Comprehensive Guide to CSRD: Reporting Water and Climate Risks for German Companies

The Corporate Sustainability Reporting Directive (CSRD) introduces new, binding requirements for companies to transparently report on water and climate risks. Starting in 2025, large companies in Germany must provide detailed information on risks such as water stress, climate change, and CO₂ emissions. The goal is to disclose both the impacts of climate change on companies and their influence on the environment and society. This directive is part of a broader EU effort to standardize and elevate sustainability disclosures, ensuring that stakeholders have access to reliable, comparable, and relevant ESG information. For a comprehensive introduction, see Key ESG's guide to CSRD.

Key Points:

• Mandatory reporting: Applies to companies with >250 employees, >€50 million in revenue, or >€25 million in total assets.
• Double materiality: Assessment of risks to the company and its impact on the environment and society. This concept is central to the CSRD, requiring companies to consider not only how sustainability issues affect them (outside-in) but also how their operations impact people and the planet (inside-out).
• Water and climate data: Companies must disclose data on water consumption, climate strategies, and emissions (Scopes 1-3). This includes both direct and indirect emissions, aligning with the Greenhouse Gas Protocol.
• Deadlines: First reports under CSRD requirements due in 2025 for the 2024 financial year.

Benefits of clear reporting:

• Compliance with legal requirements.
• Improved competitiveness through transparency. According to Key ESG, transparent sustainability reporting can enhance a company's reputation and access to capital.
• Support for investment decisions: 72% of investors rate sustainability management as crucial, reflecting the growing demand for robust ESG data in capital markets.

Practical tips:

1. Identify risks: Analyze physical (e.g., droughts) and transitional (e.g., CO₂ pricing) risks. The CSRD encourages scenario analysis to anticipate future challenges.
2. Use scenario analyses: Assess future scenarios to prioritize high-risk areas. This approach is recommended by both the CSRD and the GHG Protocol for robust climate risk management.
3. Structure reports: Ensure clear objectives, relevant data, and stakeholder engagement. Engaging stakeholders early can help tailor disclosures to meet both regulatory and market expectations.

The CSRD offers companies the opportunity to systematically integrate sustainability into their business strategy and become more resilient in the long term. As noted by Sweep, this shift is not just about compliance—it's about future-proofing business models and responding proactively to investor and societal demands.

CSRD Requirements for Reporting on Water and Climate Risks

The requirements of the CSRD go far beyond previous standards and set new benchmarks for German companies. Compared to the NFRD, the specifications are more detailed and precise. In the future, companies must report according to clearly defined standards, including two general standards mandatory for all companies, as well as ten topic-specific ESG standards that only apply if the respective topic is relevant to the company. Below, we explain the key requirements and current developments in more detail.

Core Requirements for Risk Reporting

The CSRD calls for a comprehensive analysis of sustainability performance, taking into account both the entire supply chain and the product lifecycle. This involves not only the direct impacts of a company but also those of its entire value chain.

A key principle is so-called double materiality. This perspective captures both the effects of external factors on the company and the company’s impact on sustainability issues. Companies must systematically assess all relevant water and climate risks along their business activities.

The European Commission has issued binding guidelines on the structure and content of reports with the European Sustainability Reporting Standards (ESRS). These standards specify which information must be disclosed on topics such as water consumption, water stress, climate risks, and adaptation strategies.

On May 31, 2024, EFRAG published the first Implementation Guidance (IG) along with an Excel list containing all cross-sector ESRS data points. These practical tools are designed to support companies in meeting reporting obligations. The next section explains which companies in Germany are affected by these requirements.

Which German Companies Must Comply with the Requirements

The scope of the CSRD in Germany is enormous: instead of the previous 550 companies required to report under the NFRD, the number rises to around 15,000. This expansion affects various company sizes and categories, with different deadlines applying.

Large companies in Germany must comply with CSRD requirements from 2025 if they meet at least two of the following criteria: more than 250 employees, over €50 million in revenue, or total assets exceeding €25 million.

Capital market-oriented small and medium-sized enterprises (SMEs) that do not meet the thresholds for large companies must report starting in 2026. This phased introduction gives smaller companies more time to prepare.

Non-EU companies with significant business activities in the EU—such as subsidiaries or branches in Germany—are also subject to the CSRD if they exceed certain thresholds. In addition to these requirements, the regulatory framework is constantly evolving, as shown by the following changes.

Current Changes to Reporting Standards

The CSR Directive Implementation Act ensures that data collection in Germany is legally compliant. The German government aims for full and unchanged implementation of the CSRD, leaving no room for national deviations.

An important innovation concerns the adjustment of thresholds to reduce the reporting burden for companies by 25%. As a result, the number of companies classified as required to report will decrease from 82,986 to 71,372. Additionally, EFRAG is developing sector-specific EU reporting standards, expected by mid-2026.

Enforcement of the CSRD is backed by significant penalties: violations can result in fines ranging from €50,000 to €10 million or up to 5% of annual group revenue.

Silke Stremlau, Chairwoman of the Sustainable Finance Advisory Board, explains: “The CSRD will provide valid and comprehensive data in the future. This will enable investors to assess how sustainable the business models of their investment properties are.”

Bettina Storck, Head of the CSRD Working Group in the Regulatory Coherence Working Group, warns: “At the same time, reporting must not distract from the actual goal—the sustainable transformation.”

Step-by-Step Guide: Identifying, Assessing, and Reporting Water and Climate Risks

Identifying and assessing water and climate risks forms the basis for reporting that meets CSRD requirements. German companies face the task of not only recognizing these risks but also precisely evaluating their impacts and disclosing them transparently. Here’s how you can approach this in a structured way.

Identifying Water and Climate Risks

The first step is to thoroughly analyze all business areas and value chains. Both physical and transitional risks must be captured in accordance with ESRS requirements as part of the Double Materiality Assessments (DMA).

• Physical risks: These include direct impacts of climate change such as extreme weather, droughts, or floods. These should be assessed using a scenario with over 4°C global warming.
• Transitional risks: These arise from the transition to a low-carbon economy and should be analyzed using a 1.5°C scenario.

It is also important to examine the vulnerability of your company locations as well as your upstream and downstream value chains to these risks. Another key aspect is assessing your CO₂ footprint according to Scopes 1 to 3 as outlined in the Greenhouse Gas Protocol.

Assessing Risk Impacts and Probability

To evaluate the identified risks, combine qualitative and quantitative approaches. Workshops are helpful for identifying key physical and transitional climate risks as well as potential opportunities.

Scenario analyses can help you prioritize high-risk areas and allocate your resources effectively. The following table gives you an overview of methods and required data:

For quantitative analysis of physical climate risks, you can use modeling software. This examines potential hazards, exposures, and vulnerabilities under different climate scenarios.

The numbers speak for themselves: in Germany, the number of people affected by flooding could increase by 466% by 2050, while the frequency of heatwaves could rise by 80%. These developments could result in costs of around €98 billion by the end of the century. For more on the economic impacts of climate risks, see Sweep's CSRD overview.

Incorporating Risks into Reports

Once the risks have been assessed, you must clearly and systematically integrate the results into your reports. Show how sustainability issues affect your business activities and what impact your actions have on the environment and society.

The twelve ESRS disclosure standards cover four key areas: general information, environmental standards, social standards, and governance standards. A gap analysis of your existing reporting processes helps to identify weaknesses and ensure your reports meet the new CSRD requirements.

Practical measures include:

• Defining clear sustainability goals that meet or exceed CSRD requirements.
• Updating data collection and processing to accurately capture metrics such as carbon emissions, energy consumption, product lifecycles, and waste.

Collaboration with stakeholders along the entire value chain is crucial to ensure consistent and transparent reporting. Forecasts indicate that water-related conflicts could increase by almost 40% by 2050 under high-emission scenarios. At the same time, drought-induced water stress could more than triple the likelihood of social conflicts.

Managing directors are responsible for creating a risk culture that enables continuous monitoring and management of climate risks—short, medium, and long term. Supply chains should also be closely examined to detect climate-related or geopolitical disruptions at an early stage.

How Fiegenbaum Solutions Supports CSRD Compliance

The requirements of the CSRD (Corporate Sustainability Reporting Directive) call for individual and targeted solutions. Fiegenbaum Solutions helps companies in Germany identify, assess, and transparently report on water and climate risks. Since 2024, sustainability reporting under the CSRD has been mandatory.

Sustainability is at the heart of Fiegenbaum Solutions’ corporate strategy. The focus is not only on regulatory compliance but also on developing future-proof business models. Below, we show how these challenges can be tackled with targeted approaches.

Individual Risk Management Strategies for the CSRD

The first step towards a CSRD-compliant risk management strategy is analyzing the company structure and the entire value chain. Fiegenbaum Solutions supports companies in systematically identifying both physical risks such as floods or heatwaves and transitional risks, such as CO₂ pricing or changing customer requirements. Our data analyses cover much more than just CO₂ emissions.

Example: In semiconductor manufacturing, water stress is considered a particularly critical risk factor. With precise mapping and analysis, Fiegenbaum Solutions evaluates water-related dependencies along the supply chain.

Another key aspect is integrating climate risk management into existing systems. This enables companies to develop sustainable strategies that meet the requirements of the CSRD, the EU Taxonomy, and SBTi (Science Based Targets initiative). Emissions from Scope 1 to Scope 3 are also considered according to common standards. In the next section, we show how these strategies specifically lead to CSRD compliance.

Lifecycle Analyses and Climate Risk Assessments

Lifecycle analyses (LCA) are a key tool for precisely evaluating the environmental impacts of products and services. With this method, Fiegenbaum Solutions helps companies develop data-driven measures to reduce emissions while meeting CSRD requirements.

Our corporate carbon footprint analysis covers all emission areas and identifies targeted approaches for decarbonization strategies. Particularly noteworthy is the water footprint analysis, which uses scenario analyses to provide a better understanding of future water risks.

The structured climate risk assessment covers both physical and transitional risks. This provides companies not only with the data needed for their CSRD reports but also valuable insights for long-term planning. At the same time, transparency in risk assessment is continuously improved. These precise analyses form the basis for sustainable optimization, supported by our ongoing assistance.

Long-Term Support and Implementation Assistance

CSRD compliance requires continuous adaptation of reporting processes. Fiegenbaum Solutions offers flexible consulting models—from project-based approaches to long-term retainer agreements. Our support includes regular training and workshops that empower internal teams to prepare reports independently and strategically integrate sustainability into corporate planning.

There are special conditions for start-ups, tailored to the needs of young companies. With impact modeling and scenario analyses, start-ups can build CSRD-compliant structures from the outset. Through our ongoing support and regular review of reporting processes, we ensure that companies remain compliant and competitive, even as requirements change.

Best Practices for Reporting and Avoiding Common Mistakes

To create successful CSRD risk reports, you need a clearly structured approach and to avoid common pitfalls. In addition to identifying and assessing risks, this section offers practical tips on how to optimize your reports and highlights mistakes you should avoid.

Studies show that 60% of S&P 500 companies already consider climate risks in their financial reports. Nevertheless, many companies face challenges: 50% of large companies cite a lack of internal expertise as the main problem in climate-related financial reporting, while over 60% mention time constraints and limited resources as key obstacles (Sweep).

Rob Bradley, Managing Director, Climate Change and Sustainability Services at Ernst & Young LLP, explains: “As expectations for climate risk disclosure grow, addressing water risk serves as a strategic starting point that can help companies build resilience and meet regulatory requirements.”

These figures underscore the importance of consistently applying proven methods.

Five Proven Practices for Risk Reporting

Double materiality analysis as a foundation
A double materiality analysis helps prioritize sustainability topics by industry, business model, ESG maturity, and company objectives. It highlights both the financial impacts on the company and its influence on the environment and society. For more on implementing double materiality, see Sweep's CSRD requirements guide.

Efficient data management
A systematic approach to data is crucial for identifying priorities such as water consumption and evaluating protective measures. Screening exercises can help identify emission hotspots and allocate resources optimally. Capturing Scope 3 emissions is particularly challenging but important.

Regular risk and scenario analyses
Regular assessments along the entire value chain are essential for quantifying financial impacts. Scenario analyses enable early identification of risks and strategic responses. Long-term developments such as temperature increases or sea level changes should also be considered.

Stakeholder engagement
Early and ongoing collaboration with management and other relevant stakeholders ensures that reports meet actual information needs. Interactive workshops can further increase the acceptance and relevance of reports.

Standardization and continuous improvement
Using established frameworks such as ESRS, EU Taxonomy, and GRI improves the comparability of reports. Complex topics such as climate scenario analyses can be supported by external consultants to relieve internal resources and supplement expertise.

In addition to applying these practices, it is equally important to avoid typical mistakes to ensure the quality of your reporting.

Avoiding Common Reporting Mistakes

Incomplete risk analyses
An analysis that only considers obvious risks like CO₂ taxes falls short. Indirect impacts and opportunities, such as changing consumer habits, should also be taken into account.

Avoid greenwashing
Unsubstantiated claims about environmental initiatives can seriously damage trust in your company. Back up all statements with reliable data and have them externally verified if necessary.

Inconsistent data collection
Inconsistent data collection methods can undermine the credibility of reports. Standardized procedures and clearly defined objectives are essential. Especially for Scope 3 emissions, structured supplier surveys can help close data gaps.

Lack of target audience orientation
Reports must be tailored to the needs of investors and other stakeholders. Clear, audience-appropriate communication of risks is essential.

Failure to comply with regulatory requirements
Non-compliance with legal requirements can have serious consequences. Since CSRD requirements are constantly evolving, you should regularly update your reporting processes.

Comparison: Best Practices vs. Common Mistakes

Consistently applying these best practices not only minimizes compliance risks but also offers strategic advantages. Considering that natural disasters caused $380 billion in economic losses in 2023—of which less than a third was insured—it becomes clear how crucial solid risk reporting is (Sweep).

Conclusion: Meeting CSRD Requirements and Improving Transparency

Successfully implementing CSRD-compliant water and climate risk reporting requires more than just meeting compliance requirements. The Corporate Sustainability Reporting Directive (CSRD) aims to significantly enhance transparency, accountability, and trust in companies’ sustainability efforts. This includes requiring companies to integrate detailed and externally audited sustainability data into their financial reports.

The first step to CSRD compliance is conducting a double materiality analysis. This assesses both the financial impacts on the company and its influence on the environment and society, leading to clear objectives. On this basis, a reporting strategy can be developed that systematically captures ESG aspects and links the sustainability strategy to measurable goals.

Another key factor for greater transparency is the inclusion of external audit mechanisms. It makes sense to involve an auditor already in the planning phase to identify risks and weaknesses in reports at an early stage. In addition, mandatory audits by independent third parties and the digital tagging of sustainability reports increase the credibility and traceability of the information. As early as 2025, a specialized solution was introduced to support companies with CSRD and greenhouse gas reporting—highlighting the importance of targeted tools in this process (Key ESG).

After a thorough risk analysis, practical implementation follows. This includes building interdisciplinary CSRD teams and developing a clear roadmap. This roadmap should break down the assessment, collection, and adaptation of relevant data and systems into phases. The introduction of a powerful ESG data management system is particularly crucial. Such systems help define meaningful KPIs, strengthen internal validation processes, and integrate ESG reporting into corporate governance.

The CSRD gives you the chance to go beyond mere compliance and firmly embed ESG topics in your strategic planning. Prepare for public scrutiny by ensuring your data is robust and traceable. Since CSRD reports are publicly accessible, they will undergo intense examination.

The success of your CSRD-compliant reporting depends on how well you translate complex requirements into a clear and actionable strategy—a strategy that not only meets regulatory requirements but also creates real value for your stakeholders. Consistently integrating your analysis results into your corporate strategy can give you a decisive advantage and position your company for sustainable business practices in the future.

FAQs

How can companies successfully implement CSRD requirements for reporting on water and climate risks?

CSRD Requirements for Water and Climate Risk Reporting

To meet the CSRD requirements for reporting on water and climate risks, a structured approach is essential. The first step is to thoroughly understand and consistently implement the EU Sustainability Reporting Standards (ESRS). This involves identifying, carefully documenting, and regularly reviewing all relevant risks and potential impacts related to water and climate.

It is equally important to ensure the quality of the data collected. This can be achieved through external audits, which not only guarantee the accuracy of the information but also enhance the credibility of the report. Transparent communication of these risks in the sustainability report is another key aspect. This not only ensures compliance with legal requirements but also strengthens the trust of stakeholders such as investors, customers, and partners.

With a clear and well-thought-out approach, companies can make their reporting efficient while ensuring they meet regulatory requirements.

How can companies effectively incorporate double materiality into their reports?

To successfully integrate double materiality into your reporting, a structured seven-step approach is recommended:

• Build understanding: First, clarify what double materiality means and why it is relevant for your company.
• Planning: Develop a clear roadmap that integrates double materiality into your processes.
• Identify IROs: Analyze relevant Impact, Risk, and Opportunity factors (IROs) that play a role for your company.
• Alignment: Discuss the identified IROs with management to ensure all relevant perspectives are considered.
• Define material topics: Determine the topics that are most important for both your company and your stakeholders.
• Data collection: Gather and evaluate the necessary data to support your analysis.
• Create the report: Prepare a report that is regularly updated to meet current requirements.

In this process, it is important to include both the inside-out perspective (how your company impacts the environment and society) and the outside-in perspective (how external sustainability factors impact your company). Continuous review and adjustment of analysis processes are crucial to ensure your report not only meets CSRD requirements but also fulfills your stakeholders’ expectations.

Why is it worthwhile to integrate external audit mechanisms into CSRD-compliant reporting?

Integrating external audit mechanisms offers clear advantages for CSRD-compliant reporting. On the one hand, they increase the reliability and transparency of reports, as independent audits ensure that all information is correct and traceable. This strengthens the trust of stakeholders, investors, and the public in the published information.

In addition, external audits help reduce errors and ensure compliance with legal requirements. They promote better comparability of reports and support companies in strategically developing their sustainability strategy. At a time when reporting requirements are constantly increasing, this can provide a real competitive advantage.