CSRD: Legal consequences and risks for affected companies

The Corporate Sustainability Reporting Directive (CSRD) expands the previous non-financial reporting requirements (NFRD) into comprehensive, mandatory sustainability reporting. For the first companies subject to the reporting obligation (Wave 1), the sustainability report has already been a mandatory part of the management report since fiscal year 2024.

On February 24, 2026, the Council of the European Union gave its final approval to the trilogue compromise on the Omnibus I package. You can read more details on the decision here.

Main objectives of the CSRD

• Equal footing with financial reporting: sustainability reporting is placed on the same level as financial reporting.
• Improved comparability and access to information: greater transparency and comparability of sustainability information.

Under the CSRD, sustainability reporting becomes a mandatory part of the management report and is subject to external assurance. The directive supplements qualitative with quantitative requirements and introduces more detailed reporting, including the anchoring of double materiality (Art. 1 No. 4(2), No. 7 CSRD).

By expanding existing European regulations, the CSRD integrates extensive disclosure obligations into the accounting practices of numerous companies. This leads to more comprehensive and systematic sustainability reporting.

Current timeline for the CSRD rollout

The Corporate Sustainability Reporting Directive (CSRD) is being rolled out in stages through fiscal year 2028. Under the current legal status, companies are subject to the reporting obligation if they meet both criteria: more than 1,000 employees and more than €450 million in revenue. The reporting obligation is being phased in, and certain deadlines have also been pushed back by two years under the Stop-the-Clock Directive.

Directly affected:

• Wave 1, FY 2024 (reports from 2025): capital-market-oriented EU companies with more than 1,000 employees and more than €450 million in revenue, previously subject to reporting under the NFRD. Smaller capital-market-oriented companies fall outside this wave.
• Wave 2, FY 2027 (reports from 2028): non-capital-market-oriented, large EU companies with more than 1,000 employees and more than €450 million in revenue.
• Wave 4, FY 2028 (reports from 2029): non-EU companies with more than €450 million in EU revenue and an EU subsidiary or EU branch with more than €200 million in revenue.
• No longer subject to CSRD: small capital-market-oriented EU companies (formerly Wave 3) as well as large companies below the new thresholds are fully exempt from the CSRD reporting obligation under Omnibus I. Voluntary reporting under the VSME standard can still be worthwhile, particularly for companies that act as suppliers to CSRD-obligated business partners.

Legal Framework of the CSRD: Member State Discretion

The CSRD must be transposed into national law independently by each EU member state.

No Uniform Sanctions

Member states are free to determine their own penalties or fines for non-compliance with the CSRD, meaning there will be no uniform European sanctions framework or catalog. This allows countries to account for national particularities while still complying with EU-wide sustainability reporting standards.

Implementation of the CSRD: Current Status and Legal Risks in Germany

Germany missed both the original transposition deadline of July 6, 2024, and the extended deadline under the Stop-the-Clock Directive (December 31, 2025), prompting the European Commission to launch infringement proceedings. The CSRD Implementation Act (CSRD-Umsetzungsgesetz) remains in the legislative process: following the government draft (September 2025) and an amendment incorporating the Omnibus I provisions (March 2026), the public hearing in the Bundestag's Legal Affairs Committee took place on April 13, 2026. Pending final passage, the law remains in the parliamentary process; according to the Chamber of Public Accountants (Wirtschaftsprüferkammer, as of June 19, 2026), the second and third readings in the Bundestag are still outstanding.

Under the current draft, affected companies and their officers face prison sentences of up to three years and fines of up to €2 million (or up to €10 million or 5% of annual revenue for capital-market-oriented companies) under Sections 331, 334, and 335 of the German Commercial Code (HGB) in the event of violations.

Risks for Companies

Affected companies or their officers (executive board members or managing directors) may be exposed to criminal liability or fines under commercial law provisions per Sections 331 or 334, 335 HGB if they fail to comply with the CSRD requirements.

Overview of legal risks in the event of non-compliance with the CSRD

General civil and criminal law risks

Why companies should start preparing for the CSRD now

1. Minimize Liability Risks

Companies and their officers can minimize or even completely prevent liability risks by collecting detailed data and meeting CSRD requirements. Comprehensive and transparent sustainability reporting helps demonstrate compliance with legal requirements. Meeting CSRD requirements through clear reporting increases credibility and stakeholder trust and provides legal certainty. By accurately capturing and disclosing sustainability data in line with the CSRD, companies can protect themselves legally.

2. Prevent Greenwashing and Protect Reputation

As sustainability-related reporting continues to evolve, companies can face greenwashing accusations at any time. Greenwashing not only leads to a loss of trust among customers and investors but can also result in legal consequences. Such accusations can cause significant societal harm and substantial reputational damage. To avoid these risks, transparent and honest sustainability reporting is essential. Properly implementing the CSRD's European legal requirements helps prevent such situations and safeguard companies' credibility.

3. Competitive Advantage

Companies that adapt to the CSRD early can position themselves as sustainability leaders. This strengthens their market position and improves their image with customers, investors, and other stakeholders.

4. Improved Data Quality

Timely adaptation of internal systems for data collection and processing improves the quality of sustainability data. This enables more precise and transparent reporting.

5. Strategic Planning

Adapting to the CSRD gives companies the opportunity to holistically rethink their sustainability strategy and set long-term goals that meet both legal requirements and stakeholder expectations.