ASCG completes ESG study and submits final report to Federal Ministry of Justice and Consumer Protection

The Accounting Standards Committee of Germany (“ASCG”/DRSC) has successfully completed its work on the ESG study commissioned by the German Federal Ministry of Justice and Consumer Protection (“the Ministry”). The 144-page final report was submitted to the Ministry at the end of January and made available to the public today on the respective websites.

On March 19, 2020, the Ministry commissioned the ASCG to conduct a study. The aim of the study was to determine how German companies comply with the reporting obligations on environmental, social and governance (“ESG”) aspects in connection with business activities, which were enshrined in the German Commercial Code in 2017 upon transposing the EU Non-Financial Reporting Directive (“NFRD”). As part of the work:

• The non-financial reporting of 100 representatively selected companies was examined in detail over the period 2017-2019 (horizontal study) on the basis of 15 predefined areas of questions;
• Four three-hour outreach events were held, each with 25 participants from all stakeholder groups; and
• On the basis of the above-mentioned work, recommendations for action on the upcoming revision of the NFR Directive with regard to eight overarching issues were submitted.

The final report contains detailed explanations of the results of the horizontal study. Key results include the following:

• The majority of the companies studied published the non-financial statement outside the management report in a separate non-financial report.
• Almost all companies in the sample reported on all minimum aspects required by law (environmental, employee and social issues, respect for human rights and combating corruption and bribery).
• The matters reported and the depth of reporting varied greatly, and risk reporting in particular is not yet very developed in detail.
• Frameworks are predominantly used in the preparation of non-financial statements/reports. The standards of the Global Reporting Initiative (GRI) were cited most frequently overall, while the German Sustainability Code (DNK) is used in particular by financial institutions.
• Almost 60 percent of the non-financial statements/reports examined were not subjected to any external review of their content. If external auditing has been carried out, then the audit was largely carried out with limited assurance.

Based on the results from the horizontal study and the comments received at the outreach events, the Joint Technical Committee of the ASCG discussed recommendations for action in detail at several public meetings. The ASCG recommends, among other things:

• In the event of an extension of the scope of non-financial reporting at European level, considering first and foremost a removal of the capital market criterion;
• Standardizing the form of publication by stipulating a holistic presentation of non-financial information (but not necessarily in the management report) and mandating its publication in the official register;
• Clarifying and tightening up various requirements of the EU Accounting Directive on non-financial reporting;
• With regard to non-financial risk reporting, focussing on the presentation of the nature of the risks, the measures resolved by the company to mitigate them and the measures actually taken, as well as the achievement of targets;
• In the case of the EU Directive foreseeing stronger standardization of non-financial reporting, making use of global frameworks and sector-specific standards to the largest extent possible and limiting separate European standardization to metrics for compliance with the European-specific legal environment; and
• Introducing mandatory audit of the non-financial statement in stages, starting with limited assurance.

On the occasion of the completion of the ESG study, the outgoing President of the ASCG, Prof Dr Andreas Barckow, commented as follows: “The study for which we were commissioned by the Ministry is the most extensive commissioned work in the history of the ASCG. Despite all the challenges posed by the pandemic, the ASCG’s staff, the members of the Joint Technical Committee and the supporting forces from various universities have produced an extremely high-quality result over the past ten months that stands up to any comparison. I am proud of and grateful for the tireless efforts of all those involved who have contributed to the success of this major and eminently important undertaking for the ASCG. I am certain that with our study, the Ministry will have a profound and well-grounded document in hand for the upcoming consultations on the revision of the NFR Directive.”

His designated successor in the office of President, Mr Georg Lanfermann, agrees: “I congratulate Andreas Barckow and his team on the successful completion of the study. This was a great effort, and I would particularly like to emphasize the enormous commitment of my predecessor in this regard. For me, the outstanding quality of this work is further proof that the ASCG is the right organization to pool the interests of German constituents in the field of non-financial reporting as well. The ASCG is in a position to competently represent these interests in a balanced manner. It is an honour for me to be able to further develop this topic in accordance with the strategy of the Administrative Board as of March. I would like to establish the ASCG as a central point of contact for corporate reporting across the board. With this in mind, I look forward to exchanging ideas with our members and all stakeholder groups, but also to continuing our successful cooperation with the Ministry.”

An Executive Summary is available here (in English, PDF, 239 KB), the full study can be obtained here (in German, PDF, 5.74 MB).