EU Green Deal and ESG-reporting in the SME sector


It is common that planetary boundaries have been increasingly exceeded and global warming and its consequences are the most defining challenges of our century and future generations. The resulting sustainability and resource management and the establishment of sustainability goals such as the UN’s SDGs or the limitation of global warming are familiar to us at companies in the capital market environment (PIE). The corresponding reporting standards such as TCFD, GRI or Integrated Reporting are not new and are well established in the capital market environment.

With the European Green Deal, the EU Action Plan on Financing Sustainable Growth, the EU is taking a significant step forward in terms of standardizing and regulating sustainability reporting and the user group of sustainability reporting.

In the first amendment to the EU directive on corporate reporting, large, capital market-oriented companies (PIEs) in the EU were obliged to report on ESG issues from 2017 (NFRD None Financial Reporting Directive).

There was a relatively high degree of freedom with regard to the framework of this report, the scope of the report and the assurance on the report. For example, the materiality of the report was based on the framework or there was only a double materiality requirement as a minimum.

Due to the introduction of the EU Sustainable Finance Taxonomy, the large PIEs affected by the 2017 NFRD are already obliged to expand their reporting to include standardized reporting on the taxonomy ratio.

From 2024, these existing NFRD PIEs will have to comply with the provisions of the revised NFRD, the CSRD (Corporate Social Responsibility Directive). Sustainability reporting will then be in accordance with the uniform European standard of the ESRS (European Sustainability Reporting Standards). In addition, a content audit obligation (initially limited assurance) will be introduced and machine-readability of reporting through digital tagging will be required. With the aim of steering financial flows towards sustainability, these measures will significantly increase the reliability and comparability of sustainability information in particular.

By massively expanding the group of users in 2025, which will then include all large undertakings or groups, the EU is taking another significant step in terms of the availability of sustainability information.

In Germany, the extension to large undertakings and groups means that not just 500 PIEs are affected by sustainability reporting, but 15,000 undertakings.

At EU level, it is assumed that over 49,000 undertakings will be affected. Currently under NFRD, 11,900 large PIEs are affected across the EU. 

In further steps, the scope of application is to be extended to medium-sized PIEs and in 2028 to certain third-county undertakings or branches with a net turnover of over EUR 150 million in the EU.

Michael Greiner, Audit Partner Auren Germany, Sustainability Auditor