Overview

The Corporate Sustainability Reporting Directive (CSRD) is a major legislative initiative by the European Union aimed at transforming and harmonizing the way companies report on environmental, social, and governance (ESG) matters. The CSRD significantly expands the scope and depth of sustainability reporting requirements compared to its predecessor, the Non-Financial Reporting Directive (NFRD), with the goal of making corporate sustainability data more reliable, comparable, and accessible across Europe.

Key Elements of the CSRD Framework

• Scope and Applicability
• The CSRD applies to all large companies (including many non-EU companies with significant EU operations), as well as listed small and medium-sized enterprises (SMEs), except for micro-enterprises.
• Companies are generally in scope if they meet at least two of the following three criteria: more than 250 employees, €50+ million in net turnover, or €25+ million in assets. Non-EU companies must comply if they generate more than €150 million in EU turnover and have substantial EU subsidiaries or branches.
• The number of companies required to report will increase from roughly 11,000 under the NFRD to nearly 50,000 under the CSRD.
• Reporting Requirements
• Companies must disclose detailed information on their environmental and social impacts, governance practices, and how sustainability risks and opportunities affect their business.
• Reporting must follow the European Sustainability Reporting Standards (ESRS), which provide specific and harmonized criteria for disclosures.
• Reports must be included in the management report (not as a standalone sustainability report), published in a standardized digital format (XHTML), and made accessible via the European Single Access Point (ESAP).
• Double Materiality Principle
• Companies are required to report on both:
• Impact materiality: How their activities affect people and the environment.
• Financial materiality: How sustainability issues affect their own financial position and performance.
• This approach ensures that both the outward impacts of the business and the inward risks/opportunities are transparently addressed.
• Assurance and Supervision
• Sustainability information must undergo limited third-party assurance (audit), similar to financial data, to enhance reliability.
• National authorities are responsible for supervising compliance, with penalties for non-compliance.
• Alignment with Other EU Initiatives
• The CSRD is closely linked to the EU Taxonomy (defining sustainable activities) and the Sustainable Finance Disclosure Regulation (SFDR), creating a comprehensive sustainable finance framework.
• Companies must report on taxonomy-aligned activities, and financial market participants rely on CSRD data for their own disclosures.

Context and Origins

• From NFRD to CSRD
• The NFRD, introduced in 2014, was pioneering but criticized for limited scope and inconsistent, non-comparable disclosures.
• The European Green Deal (2019) and the EU’s climate neutrality goal for 2050 highlighted the need for more robust and harmonized sustainability reporting.
• The CSRD was formally adopted in 2022 to address these gaps, expand the number of companies covered, and standardize reporting practices.
• Objectives
• Improve the quality, consistency, and comparability of sustainability information.
• Combat greenwashing by requiring verifiable, audited data.
• Enable investors, consumers, and stakeholders to make informed decisions aligned with the EU’s sustainability and climate goals.
• Channel capital flows toward sustainable activities and investments.

What the CSRD Wants to Achieve Across Europe

• Enhance Corporate Transparency: By mandating comprehensive, standardized disclosures, the CSRD aims to provide stakeholders with clear and comparable ESG data.
• Drive Sustainable Business Practices: The directive encourages companies to integrate sustainability into their core strategies and risk management.
• Support the European Green Deal: By aligning corporate reporting with the EU’s sustainability ambitions, the CSRD is a key tool for achieving climate neutrality and broader environmental and social objectives.
• Level the Playing Field: The CSRD ensures that both EU-based and non-EU companies operating in the EU are subject to the same reporting standards, fostering fair competition and accountability.

References

1. Corporate sustainability reporting - Finance - European Commission
2. Corporate Sustainability Reporting Directive (CSRD), explained - Normative
3. The EU Corporate Sustainability Reporting Directive (CSRD) - IESE Blog
4. Corporate Sustainability Reporting Directive (CSRD) - PlanA.Earth
5. What is the Corporate Sustainability Reporting Directive (CSRD)? - Greenly
6. EU Sustainable Finance Framework: EU Taxonomy, CSRD, SFDR - Envoria
7. The Corporate Sustainability Reporting Directive (CSRD) - PwC UK
8. Corporate Sustainability Reporting Directive (CSRD) - Greenomy
9. Corporate Sustainability Reporting Directive (CSRD) - Tanso