      The Benchmark Regulations require benchmark administrators to disclose ESG factors, and include disclosure in their benchmark statement on how their methodology aligns with the target of carbon emissions reduction or attains the objectives of the Paris Agreement.

      Environmental

      Financial reporting

      In force

      EU Institutions and national governments.

      The European Climate Law writes into law the goal set out in the European Green Deal – for Europe’s economy and society to become climate-neutral by 2050.

      Environmental

      Taxonomy, financial reporting and non-financial reporting

      Entry into force: 29 December 2021.

      Application from 1 January 2022.

      1. Financial market participants who offer financial products and market these as environmentally sustainable
      2. Organisations covered by the NFRD and SFDR

      The Net Zero Investment Framework provides recommended methodologies and actions which asset owners and asset managers should utilise to assess and undertake alignment of their portfolios towards net zero, in order to maximise their contribution to the decarbonisation of the real economy. The Framework puts forward metrics to assess investments and measure alignment, and requires investors to set concrete targets at portfolio and asset level.

      The key recommendations revolve around governance and strategy, portfolio reference targets, strategic asset allocation, asset class alignment, policy advocacy, and stakeholder and market engagement.

      Investors are encouraged to publish information annually on how they consider their targets to be aligned to a pathway to achieve global net zero emissions by 2050, and the strategy and actions they have implemented across all asset classes, and performance against the objectives and targets over time.

      Environmental

      Financial reporting

      Entry into force: 23 December 2020

      Benchmark administrators

      The three Delegated Acts required by the Low Carbon Benchmarks Regulation and adopted by the EC, set out (i) the environmental, social, and governance (ESG) disclosure requirements for benchmarks provided in accordance with the EU Benchmarks Regulation (Regulation (EU) 2016/1011), and (ii) sustainability criteria in order for a benchmark to qualify as an EU Climate Transition Benchmark or EU Paris-aligned Benchmark. Those are:

      Commission Delegated Regulation (EU) 2020/1816

      Commission Delegated Regulation (EU) 2020/1817

      Commission Delegated Regulation (EU) 2020/1818

      Environmental

      Environmental policy

      Entry into force : Member States shall bring into force the provisions of the Directive by 10 March 2020

      Any EU Member State

      This Directive presents some amendments to Directives 2010/31 and 2012/27 to better address and ensure that sustainability requirements are met in building construction activities, new building characteristics and building energy performance aspects.

      Social
      Governance

      Social policy; Corporate and governance

      In force

      Food production and processing companies with annual sales of up to 350 million euros, suppliers of certain agricultural and food products, who have annual sales in the respective sales segment in Germany of no more than four billion euros (total annual sales not exceeding 20 percent of the buyer's annual sales)

      This Act prohibits unfair trade practices and thus ensures greater fairness in business relationships in the food supply chain and is an implementation of Directive 2019/633 on unfair trade practices in business relationships between companies in the agricultural and food supply chain. Since its entry into force, individual sections of the Act have been specified through the Regulation on strengthening organizations and supply chains in the agricultural sector 

      Social

      Social policy, due diligence obligation

      Entry into force: 8 June 2017.

      New consolidated version adopted on 19 November 2020.

      Application: 1 January 2021

      EU-based importers of tin, tantalum, tungsten and gold

      The regulation requires EU importers of the four minerals – tin, tantalum, tungsten and gold – to ensure they use only responsible and conflict-free sources.

      They need to comply with, and report on, supply chain due diligence obligations if the minerals originate (even potentially) from conflict-affected and high-risk areas.

      Companies from outside the EU are also impacted as EU-companies will need to make sure they source from responsible smelters and refiners.

      Social
      Governance

      Social policy; Corporate and governance; due diligence obligation

      Entry into force: 01 January 2023

      For companies based in Germany and companies with a branch pursuant to Section 13 d of the German Commercial Code (HGB) with at least 3,000 employees in Germany. From January 1, 2024, companies with at least 1,000 employees in Germany will be covered.

      Note – the Supply Chain Due Diligence Act is set to be abolished following the recent German federal elections, as part of the coalition agreement reached to form the new government. It is not clear exactly when the legislation to do so will be brought before the Bundestag, but we understand that the Act will be “…replaced by a law on international corporate responsibility…” which is intended to implement the EU Corporate Sustainability Due Diligence Directive into German law (for more information on the CS3D see here).

      The Supply Chain Due Diligence Act was passed by the Bundestag and Bundesrat in 2021. The aim is to improve the protection of human rights in global supply chains. The aim is not to implement German social standards everywhere in the world, but to ensure compliance with fundamental human rights standards such as the ban on child labor and forced labor.

      Governance

      Sustainability-related disclosure requirements in the financial services sector

      In force

      Financial services sector

      The Fund Location Act implements the amendments to Directives 2009/65/EC and 2011/61/EU and makes adjustments to the Transparency Regulation and the Taxonomy Regulation. It includes ESG information obligations. The Fund Location Act will result in amendments to the German Investment Code, the German Securities Trading Act and the German Insurance Supervision Act. These serve both to adapt to EU directives and to implement the German government's sustainability strategy.

      Social
      Governance

      Corporate and governance; social policy

      In force

      Private companies; companies in which the federal government holds a majority stake and in public corporations; the public service of the federal government.

      A minimum participation requirement of one woman applies to management boards with more than three members of listed companies and companies with equal co-determination. This will affect 66 companies, of which 21 currently have no women on their boards.

      In the future, companies will have to justify why they have set a target of not appointing any women to the board. Companies that do not report a target figure or do not give a reason for the zero target figure will be sanctioned more effectively in the future.

      The fixed gender quota of 30 percent on supervisory boards has been extended to companies in which the federal government holds a majority stake. For these companies, which currently number 94, a minimum of one woman has also been introduced on boards with more than two members.

      In public corporations such as health insurance funds and pension and accident insurance providers, as well as the Federal Employment Agency, a minimum participation of one woman on boards with more than one member was also introduced.

      The federal government has also set itself the goal of achieving equal participation of women in management positions within the scope of the Federal Equality Act by the end of 2025.

      Governance

      Corporate standards

      Voluntary standards

      German listed companies

      The German Corporate Governance Code sets out essential statutory requirements for the management and supervision of German listed companies and contains internationally and nationally recognized standards of good and responsible corporate governance in the form of recommendations and suggestions.

      Social

      Social policy

      In force since 2 July 2023

      Companies in the private sector as well as municipalities and public authorities

      The new German Whistleblower Protection Act (Hinweisgeberschutzgesetz) entered into force on 2 July 2023. The Act aims to ensure comprehensive protection of whistleblowers. To this end, the law provides for measures such as installing and operating secure internal whistleblowing systems and allowing whistleblowing to take place anonymously, in person, and orally or in writing. In addition, the whistleblower is to receive a confirmation regarding the receipt of the tip within seven days and is to be informed about measures taken within three months. Furthermore, external reporting offices are set up at the Federal Ministry of Justice and in the Federal States, where it is possible to submit equivalent information. To protect whistleblowers from reprisals, the law also contains a reversal of the burden of proof, so that if a whistleblower suffers disadvantages in connection with professional activity, it is assumed that the disadvantage is reprisal. Finally, claims for damages by the whistleblower due to reprisals can be considered.

      Environmental
      Social
      Governance

      Prudential measures

      Credit institutions and investment firms

      Article 98(8) of Directive 2013/36/EU (“CRD IV”) and Article 35 of Directive (EU) 2019/2034 (“IFD”) requires the EBA to develop a report providing uniform definitions of ESG risks, and appropriate qualitative and quantitative criteria for the assessment of the impact of ESG risks on the financial stability of institutions in the short, medium and long term. They also mandate the EBA to assess whether to include ESG risks in its annual prudential supervisory review and evaluation process undertaken by Member State prudential regulators (“SREP”).

      Environmental

      Prudential measures

      In progress

      Report on Environmental, Social and Governance (ESG) risks management and supervision published on 24 October 2022

      Credit institutions and investment firms

      In June 2021, the EBA published a Report on the management and supervision of ESG risks for credit institutions and investment firms in accordance with Article 98(8) of Directive 2013/36/EU (Capital Requirements Directive - CRD) and Article 35 Directive (EU) 2019/2034 (Investment Firms Directive - IFD).

      Following the publication of the EBA Guidelines on SREP for investment firms, the Report published on 24 Oct 2022 fulfils the mandate under point (d) of Article 35 of the IFD and complements the Report on the management and supervision of ESG risks for credit institutions and investment firms, published in June 2021.

      Point (d) of Article 35 of IFD mandates the EBA to develop a report providing the criteria, parameters and metrics by means of which supervisors and investment firms can assess the impact of short, medium and long-term ESG risks for the purposes of the supervisory review and evaluation process. The Report has been transmitted to the EU Parliament, the Council and the European Commission.

      Environmental
      Social
      Governance

      Non-financial reporting

      Further to the “Stop-The-Clock” Directive introduced in April 2025 (as part of the EU omnibus simplification package, as detailed below), the rules start applying in the following increments:

      • For financial years commencing on/after 1 January 2024: Large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with the relevant reports due in 2025;
      • For financial years commencing on/after 1 January 2027:
        • Large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €50 million in turnover and/or €25 million in total assets), with the relevant reports due in 2026;
        • Listed small and medium sized enterprises (SMEs) and other undertakings (small and non-complex credit institutions and captive insurance undertakings), with the relevant reports due in 2027. SMEs can opt-out until 2028.
      • For financial years commencing on/after 1 January 2028: Non-EU companies with net sales in the EU of more than €150 million that have at least one in-scope EU subsidiary or branch in the EU that generates more than €40 million turnover, with the relevant reports due in 2029.

          Listed companies, large companies, and global companies with significant EU operations in particular.

          The CSRD is a flagship piece of legislation that, once brought into national law, will impose tighter reporting standards and obligations on in scope companies in relation to their disclosure of pertinent sustainability information.

          The CSRD replaces the Non Financial Reporting Directive (NFRD), and is aimed at, amongst other things, addressing shortcomings in the existing legislation, and expanding the scope of the disclosure required by the relevant entities.

          The CSRD introduces more detailed reporting requirements in relation to companies’ environmental, social,  and human rights impacts.  The stated aim of the legislation is to “modernise and strengthen the rules concerning the social and environmental information that companies have to report ….. to ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.”

          To ensure the relevant companies are providing reliable information, they will be subject to independent auditing and certification. The legislation aims to put financial and sustainability reporting on equal footings, and give investors access to similarly granular sustainability data as they would have financial information.  

          The reporting standards required are enshrined in the European Sustainability Reporting Standards (ESRS), which the European commission adopted on 31 July 2023. A detailed article on the ESRS can be found here.

          Transposition Status

          For a summary of the transposition status of the CSRD, please see the Hogan Lovells CSRD Transposition Tracker here. 

          Proposals for change in sustainability reporting in the EU omnibus simplification package

          As a response to competitiveness concerns, on 26 February 2025, the European Commission proposed a number of amendments to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the Taxonomy Regulation (EU Taxonomy) and the Carbon Border Adjustment Mechanism (CBAM).  These proposals, referred together as the “omnibus simplification package”, are intended to simplify and eliminate overlaps and contradictions in sustainability reporting and due diligence and form part of a wider simplification process for EU legislation. Please see a summary of the Commission’s proposals, in our briefing here. To confirm, the Commission’s omnibus proposals are not automatically in force, but instead will require tri-partite agreement between the Council and the European Parliament. Since the Commission’s announcement in February, the co-legislators agreed to delay the implementation of the CSRD through the “Stop-The-Clock” Directive, which entered into force in April 2025 (please see our briefing here). The co-legislators will now need to seek agreement in respect of the outstanding proposed amendments (including which companies fall in scope of the CSRD and CSDDD requirements). The EU Council announced their final negotiation position on 23 June 2025, whereas the EU Parliament are due to hold the plenary voting to finalise their negotiation position in October 2025. Once the EU Parliament established their agreed position, then the three co-legislators will move to tri-partite negotiations before agreeing to a final form of legislative amendments. As such, it remains to be seen what the final form of the Omnibus package will be.  

          In the meantime, the Commission instructed has instructed EFRAG (the appointed body in charge of drafting / advising the Commission on the final form of the reporting standards) to begin the process for simplifying the existing European Sustainability Reporting Standards (the “ESRS”), which in-scope EU companies must comply with when preparing their CSRD reports. For reference, as the ESRS have been implemented through the Commission’s delegated acts, therefore these do not require the express approval of the EU Council or Parliament (although the co-legislators do have power to revoke the delegation or to express objections). EFRAG has until 31 November 2025 to publish their final recommendations for the simplification of the ESRS. Please see a summary of EFRAG’s work plan and latest progress report on the ESRS simplification process in our briefing here.

          Environmental
          Social
          Governance

          Corporate governance policy and financial and non-financial disclosures

          In force since 2013

          New consolidated version adopted on 30 September 2021.

          Large institutions with securities traded on a regulated market of any EU Member State

          Regulation (EU) 2019/876 amending Capital Requirements Regulation includes under article 449a the requirement to disclose prudential information on environmental, social and governance risks, including transition and physical risk, addressed to large institutions with securities traded on a regulated market of any Member State. These disclosure requirements are applicable from June 2022 on an annual basis during the first year and biannually thereinafter. 

          Environmental

          Non-financial reporting

          Voluntary standards

          Financial institutions such as pension funds and asset managers

          The Net Zero Investment Framework provides recommended methodologies and actions which asset owners and asset managers should utilise to assess and undertake alignment of their portfolios towards net zero, in order to maximise their contribution to the decarbonisation of the real economy. The Framework puts forward metrics to assess investments and measure alignment, and requires investors to set concrete targets at portfolio and asset level.

          The key recommendations revolve around governance and strategy, portfolio reference targets, strategic asset allocation, asset class alignment, policy advocacy, and stakeholder and market engagement.

          Investors are encouraged to publish information annually on how they consider their targets to be aligned to a pathway to achieve global net zero emissions by 2050, and the strategy and actions they have implemented across all asset classes, and performance against the objectives and targets over time.

          Governance

          Financial and non-financial reporting

          Voluntary standards

          Asset managers

          The code focuses on socially responsible investment (SRI) funds distributed publicly in Europe and has been designed to cover a range of assets classes, such as equity and fixed income.

          The principle driving the Code is that asset manager signatories should be open and honest, and disclose accurate, adequate and timely information to enable stakeholders, in particular retail investors, to understand the policies and practices of a given SRI fund.

           

          Signatories need to make several commitments such as respecting the order and exact wording of the questions of the code, updating responses at least on an annual basis, and making the responses to the code easily accessible from the fund’s and/or fund manager’s website.

          Environmental

          Sustainability standards

          Voluntary standards

          All companies

          The Commission adopted on March 2022 draft revised Guidelines on the assessment of Horizontal Agreements. Such guidelines will enter into force on 1 January 2023. Chapter 9 of the guidelines concerns “sustainability agreements”. According to chapter 9, agreements which meet certain standards of sustainability can outbalance negative effects under a competition standpoint and can thus be exempted from the application of competition rules.

          Governance

          Corporate Governance

          In force

          EU financial services firms

          The EU has introduced amendments to various Delegated Acts (see link) which will integrate sustainability issues into a number of key financial services Directives.

          Entities will be:

          • Required to integrate sustainability factors into their assessment of client suitability for certain financial products and when undertaking product approval of instruments.
          • Subject to new obligations to integrate sustainability risks into risk management and conflict procedures
          • Subject to new fiduciary duties, making sure that they encompass sustainability risks such as the impact of climate change.
             
          Governance

          Support of SMEs and organisations projects

          Entry into force: 26 March 2021.

          Application: 1 January 2021

          EU SMEs and organisations with difficulties when accessing finance because of their perceived high risk (in particular after COVID-19 crisis).

          This Regulation establishes the InvestEU Fund, which shall provide for an EU guarantee to support financing and investment operations carried out by the implementing partners that contribute to objectives of the Union’s internal policies. The Regulation also establishes an advisory support mechanism to provide support for the development of investable projects and access to financing and to provide related capacity building assistance.

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