Unveiling the effects of the Corporate Sustainability Reporting Directive (CSRD) on company sustainability reporting practices: a case of German companies Open Access

Human activities predominantly contribute to climate change, which presents an existential threat to the planet (Karwowski and Raulinajtys-Grzybek, 2021; Yeoh, 2022; Dmuchowski et al., 2023; Chen et al., 2023). The repercussions, such as severe weather phenomena, elevated sea levels and disturbed ecosystems, significantly affect food security, infrastructure, public health and many more (Duchenne-Moutien and Neetoo, 2021; Bell et al., 2018). Reports from the Intergovernmental Panel on Climate Change (IPCC) underline the imperative to decrease carbon emissions by 45% by 2030 to constrain global warming to 1.5°C above preindustrial levels (IPCC, 2023; Yang et al., 2023; Acen et al., 2024). Industrial operations, especially those of high-emission companies, significantly contribute to greenhouse gas emissions (Faisal et al., 2018). A few handful of firms, mostly in the coal, oil, natural gas and cement sectors, are responsible for over two-thirds of these emissions, highlighting their pivotal role in both contributing to and alleviating climate change (Grasso, 2019). These challenges necessitate strong accountability mechanisms to guarantee that business actions conform to the global mandate for a sustainability approach.

Sustainability approach and its meaningful changes has become an essential instrument for enhancing openness and accountability within corporate from small to large (Boiral et al., 2019). Nonetheless, although voluntary reporting frameworks are prevalent, they frequently do not yield significant outcomes in the past track record (Ntim et al., 2017; Ioannou and Serafeim, 2017). Their adaptability grants corporations significant discretion in determining reporting practices, leading to a disjointed and uneven environment (Binder, 2023). Researchers have observed that this “please all” strategy frequently compromises comparability and accountability, resulting in sustainability reporting as a squandered opportunity to consequence meaningful company transformation (Schadewitz and Niskala, 2010; Kuzey and Uyar, 2017; Hamilton and Waters, 2022). The absence of conventional criteria, particularly regarding materiality, exacerbates the complexity of the terrain. Although “materiality” ought to encompass the broader impacts that enterprises exert on society and the environment, prior frameworks have only characterized it in monetary terms, prioritizing profits over the long-term well-being of the entire system (Uwah, 2024).

The European Union’s Corporate Sustainability Reporting Directive (CSRD) represents a notable regulatory progression. The CSRD replaces the Non-Financial Reporting Directive (NFRD) and mandates a broader spectrum of firms to adhere to standardized reporting protocols (EUROPEAN PARLIAMENT, 2022). It also emphasizes the notion of double materiality. This principle mandates that firms evaluate their financial risks with their broader effects on society and the environment (Asogwa et al., 2021; Villiers, 2022). The directive aims to standardize reporting procedures, enhance comparability and improve stakeholder involvement through the integration of European Sustainability Reporting Standards (ESRS) (Hamilton and Waters, 2022). An overview of the ESRS, which underpin the CSRD’s standardized approach, is presented in Figure 1 (EU, 2022). In contrast to its predecessor, which applied a “comply or explain” approach permitting corporations to avoid thorough disclosures, the CSRD requires extensive and substantive reporting that conforms to the sustainable development goals (SDGs) and the Paris Agreement (Mion and Loza Adaui, 2019; Korca et al., 2021; Ottenstein et al., 2022).

The CSRD’s strategy tackles the disjointed nature of sustainability reporting by streamlining the framework and emphasizing unified standards that promote both corporate and environmental sustainability (EUROPEAN PARLIAMENT, 2022). It seeks to address significant challenges, including the absence of enforceability, discrepancies in reporting methods and the excessive diversity of voluntary activities that have defined the reporting ecosystem (Asogwa et al., 2021; Villiers, 2022). The directive aims to reconcile corporate interests with wider ecological and social concerns by redefining materiality through a dual perspective. This transition indicates an increasing acknowledgment that sustainability reporting should cater to many stakeholder groups instead of concentrating just on financial markets (Weaver and Woods, 2015; Christensen et al., 2018; Jørgensen et al., 2021). The CSRD incorporates concepts further from behavioral economics, such as mitigating the “paradox of choice,” which illustrates that providing corporates with excessive options can lead to feelings of overload and hinder their performance in fulfilling reporting obligations (Karwowski and Raulinajtys-Grzybek, 2021; Pham et al., 2024).

Meanwhile, exploring empirical findings offers critical perspectives on the dynamics of CSRD implementation in German companies. First, the study finds stark differences in organizational responses, with publicly traded companies primarily adopting acquiescence strategies and small- and medium-sized enterprises (SMEs) using compromise and avoidance strategies due to resource constraints. Second, the double materiality principle stands out as the most important new idea in CSRD, necessitating major changes in how organizations assess what is important and govern themselves, regardless of size. Third, mandatory assurance requirements have opposite effects, increasing credibility for larger firms while imposing disproportionate compliance costs on smaller organizations. Fourth, digital tagging and standardized reporting formats pose significant technological challenges, particularly for SMEs that lack advanced information technology infrastructure. Finally, new professional service markets and industry collaboration mechanisms emerge as organizations seek external expertise and peer learning to address implementation challenges. These findings demonstrate that, while the CSRD is effective in making sustainability reporting more uniform, its implementation creates new inequalities between organizations based on their resources and technical skills. Institutional factors balance the directive’s transformative potential, allowing some organizations to strategically leverage new requirements while limiting others to minimal compliance approaches.

While regulatory frameworks have been extensively researched in the literature (La Torre et al., 2018; Mion and Loza Adaui, 2019; Pagani et al., 2021; Hamilton and Waters, 2022), this study makes three distinct contributions that fill critical gaps in current knowledge. First, as one of the first empirical investigations into CSRD implementation, this study builds on previous work on NFRD (Haller et al., 2017; Stolowy and Paugam, 2018) by investigating the transformative effects of the double materiality principle on corporate reporting practices. Prior research has primarily focused on single materiality considerations, ignoring the paradigm shift that double materiality represents for administrative reporting and governance structures. Second, this study offers novel insights into the transition from voluntary to mandatory assurance requirements, shedding light on the practical challenges and administrative adaptations required during this significant paradigm shift – an aspect largely overlooked in existing literature (Breijer and Orij, 2022; Stefanescu, 2021). Third, the study contributes to institutional theory in the context of sustainability reporting (Weaver and Woods, 2015; Christensen et al., 2018) by assessing how different types of German companies (publicly traded entities, nonpublicly traded entities and small- and medium-sized businesses) responded to similar regulatory pressures. It accomplishes this by demonstrating how administrative characteristics influence the companies’ responses. Gengnagel and Zimmermann (2022) identified a research gap regarding differential corporate responses to uniform regulatory frameworks, which this comparative approach addresses. Collectively, these contributions advance theoretical understanding of regulatory impacts on sustainability reporting, as well as practical knowledge of effective implementation strategies.

In the case of Germany, as a prominent industrial and regulatory actor within the European Union (EU), provides a vital framework for analyzing the revolutionary potential of the CSRD (Ferrarini and Zhu, 2021; Pham et al., 2024). German companies, traditionally committed to robust regulatory structures, encounter distinct obstacles and opportunities in conforming to the directive’s stipulations. Especially, the CSRD indicates a notable step toward enhancing the uniformity, comparability and reliability of sustainability information revealed by corporations across the EU (Samak, 2024; Uwah, 2024; EUROPEAN PARLIAMENT, 2022). Notwithstanding sustainability reporting’s predominant exploration, similar to most research objectives, there remain unanswered questions demanding advance study (Grewal et al., 2019; Jackson et al., 2020; Chiaramonte et al., 2022; Cuomo et al., 2022; Aluchna et al., 2022; Dinh et al., 2023). As the CSRD is still very new, there is not a lot of information available about how it will effect businesses, especially since it will make big changes to the requirements for reporting. Therefore, the effects of the new CSRD on companies’ sustainability reporting practices provide a topic for further investigation. Thus, the purpose of this study is to look into the effects of the CSRD on German companies’ sustainability reporting practices. Specifically, what are the most important changes that the CSRD brings about compared to previous directives? Which challenges do these changes create for German companies? And how could German companies resolve these challenges?

The rest of this paper is organized as follows. First, the literature review provides a comprehensive examination of the regulatory context, NFRD background, CSRD innovations and previous empirical studies. It then presents the theoretical framework for analyzing organizational responses to regulatory change, which combines institutional theory and stakeholder theory. The methodology, which includes the interpretivist research philosophy, abductive approach, purposive sampling strategy and thematic analysis procedures, is presented in the following section. The findings section presents detailed information organized around three major themes: CSRD changes and effects, implementation challenges and strategic resolution approaches. This is followed by a discussion of the findings in light of the theoretical framework and previous literature, demonstrating both theoretical contributions and practical implications. Finally, it summarizes key findings, articulates policy recommendations, acknowledges limitations and suggests directions for future research.

The literature review is designed to provide a solid conceptual and empirical foundation for this research. This literature review critically examines the scholarly foundations that underpin the study of the CSRD’s impact on sustainability reporting practices in companies. The study is divided into four interrelated sections that support the theoretical framework and empirical approach. First, situate the CSRD within the evolution of EU sustainability policy, from the Sustainable Finance Action Plan (SFAP) to the European Green Deal, emphasizing the institutional pressures that drive regulatory change. Second, evaluate the NFRD, the CSRD’s predecessor, to establish a benchmark for regulatory progress. Third, examine the transition to the CSRD, focusing on key innovations such as double materiality, mandatory assurance and standardized reporting, which shape the empirical focus. Finally, synthesize previous empirical research on sustainability reporting regulations, focusing on how organizations respond to mandatory disclosure. Throughout the study, critical gaps are identified, particularly the limited empirical exploration of CSRD implementation dynamics and the need for robust theoretical frameworks to explain diverse organizational responses to uniform mandates.

The EU has played a crucial role in establishing legal frameworks to address sustainability issues, particularly through mandatory corporate sustainability reporting (EUROPEAN PARLIAMENT, 2022; Hummel and Jobst, 2024). These policies aim to improve transparency, strengthen accountability and align company operations with global climate and sustainability objectives (Gengnagel and Zimmermann, 2022; Busch et al., 2021).

The SFAP, initiated by the European Commission in March 2018, is a crucial component of the EU’s strategy for transitioning to a sustainable economy (Busch, 2022). The plan delineates a strategy for ten reform areas aimed at promoting environmentally sustainable financial practices, enhancing long-term investments and mitigating the financial risks associated with climate change and resource depletion (Nasir and Ahmed, 2024; Wang et al., 2024). The primary focus of these objectives is to enhance sustainability disclosure, as outlined in the plan’s ninth action, which seeks to reinforce sustainability reporting standards (Brown et al., 2009; Eccles and Krzus, 2010). The SFAP’s focus on attaining a balance between flexibility and consistency has impacted later regulatory endeavors. This demonstrates the importance of transparency in aligning investment decisions with sustainability goals (de Jong and Wagensveld, 2024; Koskelainen, 2024).

The December 2019 European Green Deal establishes an ambitious objective of achieving carbon neutrality across the EU by 2050, incorporating the SFAP (Alessandrini et al., 2024; Zetzsche and Anker-Sørensen, 2022). The deal necessitates substantial investments – estimated at €350bn annually until 2030 – to meet intermediate climate goals (Soergel et al., 2021; Teske, 2019). This framework incorporates the EU Taxonomy Regulation, creating a classification system to assess the environmental sustainability of economic operations. The taxonomy establishes clear standards for the distribution of funds for sustainable developments, reduces greenwashing and improves accountability (Jha and Martin, 2023; Kosztowniak, 2023; Lashitew, 2021). Corporate reporting in Germany, for example, incorporates the EU taxonomy via frameworks such as the Deutscher Nachhaltigkeitskodex (Diener and Špaček, 2020; Duderstadt, 2021).

The NFRD, enacted in October 2014 and effective in all EU member states by 2018, amended Directive 2013/34/EU to mandate that specific major companies and organizations disclose nonfinancial and diversity information (Directive, 2014). The NFRD applies to big public-interest companies with over 500 employees, including some 6,000 companies throughout the EU, including listed firms, banks, insurance companies and other entities classified as public-interest entities by national authorities (La Torre et al., 2018; Pagani et al., 2021). The order stipulated that a nonfinancial statement containing significant information regarding the company’s growth, performance, position and the impact of its activities must be disclosed to the public (Haller et al., 2017; Turzo et al., 2022). The necessary information encompassed environmental, social and employee-related issues; adherence to human rights; and anti-corruption and bribery protocols (PricewaterhouseCoopers, 2023). Companies were mandated to delineate their business model, articulate policies and due diligence procedures, reveal policy outcomes, identify primary risks and report on nonfinancial key performance indicators (KPIs) pertinent to their operations (Stolowy and Paugam, 2018). In the absence of policies on specific issues, firms were obligated to furnish a clear and reasoned justification (Breijer and Orij, 2022; Stefanescu, 2021; Hamilton and Waters, 2022; Jan et al., 2023).

Under the NFRD, companies may disseminate nonfinancial information through various methods (EFRAG, 2023b, 2023a). They may use national frameworks, EU initiatives such as the Eco-Management and Audit Scheme, or globally acknowledged standards including ISO 26000, the UN Global Compact, the Global Reporting Initiative (GRI) and the organisation for economic co-operation and development Guidelines for Multinational companies (GRI, 2022; GRI, 2023). This flexibility allowed corporations to customize disclosures according to their particular actions and impacts, although it also resulted in a disjointed reporting environment (Breijer and Orij, 2022; Landén et al., 2021). The primary aims of the regulation were to elevate the quality of nonfinancial reporting, augment comparability throughout the EU and stimulate inward investment by ensuring more transparency and relevance of reported information (Dinh et al., 2023). The directive operated on a “comply or explain” principle, allowing corporations to rationalize noncompliance and providing flexibility in the disclosure of information (Macneil and Esser, 2022).

The directive addressed commercial sensitivities by permitting Member States to provide exceptions when the disclosure of specific information could substantially jeopardize a company’s commercial standing. For example, details regarding forthcoming developments or issues in negotiation may be excluded if such exclusions do not compromise stakeholders’ comprehension of the company’s performance and influence (Kinderman, 2020; Tregidga and Milne, 2022; Vandekerckhove, 2022). The European Commission further released guidelines to assist corporations in meeting their reporting requirements in more detail (EFRAG, 2023a). These standards underscored the business rationale for nonfinancial reporting, associating openness with advantages such as superior financial performance, reduced financing costs, higher personnel retention and more informed decision-making (Malik, 2023). The rules contextualize nonfinancial reporting within the broader framework of sustainability. They linked it to the SDGs and the Paris Climate Agreement by emphasizing its part in making sure that money flows in a way that supports long-term growth (Akrofi et al., 2022; Gebel et al., 2022).

The NFRD, while contributing to the advancement of sustainability reporting, encountered considerable criticism (Agostini et al., 2022; Korca et al., 2021; van den Bosch, 2022). While companies praised its flexibility for allowing them to focus on material issues, others saw it as a weakness that led to inconsistent reporting practices. Researchers such as Strampelli (2018), Kinderman (2020) and Korca et al. (2021) contended that the directive’s dependence on a “regulated autonomy” framework led to inconsistent disclosure quality and diminished comparability among firms (Mion and Loza Adaui, 2019; Nielsen, 2023; Santilli, 2023). The limited scope of the NFRD, applying only to large public-interest entities, excluded a substantial number of smaller companies with significant environmental and social impacts (Korca et al., 2021). Critics contend that the directive’s limited application restricts its capacity to effectuate systemic change in corporate conduct (Ottenstein et al., 2022).

The directive’s “comply or explain” framework was another point of contention (Macneil and Esser, 2022), as it allowed companies to provide minimal disclosures without significant repercussions. The directive struggled to facilitate meaningful cross-company comparisons due to its nonprescriptive approach and lack of standardized reporting criteria. Scholars like Haller (2006), Haller et al. (2017) and Macneil and Esser (2022) said that the different ways of reporting made things more complicated, which made the directive less effective at improving accountability and involving stakeholders (Ioannou and Serafeim, 2017).

Nevertheless, the NFRD laid the groundwork for integrating nonfinancial reporting into corporate governance and aligning it with sustainability goals. By encouraging transparency, the directive spurred interest in sustainability reporting among stakeholders, including investors and regulators, while also highlighting the need for more cohesive and targeted reporting mechanisms. However, the challenges associated with its implementation underscored the necessity of a more comprehensive framework (Mion and Loza Adaui, 2019; Ottenstein et al., 2022).

The shift to the CSRD signifies an advancement in tackling these issues (Landén et al., 2021; Breijer and Orij, 2022; Cuomo et al., 2022). The CSRD implements more stringent regulations, expands the scope of applications and enhances mechanisms for accountability. It expands upon the NFRD’s efforts to establish a cohesive and effective framework for sustainability reporting. The NFRD was a major advancement in integrating sustainability into corporate governance throughout the EU. The freedom allowed corporations to customize their disclosures, but it also led to fragment reporting procedures and restricted comparability (La Torre et al., 2018; Ferrarini and Zhu, 2021; Testarmata and Ciaburri, 2022; Tuntland, 2023).

As the EU transitions to the CSRD, this directive, launched in April 2021 and enacted in January 2023, rectifies the deficiencies noted in the NFRD (EFRAG, 2023b). The CSRD mandates reporting for all big enterprises with over 250 employees, irrespective of their listing status and also pertains to SMEs. This expansion encompasses approximately 50,000 enterprises within the EU, including 15,000 in Germany, which represents 75% of the EU’s total sales. More importantly, CSRD introduced the ESRS mandate comprehensive disclosures in the reporting framework (KPMG, 2023; PricewaterhouseCoopers, 2023). This ensures that all company sustainability reports are consistent, reliable and easily comparable. The CSRD encompasses the principle of “double materiality,” indicating that firms are required to reveal the consequences of their actions on both humans and the environment, as well as the implications for their financial success (Directive, 2014; EFRAG, 2023b; GRI, 2022; KPMG, 2023). This dual viewpoint on connecting corporate reporting to wider social and environmental issues improves the effectiveness and comprehensiveness of sustainability disclosures. The guideline emphasizes the necessity for sustainability statistics to undergo verification by an external third party, independent of the organization. Gradually, the level of assurance should increase from the minimum threshold to an acceptable one (KPMG, 2023; PricewaterhouseCoopers, 2023).

Digitalization is another key point becoming an essential element of the CSRD. Companies are required to generate sustainability reports in XHTML format and use digital tagging technologies to ensure their linkage to the European Single Access Point (KPMG, 2023; PricewaterhouseCoopers, 2023). This enables stakeholder access to data and improves its utility. The ESRS offers sector-specific and cross-cutting standards, allowing companies to customize disclosures to their distinct settings while ensuring consistency (Hoffmann et al., 2018; Smulders, 2022).

The EU’s transition from the SFAP to the CSRD illustrates a strategic initiative to unify sustainability reporting and ensure that corporate practices align with climate and sustainability objectives (Samak, 2024). The CSRD seeks to enhance corporate accountability for sustainability by rectifying the shortcomings of the NFRD and requiring extensive, standardized reporting (Korca et al., 2021; Carmo et al., 2023). This would improve transparency, responsibility and tangible measures across various corporate sectors (Odobaša and Marošević, 2023; Santilli, 2023). This developing framework highlights the EU’s significance in advancing sustainable finance and corporate responsibility, establishing a global standard for sustainability reporting (European Parliament/CSRD, 2022).

A number of studies have explored the complex relationship between sustainability reporting and corporate value, offering insights into its effects on transparency, accountability and financial success. Researchers (Schadewitz and Niskala, 2010; Kuzey and Uyar, 2017; Nguyen, 2020; Nguyen et al., 2024) examined the impact of sustainability reporting on corporate value. (Bachoo et al., 2013) explore the impact of sustainability disclosure quality on market value. In 2020, Nguyen (2020) used a set of 485 observations from 97 German companies that met GRI criteria from 2013 to 2017. They used regression analysis to show that there was a strong link between GRI-compliant sustainability reporting and company value. This study emphasizes the essential importance of compliance with standardized reporting standards in improving business performance and achieving long-term objectives.

Schadewitz and Niskala (2010) studied OMX Helsinki-listed businesses from 2002 to 2005, concluding that responsible reporting diminished knowledge asymmetry between management and investors and hence increased firm value. Kuzey and Uyar (2017) analyzed publicly traded Turkish companies, identifying industry and company size as critical factors influencing sustainability reporting. Their findings underscore the necessity for cooperative initiatives among boards, regulators and creditors to cultivate a strong culture of transparency. Bachoo et al. (2013) expanded this analysis by investigating Australian companies, revealing an adverse correlation between the costs of equity capital and the quality of sustainability reporting. Their research highlights the significance that markets attribute to high-quality disclosures, emphasizing the critical role of transparency in improving corporate valuation.

The EU has gradually included sustainability reporting into its regulations, beginning with the “Towards Sustainability” initiative in 1992 and on to laws such as the Accounting Modernization Directive 2003/51/EC (Henselmann and Meier, 2021). The 2014 NFRD, which became law in 2017, was a big step forward in making big public interest organizations disclose nonfinancial information. The regulation mandated companies to provide information regarding environmental, social and governance (ESG) aspects. Nevertheless, due to the absence of standardized criteria, the reports were not comparable, rendering the directive less effective in ensuring corporate accountability. Empirical study reveals varied results, with Mion and Loza Adaui (2019) observing convergence in sustainability reporting standards among Italian and German firms following implementation. Ottenstein et al. (2022) explored data from 905 firms in 28 nations, demonstrating enhancements in both the amount and quality of reporting under the rule, while obstacles in external verification remained. Likewise, Viljaranta (2017) discovered that Finnish enterprises perceived the NFRD as a versatile and efficient instrument for improving reporting quality.

The shift from voluntary to mandatory reporting has sparked significant academic discourse. Matuszak and Różańska (2017) showed that compulsory reporting enhanced the extent and caliber of disclosures among enterprises listed in Poland. Doni et al. (2019) and La Torre et al. (2018) contended that regulatory measures alone do not inherently improve accountability or the quality of reporting. The implementation of the CSRD has intensified these discussions due to its broader applicability to corporations and its more rigorous criteria. This prompts individuals to contemplate its potential impact on various matters. Although numerous studies have concentrated on voluntary reporting frameworks (Dumitru et al., 2017; Manes-Rossi et al., 2018; Venturelli et al., 2017), a considerable research deficiency exists regarding mandatory frameworks under the CSRD, especially in relation to their impact on sustainability practices.

Ioannou and Serafeim (2017) provided significant insights into mandated reporting in 58 countries, emphasizing its beneficial impact on ethical conduct, corporate governance and socially responsible behaviors. Their findings demonstrate that compulsory reporting enhances transparency, diminishes corruption and fortifies stakeholder trust. Boodoo (2016, 2020) examined Indian corporations and noted enhancements in ESG performance after the implementation of required reporting; however, difficulties in tackling environmental issues remained. These studies emphasize the capacity of regulatory frameworks to facilitate systemic business transformation while also revealing the complications involved in its execution.

The Corporate Social Responsibility CSR Directive Implementation Act [CSR-Rijksuniversiteit Groningen (University of Groningen) (RUG)], approved in 2017 in Germany, signifies a crucial convergence of state rules with the EU’s NFRD. This legislation required nonfinancial disclosures pertaining to ESG considerations, anti-corruption initiatives and other significant issues. Large firms adjusted with relative ease due to preexisting voluntary procedures, whereas SMEs perceived the rules as difficult (Hassan, 2020; Henselmann and Meier, 2021). Upon the implementation of the CSRD and the ESRS in 2023, German corporations will be required to provide verifiable and comprehensive disclosures. This will fundamentally alter the methodology of sustainability report creation (Germany Country Report, 2022).

Recent research emphasizes the readiness of German enterprises for changing regulatory norms (Germany Country Report, 2022). A far greater number of German enterprises are currently impacted by the CSRD compared to the NFRD, which initially affected only 500 companies until its expansion to 15,000 (Umweltbundesamt, 2023). According to PricewaterhouseCoopers (2023), if governments want to follow the double materiality principle of the CSRD and the ESRS frameworks, they need to give more complete and useful information (Matuszak and Różańska, 2017). This will result in increased accountability and openness. Notwithstanding these developments, deficiencies remain in domains such as supplier chain disclosures, performance metrics and external assurance methodologies. Discrepancies in materiality definitions and insufficient focus on developing issues like biodiversity and the circular economy persist as opportunities for enhancement (Korca et al., 2021; Venturelli et al., 2017). Furthermore, Hassan (2020) analyzed the shift from voluntary to required reporting in German SMEs, illustrating the substantial influence of rules on reporting methods.

This study uses institutional theory as its primary theoretical lens to consider how German businesses respond to regulatory changes imposed by the CSRD. Institutional theory provides a strong framework for investigating how formal and informal rules, norms and cultural-cognitive schemas influence company behavior in specific fields (DiMaggio and Powell, 1983; Scott, 2008). This theoretical perspective is particularly appropriate for investigating regulatory impacts on sustainability reporting practices because it allows for the scrutiny of both coercive pressures imposed by regulatory mandates and the normative and cultural-cognitive influences that shape companies’ responses to these pressures. Building on this theoretical foundation, the study examines how three types of institutional pressures – coercive (regulatory), normative (professional standards) and mimetic (peer influence) – drive changes in German companies’ sustainability reporting practices. The CSRD exerts significant coercive pressure by legally mandating specific reporting requirements and assurance procedures that organizations must follow. These regulatory requirements interact with normative pressures from industry associations, accounting bodies and sustainability professionals, who set standards for “proper” reporting practices (Bebbington and Fraser, 2014). Simultaneously, mimetic pressures emerge as companies observe and imitate their peers’ successful compliance strategies, particularly in the uncertain conditions of early CSRD implementation (Shabana et al., 2017). The concept of institutional complexity (Greenwood et al., 2011) adds to the theoretical approach of this study by explaining how companies respond when faced with competing institutional demands. The CSRD introduces new reporting requirements that may conflict with established financial reporting routines and traditional materiality assessments, resulting in tensions that businesses must manage. As a result, the study explores how administrative characteristics such as size, public listing status, resource availability and prior reporting experience influence how businesses interpret and respond to institutional pressures (de Villiers et al., 2014). In addition, we use stakeholder theory (Freeman and Phillips, 2002) to understand how companies prioritize various stakeholder interests when implementing CSRD requirements. The double materiality principle explicitly requires companies to consider the impact on a broader range of stakeholders than shareholders, making stakeholder theory especially relevant for analyzing the transition from shareholder-focused to more inclusive reporting approaches (Adams and Whelan, 2009). By combining institutional and stakeholder theories, this study provides a comprehensive theoretical framework for analyzing the complex dynamics at work in CSRD implementation. This framework guides our analysis of interview data, assisting in explaining variations in companies’ responses to the directive and identifying the mechanisms by which regulatory changes translate into new reporting practices.

The research uses an interpretivist perspective, focusing on the comprehension of subjective experiences and social circumstances (Saunders, 2016 144). Table 1 below summarizes the phases and characteristics of the research methodology included in this study. This method is especially effective for analyzing the complex implications of the CSRD, emphasizing the viewpoints and activities of major stakeholders. Saunders (2016) assert that interpretivism facilitates the examination of intricate phenomena within particular settings, such as business disclosures regarding sustainability activities in accordance with new requirements. An abductive research methodology was used further to connect theoretical frameworks with empirical findings. This method enables the identification of new insights into the impacts of the CSRD by fluctuating between established research and empirical data. The regulation’s implementation is still in its nascent phase, and its comprehensive implications have yet to be ascertained. A qualitative case study design was used to provide a comprehensive knowledge of the CSRD’s impact on German companies. Yin (2014) asserts that case studies are especially beneficial for examining real-world occurrences in their authentic contexts. The study developed a cross-sectional design to assess individuals’ behaviors and attitudes throughout the initial phases of directive implementation.

Semistructured interviews were used as the principal data gathering approach due to their adaptability in examining essential themes and allowing participants to articulate their unique perspectives. This approach harmonizes structure with flexibility, rendering it optimal for encapsulating the varied experiences of stakeholders. Interviews were performed from September 2023 to July 2024. Participants were chosen by purposive sampling to guarantee conformity with the study’s objectives. The selection criteria encompassed representation of German companies directed by the CSRD, possession of expertise in sustainability reporting or involvement in consultancy or assurance activities pertaining to sustainability. This rigorous, criterion-driven methodology guaranteed a thorough and data-intensive data set.

A total of 20 participants were interviewed, comprising sustainability managers, ESG specialists, consultants, researchers and third-party assurance experts. Table 2 summarizes the demographic and sectoral characteristics, as well as how interviewees represented their expertise, categories and industries in this study. The varied sample offered a wide range of observations, illustrating different lookouts on the directive’s execution across several industries. The interviews were performed by videoconferencing to address geographical dispersion and resource limitations. Ethical standards were also rigorously maintained during the research process. Participants were thoroughly apprised of the study’s aims, their entitlements and the confidentiality protocols implemented. Consent for recording and transcription was secured, and confidentiality and anonymity were rigorously upheld.

Following the study’s semistructured interview approach, the protocol was further systematically prepared by both institutional theory and stakeholder theory constructs as described in the theoretical framework section above. Drawing from DiMaggio and Powell (1983), three pillars of institutional pressures, the study designed questions to capture participants’ experiences with coercive pressures (e.g. “How has the mandatory nature of CSRD requirements influenced your organization’s approach to sustainability reporting?”), normative pressures (e.g. “To what extent do industry associations and professional bodies influence your reporting practices?”) and mimetic pressures (e.g. “How do you benchmark your sustainability reporting against peer organizations?”). To operationalize stakeholder theory within the interview guide, the study further incorporated Freeman and Phillips (2002) stakeholder identification framework by including questions about how organizations prioritize different stakeholder groups under the CSRD’s double materiality principle (e.g. “How has the double materiality requirement changed your assessment of stakeholder impacts and dependencies?”). Additionally, the interview included probes to explore (Oliver, 1993) strategic response typology by asking participants to describe their organization’s approach to CSRD compliance, allowing us to identify acquiescence, compromise, avoidance or defiance strategies.

The study’s sampling strategy used a purposive approach (Patton, 2014) to ensure representation of key stakeholder groups and company characteristics. More importantly, focus on sustainability professionals with direct involvement in CSRD implementation and at least five years of experience in sustainability reporting. To gather diverse perspectives, the participants were chosen from four key stakeholder groups:

1. sustainability managers from mandatory reporting entities (n = 4), voluntary reporting (n = 2) and nonreporting entities (n = 6);

2. sustainability consultants advising companies on CSRD implementation (n = 3);

3. assurance providers specializing in sustainability reporting (n = 3); and

4. researcher specialists involved in CSRD interpretation (n = 2).

For the reporting entity representatives, we ensured diversity across multiple dimensions. Company size: large publicly traded companies (n = 4), large nonpublicly traded companies (n = 4) and SMEs (n = 4). Industry sectors include manufacturing (n = 2), services/technology services (n = 1 / 3) and transportation/energy (n = 1 / 1). Reporting maturity: companies with established sustainability reporting practices (n = 6) and those new to comprehensive reporting (n = 6). This sampling approach was not intended to achieve statistical representation of all German companies, but rather to capture diverse experiences with CSRD implementation in various administrative contexts. This is consistent with the study’s interpretivist research philosophy, which emphasizes rich contextual insights over statistical generalization (Saunders, 2016)

The study also determined the adequacy of the sample size using thematic saturation principles (Guest et al., 2006), which involved conducting interviews until no new themes or substantive insights emerged for at least three consecutive interviews. After conducting 17 interviews, the study discovered recurring patterns in participants’ responses to CSRD implementation challenges, benefits and adaptation strategies based on the objectives. Means: to systematically assess saturation, the study used an encrypting comparison approach after each interview, tracking the emergence of new patterns and themes as recommended by O’reilly and Parker (2013). In this saturation process, there were diminished returns on new insights after the 17th interview, with the final 3 interviews primarily reinforcing existing themes rather than generating new ones. After interview 17, no significant new themes emerged for three consecutive interviews, indicating that thematic saturation had occurred. The initial interviews (1–7) generated the greatest number of new themes (4–25), with a steady decline, thereafter, reaching around 2–3 new themes. Interviews with participants from 8 to 17 primarily reinforced existing themes rather than introducing new insights, though 0–1 patterns did emerge. Three more interviews were conducted to confirm saturation, bringing the total to 20, validating our conclusion that 20 interviews were sufficient for this study.

To analyze the qualitative data, the study used a thematic analysis approach, adhering to established methodologies (Bell et al., 2022; Bryman, 2016; Ryan and Bernard, 2003). The analysis was guided by both deductive and inductive coding strategies, ensuring a rigorous and comprehensive exploration of the data. The theoretical framework – primarily institutional theory – served as an initial analytical lens, while the process remained open to the emergence of new, data-driven themes.

All interviews were fully transcribed, and a manual analysis was conducted using Microsoft Word and Excel. The study then began by developing an initial codebook grounded in key institutional theory constructs, including:

• coercive institutional pressures (e.g. regulatory mandates and legal requirements);

• normative institutional pressures (e.g. professional standards and industry norms);

• mimetic institutional pressures (e.g. peer benchmarking and industry best practices);

• strategic responses (e.g. acquiescence, compromise, avoidance and defiance) (Oliver, 1993); and

• stakeholder materiality assessments (e.g. financial vs impact materiality).

During the first coding cycle, these deductive codes were systematically applied to the data. At the same time, the study paid attention to new ideas that came up naturally from what participants said, making sure the analysis included both expected and new themes. The coding process was iterative, allowing for the continual refinement of themes and the identification of subconcepts that reflected the depth and diversity of perspectives.

In the second coding cycle, pattern coding was used to explore how institutional pressures manifested across different organizational types. This phase clearly linked real-world patterns to theoretical ideas, like showing how SMEs used “compromise strategies” to meet CSRD requirements – connecting these results to resource dependency theory and limits on organizational capacity.

The thematic development process was thus both systematic and theory-driven. Themes were organized around institutional response patterns, moving beyond mere description to offer theoretical explanations of how institutional pressures operate within the context of CSRD implementation. The analysis focused on essential themes, including the perceived advantages and obstacles of the CSRD, changes in reporting processes and broader implications for corporate sustainability practices.

The results were then compared with existing literature, facilitating the synthesis of empirical findings with theoretical insights. This comparative methodology has not only enhanced the robustness of this study’s results but also corroborated the validity of the findings, ensuring they were both thorough and data-driven.

This research established validity and reliability by triangulation, integrating many stakeholder perspectives to offer a comprehensive knowledge of the CSRD’s impacts. The thorough documenting of all methodological processes, covering the formulation of interview guides, data collection protocols and analytical approaches, significantly strengthened the research’s credibility and replicability. Furthermore, informed consent was accurately secured, and data security and anonymity were preserved throughout the process. These measures cultivated trust among participants and guaranteed compliance with ethical study requirements (Saunders, 2016: 201–202).

This section presents the study’s findings on the impact of the CSRD on German companies’ sustainability reporting practices in response to the new CSRD’s institutional and regulatory pressures. The findings are organized around the research objectives and major themes identified in the analysis, while also emphasizing the theoretical framework for institutional response patterns. This results section organizes the main theme to answer the research question of the most important CSRD changes by showing how the participants saw which parts of the directive are the most different from previous reporting requirements. The second theme focuses on implementation challenges, examining the specific obstacles that organizations face when complying with the new requirements. The third theme focuses on resolution strategies, examining how companies are developing methods to overcome these challenges while providing different institutional responses based on company type. This highlights both common patterns and theoretical approaches that are well assessed.

The contemporary state of sustainability reporting practices among German companies, based on systematic interviews, extensive literature reviews and empirical data analysis, reveals a nuanced and evolving landscape. While significant progress has been achieved, challenges persist and the level of commitment varies across sectors. Publicly listed companies operating under the NFRD demonstrate a strong dedication to comprehensive ESG reporting, often exceeding legal requirements. This reflects their strategic alignment with both regulatory expectations and stakeholder transparency:

The widespread adoption of the GRI framework further underlines the commitment of these companies to align with internationally recognized best practices. However, critical gaps remain in reporting on environmental aspects such as biodiversity and air pollution, with over 80% of companies failing to disclose data on these topics (Lautermann et al., 2022; Umweltbundesamt, 2023). Reporting on climate change is comparatively advanced, with 76% of companies disclosing actions, 58% reporting indicators and 45% setting specific targets. In contrast, reporting on other areas like waste and water remains inconsistent, with indicators being reported more frequently than targets or actions (Umweltbundesamt, 2023).

A persistent issue is the lack of systematic representation of targets, actions and performance indicators in a correlated manner. This makes it challenging to assess the contribution of reported actions toward target achievement or to measure progress comprehensively. Additionally, there is ambiguity surrounding the implementation scope of reported actions, particularly within subsidiaries, and inconsistencies in standardized reporting frameworks:

The increasing use of terms such as carbon neutrality, GHG neutrality and net-zero emissions signals a growing commitment to climate goals. However, the absence of universally recognized concepts and methodological standards for GHG neutrality targets hinders comparability. This heterogeneity complicates the evaluation of climate strategies, reduction approaches and neutrality targets across reporting companies.

Nonpublicly listed companies have shown a voluntary engagement in sustainability reporting, albeit on a smaller scale. This reflects an emerging recognition of the value associated with ESG considerations, even in the absence of mandatory requirements:

However, SMEs lag significantly in both awareness and participation, often citing resource and expertise constraints as barriers to engagement:

Experts highlight the need for more detailed specifications and standardization in CSRD directives to enable SMEs to align with sustainability targets, actions and performance indicators. Without such standardization, inconsistencies are likely to persist, even as the directive becomes mandatory across EU member states.

A comparative evaluation of sustainability practices highlights large companies as leaders in reporting, but significant variability exists among firms. This lack of standardization has been identified as a key limitation, with experts calling for frameworks akin to financial reporting standards to enhance comparability and accountability:

The dynamic evolution of sustainability reporting in German companies reveals a clear dichotomy between industry leaders and those yet to fully embrace reporting practices. Despite disparities, there is a growing recognition of sustainability reporting as a strategic imperative rather than a compliance exercise:

Empirical data from 2018 and 2019 further provide quantitative insights into the extent of engagement, analyzing 477 reports from German capital market-oriented companies (Lautermann et al., 2022; Umweltbundesamt, 2023). Larger entities have developed robust quality assurance procedures, while newer reporting firms face challenges in meeting expected standards:

The integration of qualitative insights, expert opinions and empirical evidence paints a comprehensive picture of sustainability reporting practices in German companies. Regulatory dynamics, evolving awareness and the dual commitment to align with global best practices and meet regulatory requirements create a complex but promising landscape. The imperative for enhanced standardization, particularly for SMEs, emerges as a central theme. This reflects the broader narrative of sustainability reporting transitioning from a voluntary effort to a fundamental element of corporate strategy, offering a robust foundation for fostering a unified reporting culture across sectors in Germany.

The transition from the NFRD to the CSRD represents a pivotal development in sustainability reporting. In response, the CSRD introduces a transformative framework, addressing several shortcomings by broadening its scope and enhancing reporting requirements. Table 3 below outlines the key changes introduced by the CSRD:

The CSRD overarching objective is to ensure that organizations within its jurisdiction disclose comprehensive, accurate and relevant data on their ESG performance. By doing so, it equips investors, regulators and other stakeholders with the information necessary to make informed decisions and evaluate companies’ long-term viability. In these scenarios, a significant impact of the CSRD is observed in Germany, where it affects large corporations, publicly traded entities and financial institutions. Unlike the NFRD, which had a more limited scope, the CSRD extends its reach to include all large corporations and publicly traded SMEs, as well as multinational corporations operating within the EU. This expanded scope has far-reaching implications, encompassing over 15,000 companies in Germany alone.

An important shift introduced by the CSRD mandates that companies report on the sustainability performance of their subsidiaries, suppliers and business partners. This marks a stark departure from the NFRD, which exempted subsidiaries from individual reporting if included in their parent companies’ consolidated reports. Notably, under the CSRD, even parent companies based outside the EU must comply with the directive’s reporting requirements.

A cornerstone of the CSRD’s innovation is the double materiality assessment. This approach requires companies to evaluate sustainability issues from both financial and nonfinancial perspectives, aligning with the directive’s emphasis on understanding the bidirectional impact between businesses and sustainability issues:

Another transformative feature is the CSRD’s emphasis on digitization through the European Single Electronic Format (ESEF). By requiring disclosures in XHTML format, the CSRD enhances the accessibility, usability and transparency of sustainability information. This shift is complemented by the adoption of detailed sustainability reporting standards, the ESRS, which integrate established frameworks such as the EU Taxonomy, Global GRI, TCFD and the Greenhouse Gas Protocol. The ESRS mandates the reporting of ESG data points, reflecting the CSRD’s comprehensive approach to sustainability:

The CSRD also requires independent external verification of sustainability data, a departure from the NFRD’s voluntary and limited assurance framework. Companies must now subject their sustainability reports to audits by independent auditors to ensure data accuracy and reliability. This underscores the CSRD’s emphasis on fostering transparency and accountability. Furthermore, the directive promotes active engagement with stakeholders, including investors, customers, employees, regulators and civil society, to strengthen trust and collaboration:

The key transformations introduced by the CSRD – double materiality, expanded reporting scope, digitization, mandatory assurance and stakeholder engagement – highlight the directive’s ambition to redefine sustainability reporting standards. Experts and consultants emphasize that compliance requires companies to present clear, comprehensive and transparent reports to build trust among stakeholders. This is particularly challenging for SMEs, which face significant hurdles in aligning with the directive’s strict legal requirements and implementation timelines.

Leading to a nuanced and multilayered transformation in sustainability reporting has been noticed under CSRD. This directive, representing a fundamental shift, impacts various aspects of corporate operations with the primary goal of enhancing the comprehensiveness, comparability, transparency and consistency of sustainability reporting practices. These changes are expected to influence CSR disclosure in the long term and demonstrate the potential of disclosure laws to drive changes in corporate behavior:

Extensive interviews with industry experts revealed a consistently optimistic perspective, recognizing the directive’s timely revision and its profound effects on reporting practices. All respondents agreed that the CSRD had a significant impact on their sustainability reporting strategies. Established companies with consistent reporting practices indicated the need for only minor adjustments to adapt to the evolving standards while minimizing disruptions to their existing reporting methods. In contrast, SMEs have been granted an extension until January 1, 2026, to comply with the new reporting requirements, with an option to “opt out” until 2028. This temporal framework has immediate implications, particularly for nonreporting companies, such as SMEs, in meeting stringent deadlines:

The CSRD introduces an enhanced framework for ESG reporting, directly influencing the reporting process. While reporting practices have improved, concerns have been raised regarding potential limitations of standardization already observed in operational settings. Experts also anticipate that the CSRD will significantly affect German companies’ sustainability reporting, leading to an increase in reports and necessitating more expertise and resources. These substantial changes in reporting obligations pose significant challenges, particularly for SMEs and entities new to reporting.

In terms of resource implications, interviewees emphasized the critical need to allocate additional resources to address reporting gaps. Automation is now seen as a key element in sustainability reporting. Experts suggest that implementing a standardized framework adhering to industry standards will enhance both reporting processes and reader comprehension:

Although interviewees demonstrated a strong understanding of the directive’s implications, they discussed the challenge of integrating its structure into their reporting methods. The absence of execution benchmarks for addressing conceptual difficulties such as double materiality and compliance with the EU taxonomy regulation has raised concerns. This underscores the need to focus on key areas to achieve better alignment with industry peers:

Furthermore, companies in Germany, regardless of size, are expected to experience significant consequences due to legal regulations and decrees. The CSRD’s mandate for reporting digitization requires companies to provide sustainability data in a digitally compliant format, significantly impacting their operations. Analysts predict a major shift in reporting methods over the next 5–10 years, which will increase the volume of data and result in a fundamental transformation of sustainability reporting. This evolution is expected to have far-reaching effects on stakeholders such as banks, investors and financiers, enhancing data analysis capabilities and heralding a comprehensive and long-term transformation of the reporting ecosystem:

German companies are facing primarily two challenges under CSRD. To navigate these challenges, it is necessary to understand the legal and regulatory framework. Figure 2 depicts an overview of the challenges for both sides in word-cloud form: regulatory compliance challenges in (a) and resources and implementation challenges in (b).

The theme of regulatory compliance challenges faced by German company’s highlights significant hurdles under the CSRD. The directive mandates adherence to stringent ESRS standards, necessitating the collection of extensive mandatory data points. This exacerbates the burden on companies already navigating the complexities of multiple frameworks. Noncompliance with CSRD regulations exposes businesses to fines and penalties, further complicating the regulatory landscape. Industry experts emphasize the practical difficulties of producing coherent and consistent reporting while balancing global investor expectations with jurisdictional requirements:

Knowledge gaps emerge as a critical issue, with many companies relying on external assurance for ESG data but achieving only limited or reasonable assurance. Audit experts highlight challenges arising from rapidly evolving standards and broader compliance issues. These concerns affect not only SMEs but also large corporations with extensive reporting experience:

The inclusion of the double materiality assessment in the directive represents a paradigm shift, adding complexity for companies of all sizes. This assessment requires balancing financial and nonfinancial considerations, posing substantial challenges in collecting and analyzing numerous ESG metrics with a long-term focus. Areas such as the circular economy and biodiversity remain particularly difficult due to limited corporate comprehension. The need for quantifiable key figures, specific target setting and progress tracking adds further layers of complexity:

Data quality and availability, along with insufficient collaboration, exacerbate compliance challenges. Fragmented and isolated departmental data impedes the consolidation of double materiality assessments, creating inconsistencies that hinder accurate insights and process tracking. Interviewees emphasized the significant challenges of managing environmental and social data collection, requiring precision and strategic resource allocation. Cross-departmental collaboration among finance, CSR/ESG/HSE and supply chain management teams is essential to overcoming these barriers:

The dynamic nature of regulatory frameworks compounds challenges, particularly for SMEs with limited resources. Tracking Scopes 1, 2 and 3 emissions extending beyond operations to supply chains and markets requires substantial effort. Balancing transparency and accountability is further complicated by a lack of standardized measurement tools.

Digital data tagging emerges as a recurring theme. While essential for improving machine readability and comparability, it poses significant compliance challenges, especially for SMEs. The multiplicity of reporting frameworks with distinct metrics adds to the complexity of determining data inclusion, analysis, and presentation. Additionally, laboratory verification of emission factors introduces further challenges. Adherence to the ESRS, EU Taxonomy and TCFD rules demands that companies set targets, establish baselines and provide transparent progress reports, emphasizing the need for technical expertise and strategic planning.

Beyond regulatory compliance, the complexity of the operational framework intensifies the financial strain due to high initial costs, procedural adjustments and staff training. Sustainability managers emphasize that these demands add to the pressure on limited budgets, particularly for SMEs, which face acute resource constraints and expertise gaps.

Noncompliance with the CSRD entails legal consequences, financial penalties and diminished stakeholder trust. Consultants highlight that this erosion of trust could negatively affect business activity and profitability overall, further intensifying the challenges for SMEs. Furthermore, companies often require external assistance to navigate new regulations due to insufficient internal expertise in-house, creating additional financial and operational barriers. This reflects a broader talent shortage, with companies struggling to recruit skilled professionals who can guide them through the intricacies of digital transformation.

The inadequacy of the existing IT infrastructure compounds these issues further. Outdated technological solutions hinder the effective implementation of ESG strategies and reporting, while the absence of standardized measurement tools complicates decision-making. SMEs and nonreporting companies are particularly disadvantaged, as they often rely on time-consuming manual data collection methods, leading to inconsistencies and inefficiencies. Digitization knowledge gaps further obstruct progress. Many companies lack familiarity with emerging technologies, leading to misjudgments about software capabilities. This highlights the urgent need for investment in advanced digital tools and training to address these challenges and streamline the implementation process.

Equally important is addressing cultural resistance within companies. Effective change management strategies are essential to overcoming entrenched habits and fostering cross-departmental collaboration. Consultants underscore the need for clear communication to bridge knowledge gaps and engage employees in the transition to CSRD compliance. Collaboration across the value chain is another critical aspect. Engaging suppliers and partners in data collection processes, particularly for social impact assessments, requires significant effort. Social data, often neglected, remains an essential yet complex component of sustainability reporting.

Following rules is not only merely a legal necessity but a transformative power in sustainability reporting. The strategic insights and issues under the CSRD are investigated in this paper. Experts highlight that the CSRD is a game-changer, promoting value creation, competitive advantage and improved openness. Still, this change has difficulties, as the sections above already discourse. Regarding research questions, experts mostly underlined the acceptance of the regulation and underlined how important it is for building a more sustainable future, in addition to satisfying compliance criteria. Still, reaching these calls for companies to embrace digital transformation, allocate resources and solve extra costs. Authorities underline even more the need to overcome the lack of universal reporting guidelines and to properly combine many data sources. To simplify ESG data collecting and processing, consulting companies advise applying off-the-shelf enterprise solutions:

These examples illustrate the importance of tailoring solutions to meet specific company needs while addressing compliance roadblocks. Strategic planning and technological adoption are critical for navigating the complexities of the CSRD. Experts recommend early preparation, including understanding CSRD requirements, forming dedicated teams and assessing internal capabilities. Resource allocation, clear responsibility delineation and board-level commitment are essential for seamless compliance:

Despite the challenges, experts remain optimistic about the directive’s potential benefits. Early compliance offers insights into nonfinancial indicators, cost-saving opportunities and process innovation. Companies should proactively plan for future legislative developments to ensure agility and resilience. By integrating sustainability into core activities and developing strategic mitigation plans, businesses can secure a competitive edge while remaining adaptable in the face of evolving regulatory landscapes:

The CSRD represents a transformative force propelling German companies toward sustainability and resilience. Strategic implementation may involve challenges, but its benefits—both immediate and long-term—far outweigh the difficulties. By understanding the directive, planning strategically and leveraging technology, companies can not only meet regulatory requirements but also establish themselves as leaders in sustainable practices, setting benchmarks for the future of corporate sustainability.

Table 4 as shown below, expert advice on regulatory challenges and their consequences resulted in a well-informed strategic response. It exemplified the company’s value for active stakeholder engagement, seamless technology integration and ongoing learning. The proposed strategies make use of technology to simplify processes such as materiality analysis, compliance, risk management and emissions tracking. This approach, which emphasizes the importance of cross-functional collaboration, aims for continuous improvement by regularly updating and aligning with industry standards. The summary is presented below based on the expert’s interviews, which included the researcher, consultant and auditing firm experts.

The transition to mandatory sustainability reporting within evolving regulatory frameworks presents a significant challenge for companies committed to sustainable practices. While Section Expert strategic resolutions to overcoming CSRD challenges, provide strategic insights for overcoming challenges. This section explores the motivations behind this shift, offering a nuanced understanding of the factors driving this transformation.

As highlighted in Section Challenges, SMEs and companies with no prior reporting experience face challenges such as limited awareness and insufficient resources. The CSRD establishes a framework requiring consistent and comparable sustainability disclosures, transitioning mandatory reporting from a regulatory requirement to a norm. Motivations for adopting mandatory reporting are closely tied to stakeholder expectations, with transparency identified as a cornerstone for trust-building. Investors, customers, employees, regulators and civil society demand openness as part of maintaining stakeholder confidence:

Legal requirements also serve as a critical motivator, despite the challenges posed by strict reporting deadlines. Timely compliance is widely recognized as essential for fostering trust and transparency. Respondents highlighted openness, interdepartmental collaboration and comprehensiveness as key factors driving the adoption of mandatory reporting. Initially seen as a burden by SMEs, many now view compliance as a long-term investment, emphasizing its role in growth and sustainable development. In my opinion, the NFRD’s transition from a more flexible and loosely defined state to a slightly tighter structure is fostering a deeper awareness and comprehension of corporate responsibility within the company. This evolving understanding benefits not only internal operations but also a broader audience. It represents a positive trend in aligning business practices with responsibility and the potential impact.

Standardization introduced by reporting requirements is appreciated for enabling investors to evaluate companies using consistent sustainability metrics. Regulatory tightening is also seen as an opportunity to raise awareness within companies and among broader audiences, promoting a deeper understanding of sustainability issues:

Sustainability reporting is recognized as a tool for improving efficiency in companies of all sizes. Beyond compliance, interviewees noted that sustainable practices lead to operational efficiency, cost savings and positive business developments. The directive provides a framework for tracking progress, setting goals and demonstrating tangible outcomes. Despite initial costs and resource constraints, SMEs view the directive positively, particularly regarding its impact on investor perceptions and transparency:

Climate-related risks are another growing concern. Interviewees emphasized improvements in identifying risks and implementing preventive measures. Increased access to sustainability information for investors and stakeholders is seen as a significant benefit, contributing to sustainable finance and informed decision-making:

This study explores the effects of the CSRD on sustainability reporting practices in German companies, addressing a significant gap in the literature by combining empirical findings with established research through theoretical and practical perspectives. This study demonstrates considerable variability in reporting practices, influenced by institutional pressures, stakeholder expectations and differences in resource availability. Large publicly traded companies typically view the CSRD as a systematic expansion of their previous reporting obligations. Using their strong reporting frameworks and prior experience with initiatives like the NFRD, these companies can seamlessly incorporate CSRD requirements, using improved sustainability disclosures to bolster investor confidence and enhance long-term risk management.

Conversely, SMEs and privately held companies encounter significant compliance difficulties. Insufficient financial and technical resources, coupled with the absence of standardized implementation guidance, intensify challenges in fulfilling the directive’s rigorous requirements. These companies frequently encounter challenges related to materiality assessments and data collection, especially when obligated to comply with digital reporting formats such as XHTML. Consequently, numerous SMEs adopt phased implementation strategies or pursue external consulting assistance to comply with the directive, highlighting the essential function of customized support systems from policymakers and industry organizations.

This study’s primary empirical finding highlights the challenge of double materiality, which requires companies to assess both the financial implications of sustainability issues and their wider environmental and social consequences. This dual assessment is theoretically transformative, as emphasized by Kuzey and Uyar (2017), but its practical application varies significantly among firms. Large companies, possessing the requisite expertise and resources, typically implement double materiality more efficiently, while SMEs frequently face methodological discrepancies and interpretative difficulties. These discrepancies hinder cross-industry comparability and necessitate the creation of standardized assessment frameworks.

The shift to obligatory assurance exacerbates these difficulties. Previous research (Matuszak and Różańska, 2017; Stefanescu, 2021; Breijer and Orij, 2022) has indicated that assurance requirements can augment the credibility and comparability of sustainability reports; however, these findings suggest that they also entail considerable resource burdens. Large corporations regard mandatory assurance as an investment in stakeholder trust and transparency, whereas smaller entities frequently consider it an extra compliance expense with ambiguous advantages. Furthermore, regulatory requirements concerning digital tagging and the incorporation of novel reporting formats exacerbate these challenges. While large corporations equipped with sophisticated automated reporting systems embrace these digital mandates, companies with inadequate digital infrastructure encounter significant capacity-building obstacles.

This study’s empirical evidence indicates that the CSRD is prompting changes in corporate governance structures. Numerous companies have commenced the incorporation of sustainability expertise at the board level or have created specialized sustainability departments to ensure compliance – an advancement that corresponds with the conclusions of Shabana et al. (2017) and Dinh et al. (2023) regarding the significance of governance mechanisms in sustainability integration. Furthermore, sectoral disparities serve as significant factors influencing CSRD adoption; industries with greater exposure to environmental regulations, such as manufacturing and energy, exhibit more rapid adaptation than service-oriented sectors, corroborating prior research by Christensen et al. (2018).

Interviewees widely acknowledge the directive’s focus on standardization for its capacity to improve comparability and transparency in sustainability reports. The shift from the flexible and often ambiguous structure of the NFRD to the more stringent CSRD is considered essential for diminishing the occurrence of “free riders” in sustainability reporting and fostering long-term advantages, including cost reductions, operational efficiency and improved employee satisfaction. Consistent with the findings of Nguyen (2020), these enhancements in reporting quality enhance firm value and foster a more transparent and accountable corporate environment.

The empirical results are further analyzed through the dual lenses of institutional theory (DiMaggio and Powell, 1983; Scott, 2008) and stakeholder theory (Freeman and Phillips, 2002; Adams and Whelan, 2009). Institutional theory elucidates how companies respond to regulatory pressures through coercive, normative and mimetic forces, while stakeholder theory explains the prioritization of diverse interests in accordance with the directive’s double materiality requirement.

Larger, publicly traded firms exhibit acquiescence strategies (Oliver, 1993) by seamlessly integrating CSRD requirements into established frameworks. These firms leverage their extensive NFRD experience and robust reporting infrastructures to align with coercive pressures, enhance transparency and maintain legitimacy and investor confidence. Their proactive adoption further exemplifies mimetic isomorphism, as industry leaders often exceed statutory obligations to attract ESG-conscious stakeholders.

In contrast, SMEs and nonlisted firms tend to adopt compromise or avoidance strategies due to resource constraints and knowledge gaps. These companies encounter acute challenges in meeting stringent CSRD requirements – particularly in conducting double materiality assessments and fulfilling mandatory assurance – necessitating specialized expertise and financial investments. This divergence is consistent with Greenwood et al.’s (2011) concept of organizational filters, wherein internal characteristics such as size, sector and prior experience mediate responses. Many SMEs address these challenges through phased implementation or by outsourcing reporting tasks, reflecting their inherent resource dependence.

The CSRD’s coercive pressures are further amplified by normative and mimetic forces. Industry-wide standards (e.g. GRI and TCFD) and peer benchmarking promote institutional conformity, particularly in sectors under intense regulatory scrutiny. Firms in environmentally sensitive industries often exhibit advanced reporting practices due to heightened stakeholder expectations, while SMEs, though inclined to emulate best practices, remain limited by available resources.

Internal organizational culture also plays a crucial role. Firms with established sustainability teams and ESG governance structures navigate regulatory shifts more effectively through centralized decision-making and cross-functional collaboration. In contrast, companies lacking such infrastructure face prolonged adaptation periods and may require significant structural changes to comply with CSRD mandates. The directive’s transformative potential is further realized through its standardization of reporting practices, replacing the flexibility of the NFRD with unified ESRS criteria. This change mitigates the “paradox of choice” inherent in voluntary frameworks (Schadewitz and Niskala, 2010; Kuzey and Uyar, 2017), reduces greenwashing risks and enhances comparability, thereby fostering stakeholder trust. These benefits are in line with long-term value creation theories (Nguyen, 2020), as firms anticipate operational efficiencies, cost savings and improved employee engagement. By aligning institutional pressures with stakeholder-centric governance, the directive can move beyond mere compliance to drive meaningful sustainability integration – a paradigm shift dependent on equitable implementation.

The findings reveal a significant shift in reporting practices, particularly with the introduction of double materiality and mandatory assurance, which present challenges for companies, especially SMEs. While larger firms view the CSRD as an evolution, smaller companies struggle with resource constraints, regulatory complexities and fragmented data. Despite these challenges, the directive is expected to harmonies reporting frameworks, enhance report comparability and foster deeper integration of ESG factors into corporate strategies.

Stakeholder and institutional pressures are pivotal drivers of improved reporting practices, reinforcing sustainability as a corporate priority. Companies increasingly recognize that compliance with the CSRD represents not just a regulatory requirement but an opportunity for long-term resilience, operational efficiency and positive societal impact.

This study also makes significant contributions to theory and practice that go beyond simply restating empirical findings.

A theoretical standpoint, the results add to institutional theory by showing how different types of companies handle and react to similar regulatory pressures based on their structure and the resources they have access to. The study reveals that, while the CSRD is a uniform coercive pressure, administrative responses differ systematically across publicly traded companies, nonpublicly traded entities and SMEs. This builds on Oliver’s (1993) typology of strategic responses to institutional pressures by demonstrating how companies’ characteristics influence these responses in the context of sustainability reporting. The study also showed how regulatory requirements, professional standards and peer pressure all work together to bring about change in an organization.

To the literature on sustainability reporting by empirically demonstrating the transformative impact of the double materiality principle on corporate practices. Previous research has mostly looked at why people choose to disclose (Stolowy and Paugam, 2018; Breijer and Orij, 2022). This study, on the other hand, shows how mandatory requirements change the priorities and reporting processes of an organization. The transition from single to double materiality represents a fundamental rethinking of corporate responsibility that goes beyond shareholder value to include broader societal implications. By documenting this regulatory transition in real time, this study provides an invaluable historical record of a watershed moment in the evolution of sustainability reporting.

Practically stating, the findings provide useful insights for businesses embarking on the CSRD implementation journey. Identifying specific challenges, such as data management systems, assurance readiness and double materiality assessments, provides companies with a road map for anticipating and addressing potential obstacles. This phased implementation approach recognizes the “big shifts, small steps” theme that permeated participants’ experiences, recognizing that transformative change occurs through incremental adaptation. This process primarily includes the need for SMEs to adopt phased implementation strategies that prioritize material issues pertinent to their stakeholders. Collaborative engagement with industry associations and peer organizations is particularly advantageous, as it grants access to sector-specific guidance, shared reporting templates and collective training resources – efficiently distributing costs and expertise. Early investment in digital infrastructure is also critical, enabling SMEs to comply efficiently with CSRD requirements and reducing the risk of costly future retrofits. Moreover, SMEs ought to use digital templates and data management solutions customized to their operational scale and industry, thus optimizing reporting processes and improving data quality. Establishing collaborations with larger corporations and direct suppliers via shared platforms and knowledge-sharing networks assists SMEs by providing technical support and aligning strategies to fulfill CSRD requirements. This tailors the recommendations to different companies’ contexts, taking into account the diverse resource constraints and starting points found across the German corporate landscape.

For policymakers, this study’s findings highlight the CSRD’s potential to drive meaningful change as well as the implementation challenges that, if not addressed, could undermine its effectiveness. The directive’s ambitious scope provides an unprecedented opportunity to standardize sustainability reporting, but the burden it imposes on smaller companies’ risks creating a two-tiered reporting system. The findings indicate that targeted support mechanisms for SMEs and inexperienced companies will be critical to ensuring that the directive achieves its intended outcomes across the entire range of companies within its scope. Therefore, the study findings suggest three critical areas for intervention:

1. Differentiated support mechanisms: policymakers should develop tiered implementation support that recognizes the substantial capacity gaps between large corporations and SMEs. This includes creating simplified CSRD templates specifically for SMEs, establishing sector-specific guidance documents and providing financial incentives for digital infrastructure development.

2. Extended implementation timelines: the study’s evidence suggests that current implementation timelines may be insufficient for smaller companies to develop necessary capabilities. Policymakers should consider extending deadlines for SMEs while providing interim support mechanisms to build reporting capacity gradually.

3. Professional capacity building: the shortage of sustainability reporting expertise identified in the study requires coordinated policy responses, including funding for professional development programs and partnerships between universities and industry to develop specialized curricula.

This study has several limitations that suggest areas for future research. First, the study’s focus on specific German companies limits the findings’ applicability to other EU member states with different regulatory traditions and corporate cultures. Future research should expand this analysis to other national contexts to identify potential cross-country variations in CSRD implementation. Second, the study uses a cross-sectional design to capture perceptions and expectations at a specific stage in the implementation process. Longitudinal studies tracking actual reporting changes over time would provide useful insights into how initial expectations match actual outcomes. Finally, research into the perspectives of report users – including investors, civil society organizations and consumers – would supplement our producer-focused analysis by determining whether the CSRD meets its promise of increased transparency and comparability for stakeholders.

Despite its limitations, this study contributes significantly to the understanding of the ongoing transformation of sustainability reporting in Europe. This study documents how selected German companies are responding to this paradigm shift in regulatory requirements, providing theoretical insights into institutional change processes as well as practical guidance for companies navigating this complex transition. As the CSRD implementation progresses, the findings lay the groundwork for future research into this significant regulatory development and its implications for corporate sustainability practices.

A strategic, step-by-step approach is essential for achieving effective sustainability reporting in alignment with CSRD requirements. Drawing on expert insights, this section outlines ten practical steps to guide businesses through compliance. Table 5 consolidates the main practical recommendations derived from the study. These steps offer a unified framework adaptable to diverse corporate contexts, from understanding CSRD scope to addressing sustainability finance regulations. These actionable insights aim to simplify the complexities of CSRD compliance, supporting companies across various industries and structures.