The Corporate Sustainability Reporting Directive (CSRD) represents the most significant expansion of sustainability reporting requirements in EU history. With over 50,000 companies now in scope, understanding and preparing for CSRD compliance has become a strategic priority for businesses operating in or with the European Union.
This guide provides a comprehensive overview of CSRD requirements, helping you understand what needs to be reported, when, and how to prepare effectively.
What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation that mandates comprehensive sustainability reporting for companies operating within the European Union. It entered into force on 5 January 2023 and is being phased in from 2024 to 2029.
CSRD replaces and significantly expands upon the previous Non-Financial Reporting Directive (NFRD), which covered approximately 11,000 companies. Under CSRD, this number increases to over 50,000 EU companies plus an estimated 10,000 non-EU companies with significant EU operations.
Key Objectives
CSRD aims to achieve several important goals:
- Improve comparability - Standardised reporting requirements enable stakeholders to compare sustainability performance across companies
- Increase reliability - Mandatory third-party assurance ensures reported information is accurate and trustworthy
- Enhance accessibility - Digital tagging requirements make sustainability data machine-readable and easily analysable
- Close the data gap - Comprehensive disclosure requirements address the information needs of investors, regulators, and other stakeholders
- Drive sustainable business practices - Reporting requirements encourage companies to integrate sustainability into their strategy and operations
Who Must Comply with CSRD?
CSRD applies to several categories of companies, with phased implementation timelines.
Large EU Companies
A company qualifies as "large" if it exceeds at least two of the following thresholds:
| Criterion | Threshold |
|---|---|
| Employees | More than 250 |
| Net turnover | More than EUR 50 million |
| Total assets | More than EUR 25 million |
Listed Companies
All companies listed on EU-regulated markets must comply, including listed SMEs (with some transitional provisions).
Non-EU Companies
Non-EU parent companies must report if they have:
- Net EU turnover exceeding EUR 150 million for two consecutive years, AND
- At least one EU subsidiary meeting the large company thresholds, OR
- An EU branch with net turnover exceeding EUR 40 million
Companies Out of Scope
The following are generally exempt:
- Micro-enterprises (unless listed)
- Non-listed SMEs (voluntary reporting available)
- Subsidiaries included in consolidated group reporting (with conditions)
CSRD Implementation Timeline
CSRD is being phased in over several years based on company type and size.
Phase 1: Financial Year 2024 (Reports Due 2025)
Who: Companies already subject to NFRD
- Large public-interest entities with more than 500 employees
- Listed companies, banks, and insurance companies exceeding size thresholds
First report: Published in 2025 covering financial year 2024
Phase 2: Financial Year 2025 (Reports Due 2026)
Who: Other large companies not previously covered by NFRD
- All large companies meeting at least two of the three size thresholds
- Regardless of whether they are listed or public-interest entities
First report: Published in 2026 covering financial year 2025
Phase 3: Financial Year 2026 (Reports Due 2027)
Who: Listed SMEs and other undertakings
- Small and medium-sized enterprises listed on EU-regulated markets
- Small and non-complex credit institutions
- Captive insurance undertakings
Opt-out available: Listed SMEs may defer reporting until financial year 2028 (reports due 2029)
Phase 4: Financial Year 2028 (Reports Due 2029)
Who: Non-EU companies with significant EU presence
- Third-country companies meeting the EUR 150 million EU turnover threshold
- With qualifying subsidiaries or branches in the EU
First report: Published in 2029 covering financial year 2028
What Must Be Reported: ESRS Standards
CSRD reporting must follow the European Sustainability Reporting Standards (ESRS), developed by EFRAG and adopted by the European Commission. These standards specify what information companies must disclose.
Cross-Cutting Standards
Two overarching standards apply to all reporting:
ESRS 1 - General Requirements
- Defines the architecture of ESRS
- Explains how to apply double materiality
- Sets out general disclosure principles
ESRS 2 - General Disclosures
- Mandatory for all companies regardless of materiality assessment
- Covers governance, strategy, impact/risk/opportunity management
- Requires disclosure of policies, targets, and actions
Environmental Standards (E1-E5)
| Standard | Topic | Key Disclosures |
|---|---|---|
| ESRS E1 | Climate change | GHG emissions (Scope 1, 2, 3), transition plans, climate targets |
| ESRS E2 | Pollution | Air, water, and soil pollution; substances of concern |
| ESRS E3 | Water and marine resources | Water consumption, discharge, marine ecosystem impacts |
| ESRS E4 | Biodiversity and ecosystems | Impacts on biodiversity, ecosystem services, land use |
| ESRS E5 | Resource use and circular economy | Resource inflows/outflows, waste, circular business models |
Social Standards (S1-S4)
| Standard | Topic | Key Disclosures |
|---|---|---|
| ESRS S1 | Own workforce | Working conditions, equal treatment, training, health and safety |
| ESRS S2 | Workers in the value chain | Labour rights, working conditions in supply chain |
| ESRS S3 | Affected communities | Impacts on local communities, indigenous peoples |
| ESRS S4 | Consumers and end-users | Product safety, privacy, responsible marketing |
Governance Standard (G1)
| Standard | Topic | Key Disclosures |
|---|---|---|
| ESRS G1 | Business conduct | Corporate culture, anti-corruption, supplier relationships, lobbying |
Materiality-Based Reporting
Unlike ESRS 2 (which is always mandatory), the topical standards (E1-E5, S1-S4, G1) are reported based on materiality. Companies must:
- Conduct a double materiality assessment
- Identify which topics are material
- Report on material topics using the relevant ESRS
- Explain why non-material topics were excluded
Understanding Double Materiality
Double materiality is a cornerstone concept of CSRD reporting. It requires companies to assess sustainability matters from two perspectives:
Impact Materiality (Inside-Out)
How do the company's activities impact people and the environment?
Consider:
- Actual and potential positive and negative impacts
- Impacts across the value chain (upstream and downstream)
- Short-term, medium-term, and long-term impacts
- Severity (scale, scope, irremediability) of impacts
- Likelihood of potential impacts
Financial Materiality (Outside-In)
How do sustainability matters affect the company's financial position and performance?
Consider:
- Risks and opportunities arising from sustainability matters
- Effects on cash flows, access to finance, cost of capital
- Dependencies on natural, human, and social resources
- Short-term, medium-term, and long-term financial effects
When Is a Topic Material?
A sustainability topic is material if it is material from either perspective:
- Impact materiality alone makes a topic material
- Financial materiality alone makes a topic material
- Both together obviously make a topic material
The double materiality assessment must be documented and forms the basis for determining reporting scope.
CSRD Reporting Requirements in Detail
Location of Sustainability Information
CSRD sustainability information must be included in the management report (directors' report), in a clearly identifiable dedicated section. It cannot be published as a separate standalone sustainability report.
Digital Tagging (XBRL)
All sustainability disclosures must be:
- Digitally tagged using XBRL (eXtensible Business Reporting Language)
- Filed in the European Single Electronic Format (ESEF)
- Machine-readable to enable automated data extraction and analysis
Assurance Requirements
Sustainability reports must undergo independent third-party assurance:
| Period | Assurance Level |
|---|---|
| Initial years (2024-2027) | Limited assurance |
| From 2028 onwards | Reasonable assurance (subject to feasibility assessment) |
Assurance can be provided by:
- Statutory auditors
- Independent assurance service providers (where permitted by member state law)
Consolidation
Group reporting is permitted under certain conditions. Subsidiaries may be exempt from individual reporting if:
- They are included in consolidated group sustainability reporting
- The exemption is disclosed in the subsidiary's management report
- The consolidated report is published and accessible
- Additional conditions are met for non-EU parent companies
How to Prepare for CSRD Compliance
Step 1: Determine Applicability and Timeline
Assess which phase of CSRD applies to your organisation:
- Review current and projected employee counts
- Calculate net turnover and total assets against thresholds
- Determine your first reporting year
- Identify subsidiaries and group reporting options
Step 2: Establish Governance Structure
Set up the organisational framework for CSRD compliance:
- Assign board-level responsibility for sustainability reporting
- Create a cross-functional CSRD working group
- Define roles for sustainability, finance, legal, and operations teams
- Establish reporting lines and escalation procedures
Step 3: Conduct Double Materiality Assessment
Perform a comprehensive assessment covering:
- Identification of potentially material sustainability matters
- Stakeholder engagement to understand expectations
- Assessment of impact materiality for each topic
- Assessment of financial materiality for each topic
- Documentation of methodology and conclusions
- Validation by management and/or board
Step 4: Perform Gap Analysis
Compare current state against CSRD requirements:
- Map existing disclosures to ESRS data points
- Identify data that is currently collected vs. required
- Assess data quality and reliability
- Determine process and system gaps
- Estimate resource requirements to close gaps
Step 5: Develop Data Collection Strategy
Establish systems and processes to gather required information:
- Define data owners for each ESRS topic
- Create data collection templates and procedures
- Implement or upgrade sustainability data management systems
- Establish data validation and quality controls
- Set up value chain data collection from suppliers and partners
Step 6: Align with ESRS Requirements
Ensure reporting content meets ESRS specifications:
- Review detailed disclosure requirements for material topics
- Develop metrics and KPIs aligned with ESRS data points
- Establish baselines and targets where required
- Prepare narrative disclosures on policies, actions, and governance
Step 7: Prepare for Assurance
Get ready for third-party verification:
- Document all data sources and calculation methodologies
- Establish audit trails for sustainability data
- Implement internal controls over sustainability reporting
- Engage with assurance providers early
- Conduct dry-run assurance procedures
Step 8: Build Reporting Capability
Develop the infrastructure for ongoing compliance:
- Integrate sustainability reporting into annual reporting cycle
- Implement digital tagging capabilities (XBRL)
- Train staff on CSRD requirements and processes
- Establish continuous improvement mechanisms
Common Challenges and How to Address Them
Data Availability
Challenge: Many required data points, especially for Scope 3 emissions and value chain impacts, are difficult to obtain.
Solution: Start with available data and improve over time. Use industry averages and estimates where primary data is unavailable. Document data limitations and improvement plans.
Double Materiality Complexity
Challenge: The double materiality assessment requires judgement and can be resource-intensive.
Solution: Use structured frameworks and templates. Engage stakeholders systematically. Document the rationale for materiality conclusions clearly.
Value Chain Information
Challenge: Obtaining sustainability information from suppliers and downstream partners is often difficult.
Solution: Prioritise data collection from material suppliers. Include sustainability clauses in contracts. Use industry databases and estimates for less significant relationships.
Resource Constraints
Challenge: CSRD compliance requires significant time, expertise, and systems investment.
Solution: Start early and phase your preparation. Consider external support for initial setup. Leverage existing frameworks (GRI, CDP) where aligned with ESRS.
Evolving Requirements
Challenge: ESRS and guidance documents continue to be developed and refined.
Solution: Monitor regulatory developments. Build flexibility into your reporting processes. Engage with industry groups and advisors to stay informed.
CSRD and Other Frameworks
Relationship with GRI Standards
ESRS standards have a high degree of interoperability with GRI Standards. Companies already reporting under GRI will find significant overlap, though additional ESRS-specific disclosures will be required.
Relationship with TCFD
Climate-related disclosures under ESRS E1 are aligned with TCFD recommendations. TCFD reporters will find the governance, strategy, risk management, and metrics/targets structure familiar.
Relationship with ISSB Standards
ESRS and ISSB standards (IFRS S1 and S2) share common conceptual foundations but differ in some areas. EFRAG has published guidance on interoperability between the frameworks.
Penalties for Non-Compliance
Member states are required to establish penalties for CSRD non-compliance. While specific penalties vary by country, they may include:
- Financial penalties and fines
- Public statements identifying the responsible company
- Orders to cease conduct and desist from repetition
- Withdrawal of authorisation (for regulated entities)
- Temporary bans on management body members
Key Dates Summary
| Date | Event |
|---|---|
| 5 January 2023 | CSRD entered into force |
| 31 July 2023 | First set of ESRS adopted |
| 1 January 2024 | Phase 1 companies begin reporting period |
| 2025 | First CSRD reports published (for FY2024) |
| 1 January 2025 | Phase 2 companies begin reporting period |
| 2026 | Phase 2 reports published (for FY2025) |
| 1 January 2026 | Phase 3 companies begin reporting period |
| 2027 | Phase 3 reports published (for FY2026) |
| 1 January 2028 | Phase 4 (non-EU companies) begin reporting period |
| 2029 | Phase 4 reports published (for FY2028) |
Conclusion
CSRD represents a fundamental shift in how companies report on sustainability. The breadth of disclosure requirements, combined with mandatory assurance and digital reporting, means that sustainability reporting is moving from a voluntary communications exercise to a regulated compliance obligation.
Organisations that start preparing early will be better positioned to:
- Meet compliance deadlines without last-minute pressure
- Integrate sustainability considerations into business strategy
- Build robust data collection and reporting processes
- Communicate effectively with investors and stakeholders
- Identify opportunities to improve sustainability performance
The effort required for CSRD compliance is substantial, but so are the potential benefits. Companies that approach CSRD strategically can use the process to drive genuine improvements in their environmental and social performance while building stakeholder trust.
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