German Sustainability Code hits 1,000 users

European companies are going sustainable – at least that’s the plan, as the EU aims to boost sustainability in business with the Corporate Sustainability Reporting Directive. The regulation presents challenges for many companies, but these can be overcome with the German Sustainability Code (DNK). So what is the secret to the transparency standard’s success?

Having adopted the Corporate Sustainability Reporting Directive (CSRD) in January 2023, the EU is gradually expanding the cohort of businesses that will be obliged to report on their sustainability performance moving forward. In Germany alone, some 15,000 companies are directly affected by this expansion of the reporting requirement. “But many more companies are indirectly impacted, because the bigger ones that are obliged to report will need information from their suppliers and business partners in order to provide their own reports”, point out Stephanie Kopp and Florian Harrlandt, coordinators of the German Sustainability Code (DNK) at the German Council for Sustainable Development (RNE). Even though the first companies will not have to report on the 2024 fiscal year until 2025, businesses are better advised to start preparing now rather than wait until nearer the time.

Low-threshold and free to use

Companies wishing to get ahead can avail themselves of a tried-and-tested tool that is free to use, in the form of the DNK. “The DNK is an established standard for structured publication of corporate sustainability performance. The various offerings of the DNK office are just as helpful for first-time users as they are for companies experienced in reporting”, says Dr Alexander Bassen, professor of business administration at the University of Hamburg, former RNE member and academic advisor on the DNK. Already 1,000 users are taking advantage of the DNK’s services, primarily attracted by the low-threshold access to the topic, according to surveys of participating companies. Another benefit of the Code is the impetus it provides for internal reflection and change – something that is also gaining ground among employees.

Transparent and comparable

The RNE launched the German Sustainability Code back in 2010. The idea for a transparency standard came about during the 2008 financial crisis, which had its origins in the inadequate assessment of credit risks. “It was the perfect moment to start including social and environmental aspects in the core analysis of credit and investment risks”, explains Yvonne Zwick, who was on the DNK development team from day one. The impetus came from the banking metropolis of Frankfurt. “The financial crisis revealed that looking at the financials alone was taking too narrow a view. Both the governance and the overall capital stock have to be examined as well if you want to assess how future-proof an investment is”, continues Zwick. To get an accurate picture of this, sustainability performance must be transparent and comparable. So this begged the question of how better management could make the capital market more sustainability-driven in practice.

The answer soon came: with academic support from Dr Bassen, the RNE adopted the DNK in October 2011. Based on a set of 20 criteria, the Code maps sustainability in the corporate context, allowing companies to report on issues such as climate change and compliance with labour law, but also existing targets and measures.

Since then, it has been constantly enhanced and adjusted to new requirements. Major revisions were carried out in 2014, 2017 and 2020, a database and pool of experts were set up, a training concept for partners was established and a series of industry guidelines on the DNK were published. The RNE office consistently monitors the Sustainability Code for coherence with other  reporting frameworks and responds to current political developments as necessary.

“The DNK can offer a great deal of added value for companies now and in the future, by consolidating new European reporting requirements and making them easily accessible, for SMEs in particular. That will be a huge help with the implementation and funding of the transformation”, says Dr Bassen, emphasising: “The strategic anchoring of sustainability in companies along with transparent reporting are essential for competitive and future-proof positioning.”

Modular and voluntary

An important aim of the DNK is to turn sustainability into a market-relevant criterion, and the growing number of corporate users shows that this is indeed working. “The DNK is a success story. For over ten years now, large and small firms alike have been working towards the goal of sustainable business with the help of the DNK”, beams RNE Chair Reiner Hoffmann. “What sets the DNK apart is its modular approach. Though a voluntary code of practice, it also enables businesses to fulfil their reporting duties. And it will continue to help companies of any size realise different reporting obligations in the same format”, add Kopp and Harrlandt.

The last two years have seen the number of corporate users multiply. “That’s a clear sign of need for the support the DNK offers. Throughout Germany and beyond, companies are using the DNK to evidence their contribution towards achieving shared objectives like the UN’s Sustainable Development Goals or the Paris climate targets. We are delighted to continue incentivising corporate responsibility with the DNK”, confirms Hoffmann.

Nor does the DNK’s success stop at Germany’s borders. International stakeholders too have long shown an interest in the DNK and the experiences of the RNE in this area. The first full national adaptation emerged in 2016 when the Greek NGO QualityNet Foundation produced the Greek Sustainability Code. An English version entitled “The Sustainability Code” was published in 2014 and further translations are available in Arabic, Chinese, French, Greek, Hebrew, Russian, Spanish, Czech and Romanian.

The need for support as SMEs push on with their transformation will only accelerate. “The DNK has already established itself as an orientation guide, and we want to make sure we keep that up and preferably expand it”, add Kopp and Harrlandt. Having proved itself as a reliable companion for businesses, it would appear that the DNK is here to stay for the next ten years and no doubt beyond.