Corporate Sustainability Reporting Directive (CSRD), explained

The Corporate Sustainability Reporting Directive (CSRD) sets the standard by which EU companies will have to report their climate and environmental impact.

Adopted by the European Commission in November 2022, the CSRD replaces and builds on the Non-Financial Reporting Directive (NFRD) by introducing more detailed reporting requirements and expanding the number of companies that have to comply.

Why was the CSRD adopted?

Setting a higher bar

Put simply: the EU believes that consumers and investors deserve to know the sustainability impact of businesses, and the CSRD was created because the existing legislation wasn’t cutting it.

Before the CSRD, the Non-Financial Reporting Directive (NFRD) established the reporting principles for large companies. However, the European Commission discovered that the information reported by companies was insufficient:

“Reports often omit information that investors and other stakeholders think is important. Reported information can be hard to compare from company to company, and users of the information are often unsure whether they can trust it.” – The European Commission.

The European Commission reports that low-quality sustainability reporting can have cascading effects, particularly in regards to promoting sustainable investments. To ensure the market for green investments is credible, investors need a clear picture of their investment portfolio’s sustainability impacts. And even investors who aren’t particularly motivated to invest in green companies still need to meet the disclosure requirements of the Sustainable Finance Disclosure Regulation (SFDR). 

The European Commission also cited the “accountability gap” in its reasoning for proposing the CSRD:

“High quality and reliable public reporting by companies will help create a culture of greater public accountability.” – The European Commission.

And so the CSRD was created, with the goal of improving disclosure and providing the data investors need when determining a company’s sustainability.

Global effects

Though it’s an EU directive, the CSRD also applies to companies based abroad that have a presence in the EU.

This means that a hypothetical U.S.-based company with dozens of subsidiaries has to abide by the CSRD if even one of those subsidiaries is in the EU. 

Impacts inward & impacts outward

The CSRD – like the NFRD – requires “double materiality,” which means that businesses will have to disclose not only the risks they face from a changing climate, but also the impacts they may cause to the climate and to society.

For businesses who have historically only analyzed the risks posed to them by climate change – and neglected the role they played in changing the climate – this is a call to do some self-reflection.

Better comparability through standardization

The CSRD requires company sustainability data to be submitted in a standardized digital format.

This is meant to provide a clear format for company sustainability reporting – which is currently rife with many idiosyncratic formats – allowing for better understandability and easier comparison between companies. 

Who does the CSRD apply to?

Listed SMEs are no longer in scope. Comprehensive value chain mapping has also been removed, with companies with fewer than 1,000 employees not required to provide information to their bigger business partners beyond what is included in the voluntary reporting standards.

Non-EU vs EU companies: what’s the difference?

When it comes to CSRD requirements, the rules are largely the same for EU and non-EU companies – the main difference is in how they qualify for reporting.

• Non-EU companies must comply if they have a net turnover of €450 million or more in the EU, and their subsidiaries/branches must comply too, if they have a turnover of €200 million+ in the EU. 

This means that major international companies doing business in Europe will likely need to report their sustainability impact, even if they’re headquartered outside the EU. For example, a US tech company with significant European revenue and an office in Germany would need to comply with CSRD.

This approach ensures that both European and international companies are held to the same standards of sustainability reporting when operating in EU markets.

What should be reported under the CSRD?

Companies will need to disclose the sustainability information in their management reports, which means that financial and sustainability information will be published at the same time. 

This sustainability data will have to be submitted in a standardized digital format, to allow for easier checking and comparison in the European single access point database.

The submitted data will then be subject to “limited third-party assurance,” meaning that an auditor will need to evaluate the data. 

Starting in 2025, CSRD will mandate that businesses have a Paris Agreement-aligned emissions reduction plan to reach net zero by 2050.

What we know about the CSRD’s requirements

EFRAG, a private association financed by the EU, was tasked with developing reporting standards for the CSRD. On July 31, 2023, the European Commission officially adopted the European Sustainability Reporting Standards (ESRS). These standards detail the rules and requirements for companies to report on sustainability impacts, opportunities, and risks, and will form a key part of the CSRD.

Following the EU Parliament’s initial proposal of the Omnibus I package, EFRAG was tasked with revising the ESRS. In their current draft, which will go into final public consultation in Q1/Q2 2026,  we see a 61% reduction in mandatory datapoints (from ~1,100 to roughly 430), while it eliminates voluntary disclosures altogether. Other important proposed changes include:

• Materiality first: All topical disclosures (including Climate) are now 100% subject to materiality. If a topic isn’t material, you don’t report it.
• Secondary data: The requirement for “direct value chain data” was removed, allowing companies to use estimates and proxy data for Scope 3.

These revisions to the ESRS standards introduce proportionality mechanisms meaning reporting can be limited to the information available “without undue cost or effort.”

Under the proposed value chain sustainability reporting, companies would be required to report scope 3 emissions. These indirect emissions result from the company’s upstream and downstream activities. They are notoriously tricky to measure, and it’s not an overnight process – so companies should begin the process as soon as possible, to get ahead of the CSRD mandates and ensure they will be compliant.

When do I need to comply with CSRD by?

In December 2025, the EU Parliament approved the sustainability-related changes to the CSRD of the Omnibus I simplification package, altering reporting deadlines. 

The revised ESRS is expected to be adopted by the European Commission in the first half of 2026, and the simplified standards are likely to take effect for financial year 2027 reporting (these will be reports published in 2028). 

A full breakdown of the revised CSRD reporting deadlines can be seen below: 

Start taking action now

The sooner your company begins its CSRD compliance work, the smoother your reporting process will go.

And it’s not just the CSRD—many governing bodies are considering mandatory sustainability reporting. Taking time now to prepare your calculations and reporting will keep you ahead of the curve as new regulations are implemented.