Bonn, Germany

Sustainability in Financial Reporting

By Dr Thomas Ditges, DITGES Rechtsanwälte Wirtschaftsprüfer Steuerberater

Climate, on everyone’s lips, is just a word. Corporate responsibility extends far beyond that. The accounting system has already recognised this, though this has so far remained mostly hidden from the nonprofessional. For large undertakings and groups, especially with more than 500 employees, the German legislator has implemented the EU Directive regarding disclosure of non-financial and diversity information from 2014 with effect from 2017, amending the Directive on the annual financial statements, consolidated financial statements and related reports.

The Directive concerns non-financial reporting on Corporate Social Responsibility (CSR), especially on all labour, social, and environmental issues, respect for human rights, and the fight against corruption. As in other areas, in order to create transparency through meaningful accounting and reporting, smaller companies are able to adopt the principles voluntarily and proactively. Stakeholders will be grateful; in addition to internal owners or shareholders, managers, and employees, these include external suppliers and customers, creditors, the state, and society. Not rarely has the extra-mandatory openness promoted marketing. For example, one can understand non-financial reporting as a part of voluntary abiding to the requirements of compliance, which attempts to standardise positive corporate behaviour beyond mere compliance with the rules.

Whether it all began with sustainability or with corporate governance may be left open. Following the forestry principle that no more trees must be cut down than can grow back, the principle of sustainability is based on the use and conservation of resources while permanently satisfying needs and preserving the natural ability of regeneration of the circumstances involved, above all economic, ecological, and social. Like the environmental report as part of a company’s annual report in the past, today’s sustainability report opens up sustainability management in the orientation of the company towards the future. In addition, corporate governance includes principles of corporate management for the legal and factual management and monitoring of the company in accordance with the totality of international and national rules, regulations, values, and principles on procedures, management, risks, etc. The definitions are fluid. In Germany, the action and management maxims are laid down in a code of conduct, which is adopted by a government commission of the Federal Minister of Justice and which is required by the German Stock Corporation Act for listed companies.

In particular, corporate social responsibility as the responsibility of the company in society for social and environmental issues combines economic concerns with voluntary social responsibility in a sustainable manner. This sustainability is the subject of non-financial reporting. The traditional annual financial statements included figures from the balance sheet, income statement, and notes. Since the Accounting Directive, the management report has been added as a verbalised report by the management. It is not only the CO2 decarburisation of the global economy in climate agreements, etc. that can call business models which are successful in the figures into question. Sustainability issues should be reported separately to stakeholders in order to enable them to check the consistency between figures and management’s sustainability.

Management is responsible for these non-financial statements on the course of business, business results, the situation, and the effects of the company’s activities on the environment and society but is often not prepared accordingly at present. This includes the development of nonfinancial performance indicators, such as the development of the number of accidents at work, employee turnover, energy consumption, etc. From management’s point of view, the result is an important source of information for shareholders, employees, and the interested public, presented, if possible, in a brief and meaningful way and related to the main issues. This can be implemented either in the management report itself or in a separate report, although, as always, it should be oriented on the understanding of the interested reader. The large number of technical terms used does not make this easier, but it is the result of the struggle for fairness in business life and in accounting as the accountability of those responsible.


Dr Thomas Ditges

Dr Thomas Ditges

GGI member firm
DITGES Rechtsanwälte Wirtschaftsprüfer Steuerberater
Law Firm Services, Tax
Bonn, Germany
T: +49 22 860 4600
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W: ditges.de


Published: GGI Insider, No. 106, March 2020 l Photo: travelview - stock.adobe.com

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