Definition and fundamentals of the sustainability reserve
Die Sustainability reserve is a legally regulated instrument that is applied under German cooperative law as well as in other company law special regulations. Its primary purpose is the financial safeguarding and strengthening of the entity and the preservation of the capital base, taking into account sustainable corporate purposes. The sustainability reserve must be distinguished from other forms of reserves, such as statutory reserves or voluntary reserves.
Legal classification of the sustainability reserve
Cooperative law basis
The sustainability reserve is mainly applied in the context of registered cooperatives (eG). According to § 7 (3) GenG and increasingly in line with principles of sustainable corporate governance, the articles of association of cooperatives often provide for the creation of a so-called sustainability reserve as a mandatory or optional component.
In the German Cooperative Societies Act (GenG) itself, the sustainability reserve is not mentioned by name. Its legal structure and purpose derive from the general provisions on reserve formation—particularly § 7 (3) sentence 2 GenG in conjunction with §§ 36 et seq. GenG as well as from other special statutory and constitutional regulations.
Extensions under company and association law
As corporate entities have increasingly focused on sustainability, the sustainability reserve is also found in other company forms and associations, for example as a special reserve stipulated by the articles of association. There, it serves to specifically earmark assets for ecologically, socially, or ethically sustainable purposes.
Recognition and significance in accounting
According to § 272 (3) HGB, reserves formed under the articles of association—and thus also the sustainability reserve—are considered equity. The distinction from provisions (liabilities) is important for accurate accounting. The creation, use, and reversal of the sustainability reserve are carried out in accordance with statutory or constitutional requirements.
Formation and endowment of the sustainability reserve
Regulations under the articles of association
The concrete structure of the sustainability reserve is determined by the articles of association of the cooperatives or companies. Typical provisions include
- the obligation to allocate a certain share of the annual surplus,
- the requirement of a maximum target amount or a percentage base for calculation,
- restrictions with regard to withdrawals and designated purposes.
Statutory requirements
While the Cooperative Societies Act prescribes the creation of a statutory reserve, the sustainability reserve is usually a supplementary instrument. Its main purpose is to ensure liquidity and investment capacity within the framework of sustainable or statutorily defined objectives.
Treatment in the balance sheet
The sustainability reserve is reported under the item “other revenue reserves” in the equity section, unless a separate line for reserves stipulated in the articles exists. The annual allocation is made following a resolution on the appropriation of profits by the general assembly or other competent bodies.
Purpose and use of the sustainability reserve
Safeguarding sustainable corporate objectives
The sustainability reserve serves to earmark capital specifically for projects or measures aimed at sustainable development in terms of ecological, social, or ethical criteria.
Capital preservation and creditor protection
The reserve serves both capital preservation and increased creditor protection, as it forms a restricted component of equity and may not readily be distributed to members or shareholders.
Restrictions on use and dissolution
The use of the sustainability reserve is restricted according to the articles of association. Typically, funds may only be used for the sustainable purposes defined in the articles or to cover losses. Dissolution for the benefit of free profit appropriation is generally excluded or subject to statutory hurdles imposed by the articles.
Distinguishing from other forms of reserves
Statutory reserve
The statutory reserve under § 7 (3) GenG is designed to protect creditors and must be endowed until a certain percentage of share capital is reached. By contrast, a sustainability reserve depends on the articles and pursues a special purpose defined therein.
Voluntary reserves
In addition to the statutory and constitutional sustainability reserve, entities can form other voluntary reserves, for example, investment reserves. These are subject to less strict purpose restrictions. Due to its legal or contractual basis, the sustainability reserve enjoys special status with regard to liability and distribution protection.
Tax treatment
Recognition as part of equity
Tax authorities recognize the sustainability reserve as equity, provided its formation is valid under company law and in accordance with commercial law accounting principles. Allocations to the reserve do not generally reduce the taxable base, since they constitute a profit-neutral reallocation within equity.
Tax aspects upon dissolution and use
If the reserve is used or dissolved for non-designated purposes, tax consequences may arise in the form of additional taxation or denial of special grants, provided that public subsidies are linked to the designated reserve.
Significance in the context of modern corporate governance
Promotion of Sustainable Finance Policy
The sustainability reserve is an instrument consistent with the guidelines on sustainable finance and corporate social responsibility (CSR). It embodies the anchoring of sustainable principles in corporate financing and management.
Role model effect and transparency
By establishing a sustainability reserve, companies and cooperatives underline their commitment to a sustainable orientation, which is increasingly gaining importance as a factor for investor relations and reputation.
References and web links
Cooperative Societies Act (GenG) German Commercial Code (HGB), in particular § 272 (3) Collections of laws and commentaries on company and accounting law German Sustainable Building Council – Publications on sustainable corporate financing
Note: This article provides a summary legal and financial analysis of the sustainability reserve. For specific application issues, the provisions of the relevant articles of association and the applicable statutory requirements should be carefully reviewed in each individual case.
Frequently asked questions
What statutory provisions govern the formation of the sustainability reserve?
The formation of a sustainability reserve is generally governed by special provisions in German commercial and tax law, particularly in the Cooperative Societies Act (§ 7a GenG) and supplementary regulations. In addition, the sustainability reserve is the subject of regulations in the articles of association of cooperatives and by the respective associations or supervisory authorities. The exact manner of its structure, such as minimum amount, endowment procedures, and purpose restrictions, may vary depending on the legal form and internal cooperative requirements. For tax purposes, the provisions relating to the creation of reserves in §§ 249 et seq. HGB are often to be applied, whereby, in the case of the sustainability reserve, the distinction from other tax-recognized reserves (such as the statutory reserve or other retained earnings) must be observed. As the sustainability reserve is usually a voluntary reserve, transparent and purpose-related disclosure in the annual financial statements and correct treatment in the notes and management report are essential.
Must the sustainability reserve be reported in the balance sheet?
The recognition of the sustainability reserve in the balance sheet is mandatory if it is stipulated by articles of association, law or rules of procedure. It typically appears on the liabilities side of the balance sheet as part of equity—specifically under the heading “other reserves” in accordance with § 272 (3) HGB. Such separate disclosure ensures transparency and enables financial statement users to trace both the use of funds and fulfillment of statutory and constitutional requirements. The notes to the annual accounts must also provide an explanation of the development of the sustainability reserve, in particular additions and withdrawals during the current financial year. Omission or incorrect disclosure may lead to objections by supervisory bodies or the auditor.
What are the tax implications when endowing a sustainability reserve?
For tax purposes, it must first be determined whether the endowment of the sustainability reserve reduces taxable income. Unlike certain tax-advantaged reserves (such as § 6b EStG or investment deductions), it is generally the case for sustainability reserves that their endowment does not reduce the tax assessment basis. This means that although the annual profit is reduced by the reserve allocation for accounting purposes, it remains unaffected for tax purposes. The expense is generally not deductible unless the legislature specifically grants this advantage, which is currently not the case. When using the reserve, e.g. for measures promoting sustainability, it must be determined on a case-by-case basis whether such expenditures can be recognized for tax purposes as operating expenses.
Who decides on the use of the sustainability reserve and are there restrictions?
The decision regarding the use of the sustainability reserve is generally the responsibility of the board or management. The key factors are the provisions of the articles of association, shareholders’ agreement, or any internal rules. In many cases, approval by the supervisory board or general assembly is required to ensure proper use of the funds according to the articles. The sustainability reserve may be used exclusively for purposes that promote sustainable development and comply with statutory and constitutional requirements. Non-designated withdrawals (for example, distribution to members) are generally prohibited and may result in civil and corporate legal consequences.
Are sustainability reserves subject to special audit requirements?
Yes, sustainability reserves are subject to the general audit requirements as part of the annual audit under § 53 GenG in cooperatives or under § 317 HGB in corporations. The auditor examines in particular whether the reserve has been duly established, presented, and used. It is essential to also audit compliance with restrictions under the articles and statutory regulations regarding endowment and use. If irregularities occur, such as unjustified or inadmissible withdrawals, the auditor must record this in the audit report accordingly. In cases of serious violations, this may lead to objections or even regulatory measures by the supervisory authority.
What are the consequences of an unauthorized withdrawal from the sustainability reserve?
An unauthorized withdrawal from the sustainability reserve constitutes a violation of corporate duties and may result in liability for the responsible bodies (in particular board members or directors). In addition, the unlawfully withdrawn amounts may have to be reimbursed to the reserve. Internal control bodies (e.g. supervisory board, general assembly) may in such cases order corrective measures, up to and including organizational sanctions such as dismissal. Furthermore, in the case of public or subsidy-related reserves, criminal offences such as embezzlement or violation of funding conditions may also apply. There is also a risk that external auditors or supervisory authorities will identify violations and take regulatory action.
