The Essentials of the Corporate Sustainability Reporting Directive (CSRD)

Updated in December 2024

As sustainability evolves from being an option to being an imperative, the Corporate Sustainability Reporting Directive (CSRD) emerges as a crucial facilitator of Sustainable Finance. This framework, essential to the European Commission’s strategy to channel funds towards sustainable investments through transparency, offers a standardised approach to reporting Environmental, Social, and Governance (ESG) factors.

With over 50,000 companies expected to fall under the scope of the CSRD, it is imperative for organisations to get started on the development of their expertise, establish dedicated teams, and streamline processes to meet the forthcoming reporting requirements. Indeed, initial reports are due in 2025 for large companies meeting certain criteria, covering the fiscal year of 2024. 

Take the first step today, and learn all you need to know about CSRD:

• A Progressive Approach: From NFRD to CSRD
• What Changed from the NFRD to the CSRD?
• CSRD’s Connection to Other ESG Standards
• Who Is Subject to the CSRD and by When?
• CSRD Reporting Requirements
• CSRD: Key Takeaways
• Setting up your CSRD Reporting Strategy
• Leveraging Technology for Enhanced CSRD Reporting
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Before getting started, feel free to download your free summary CSRD e-book to always have at hand everything you need to understand the CSRD.

Let's dive in!

A Progressive Approach: From NFRD to CSRD

The CSRD or Directive (EU) 2022/2464 of the European Parliament and of the Council standardises the disclosure of ESG matters related to companies’ activities. The Directive was created to strengthen and broaden the existing regulatory framework of the Non-Financial Reporting Directive (NFRD). On the 5th of January, 2023, the CSRD replaced the NFRD, expanding its scope from around 11,700 to 50,000 companies.

The larger objective of the CSRD is to combat greenwashing through enhanced transparency and comparability. In addition, it seeks to channel funds towards sustainable investments in alignment with the EU's Green Deal and alongside the EU Taxonomy and SFDR frameworks. 

Overall, the CSRD ensures that investors, stakeholders, and the general public have access to reliable and comparable ESG data to make informed decisions.

By July 2024, EU Member States are required to transpose the CSRD into national law. This entails aligning and enforcing processes, laws, and administrative provisions necessary for companies to comply with the CSRD at a national level. Transposition should not affect the established dates for compliance. 

What Changed from the NFRD to the CSRD?

The CSRD substantially broadened the scope of its precursor, the NFRD, expanding the range of disclosures, both quantitative and qualitative, that companies will have to make. The CSRD also introduced new concepts and standards to improve the comparability and transparency of the data disclosed.

First of all, on top of the NFRD requirements, companies subject to the CSRD are now required to provide information about their strategy, targets, and the role of the board and management. They are also mandated to report on the Impacts, Risks and Opportunities (IROs) connected to the company and its value chain, intangibles, and how they have identified the information they report.

A new concept introduced in CSRD is Double Materiality. The Double Materiality approach of the CSRD  requires companies to report on how their businesses impact and are impacted by ESG matters. Additionally, the CSRD introduced a set of rigorous sustainability reporting standards known as the European Sustainability Reporting Standards (ESRS). These standards aim to facilitate the disclosure of material topics relevant to stakeholders, which we will cover later in this article. Finally, the CSRD introduced an EU-wide requirement for limited assurance on sustainability information moving towards a reasonable assurance. 

The format of reporting has also undergone significant changes. Unlike NFRD, which allowed disclosures in online or PDF format, CSRD mandates disclosures in the XHTML format, adhering to the European Single Electronic Format (ESEF) regulation. Furthermore, disclosures must be seamlessly integrated into the company’s Management Report in a singular, digitally accessible format. This ensures enhanced accessibility and comparability of the disclosed information.

CSRD’s Connection to Other ESG Standards

The CSRD, EU Taxonomy, and SFDR form a pivotal triad of interconnected regulations designed to streamline and strengthen sustainable investing practices. Their collective goal is to ultimately bolster transparency regarding the sustainability of organisations. Together, they build a coherent and efficient framework aimed at empowering investors to make more informed and responsible choices and creating a more transparent and accountable corporate environment.

This synergistic framework promotes sustainable finance, as the CSRD furnishes data crucial to SFDR reports. Together, the CSRD and SFDR empower investors with vital information for making informed decisions, aligning businesses with sustainable practices and financial products with ESG factors.

Furthermore, the CSRD mandates large companies to report sustainability performance aligned with the EU Taxonomy, including disclosures on Taxonomy-aligned activities. It also enforces compliance with Article 8 of the EU Taxonomy regulation. Additionally, the CSRD encompasses non-financial data points essential for financial market participants' disclosures, crucial for completing their SFDR reports.

Who Is Subject to the CSRD and by When?

The CSRD mandates comprehensive sustainability reporting for a broad range of entities, both inside and outside of the European Union. It is expected that about 50,000 companies will be required to report—approximately 40,000 within the EU and 10,000 outside. Additionally, recognising the substantial undertaking that represents Sustainability reporting, EU officials opted for a phased-in approach. 

Furthermore, it is worth mentioning that the Commission has adjusted the Accounting Directive's size criteria for companies due to inflation, resulting in a 25% increase. This adjustment will impact the classification of businesses as SMEs or large enterprises. The Delegated directive was adopted by the Commission on October 17th, these changes are applicable for financial years starting on or after January 1, 2024. 

In this section, we will delve into the eligibility criteria and timeline for CSRD reporting, considering these recent adjustments.

Companies Under The NFRD

EU Companies already subject to the NFRD, including large EU public interest companies, are obliged to report if they meet the following conditions:  

• is the company listed?;
• are there more than 500 employees?;
• is the balance sheet above €25 million or the net turnover above  €50 million?

If the answer is yes, compliance is mandatory. In the other case, compliance is voluntary. The reports would be due in the calendar year 2025, based on data from the financial year 2024.

Large Companies

Based on the updated thresholds disclosed in the last quarter of 2023, all large companies are obliged to report if they meet at least 2 of the following requirements:  

• the balance sheet is above €25 million;
• the net turnover is above €50 million;
• or they have more than 250 employees.

All large companies in scope would report in the calendar year 2026, based on data from the financial year 2025. 

The reporting requirements of large companies are phased in from 2025 to 2029, depending on specific criteria. This strategy aims to offer organisations with more limited resources the necessary time to comply, thereby enhancing the ESG transparency of the overall market.

Non-EU Companies

Non-EU companies with listed securities on an EU-regulated market, considered a listed large undertaking or Small and Medium Enterprises (SME) under EU law, or having a branch or subsidiary in the EU (excluding micro-enterprises) may also be in scope of the CSRD. 

While the breakdown of European companies under the CSRD scope is not yet available, Refinitiv conducted an independent analysis of the situation outside of Europe. The study shows that the CSRD could impact more than 10,000 extra companies, including one-third of companies based in the US. Canada and the UK closely follow behind, comprising 13% and 11% respectively.

These companies may need to do their reporting in 2025, 2026, 2027, or, at the latest, in the calendar year 2029, reporting on data from the financial year 2028. 

To further understand the practical implications for non-EU companies, see our dedicated article on how the CSRD applies to non-EU companies. 

Listed Small and Medium Sized Enterprises (SMEs)

For listed SMEs and non-EU companies with a listed SME in the EU, the landscape looks slightly different. All listed SMEs are required to report on the calendar year 2027, reporting on data from the financial year 2026. 

Considering the most recent thresholds, listed SMEs are eligible if they exceed at most two of these criteria: 

• Average number of employees < 10
• Balance Sheet < €450.000
• Net Turnover < €900.000
  

However, there are a few exceptions. Firstly, SMEs may opt out of reporting for 2 years under the CSRD. Therefore, they will be required to comply later, in 2029, reporting on the data from the financial year 2028. Secondly, listed micro-enterprises are exempt from the scope of the CSRD. The thresholds may change depending on the result of the transposition into national laws. Finally, SMEs will be subject to a more limited set of standards. In short, they will have to comply with a simplified set of ESRS.

Who is Subject to the CSRD: A Summary

For Small undertakings the ESRS allows the thresholds to vary. Member States may set their own thresholds but these shall not exceed: 

• Balance sheet < €7.5 million
• Net turnover < €15 million

CSRD Reporting Timeline 

In conclusion, the implementation timeline was created with careful consideration of the resources available to each type of organisation. Mandates for disclosure of ESG-related information under the CSRD will be phased in from 2025 to 2029, tailored to the size of the companies involved as shown below.

In addition to legal requirements, companies may generate their CSRD report before being required to do so. Anticipating the exercise allows them to take action and improve their sustainability before having to disclose them publicly or on request from third parties.

CSRD Reporting Requirements

What are the European Sustainability Reporting Standards (ESRS)? 

The European Sustainability Reporting Standards (ESRS) were introduced as a Delegated Act under the CSRD by the European Commission as a set of disclosure standards to standardise ESG reporting. 

Officially adopted at the end of July 2023, the ESRS were designed to provide a common framework for companies to report on their sustainability performance, making it easier for investors and other stakeholders to compare and assess the sustainability of different companies. The Delegated Act and its annexes were published in the Official Journal of the EU on December 22, 2023

The ESRS are divided into two primary sets of standards: the sector-agnostic or topical ESRS and the sector-specific ESRS. 

The sector-agnostic ESRS range across 12 ESG matters, organised into four categories. Firstly, there are the Cross-cutting Standards, which establish general requirements applicable to all subjects covered by the Directive. Then, the three other groups form the ESG standards, encompassing Environmental, Social, and Governance matters. Collectively, this amounts to approximately 1,200 data points and over 80 disclosure requirements, which have the potential to interact with each other. These were the first to be developed. 

The sector-specific ESRS will be tailored to different sectors such as textiles, jewelry, food and beverages, agriculture and farming, and energy production, These were recently delayed from June 2024 to June 2026. 

Learn all you need to know about the official ESRS and its Final Revisions here.

The Commission requested EFRAG develop two additional sets of simplified standards. The ESRS for Listed SMEs (LSME) present a mandatory set of disclosure requirements. However, the Voluntary ESRS for SMEs (VSME) offer a comprehensive framework for non-listed SMEs to enhance their sustainability reporting practices, as well as impose a limit on how much data they can be asked to disclose. These sets of standards aim to address the reporting needs of Listed SMEs and non-listed SMEs through proportionate disclosure requirements.

CSRD: Key Takeaways

• CSRD is due to be rolled out in four stages:
  2025 (FY* 2024) for companies already under NFRD scope;
  2026 (FY 2025) for large companies;
  2027 (FY 2026) for listed SMEs except for micro-enterprises;
  2029 (FY 2028) final year to report for non-EU companies with subsidiaries/branches.

• The ESRS disclosures facilitate comparability of the sustainability information set out in the CSRD.
• The inclusion of the Double Materiality approach acknowledges that both financial and non-financial risks are material to measure the impact of a company's activities.

*FY = Financial Year, starting on or after January 1st.

Download the complete summary e-book “The Essentials of CSRD” here.

Setting up your CSRD Reporting Strategy

In practice, establishing a sound CSRD Reporting strategy begins well in advance of delving into the Double Materiality Assessment and the ESRS. With the first reports due for 2025, based on 2024 data, it is crucial for companies to start preparing their data collection processes and dedicated teams. This entails, among others, mapping out essential data points and involving relevant departments in the reporting process, allocating budgetary resources, and defining roles and responsibilities. Discover our article Your Ultimate CSRD Checklist: 10 Steps for Successful Compliance for a step-by-step guide.

Furthermore, CSRD Expert Quentin Hennaux highlights in an interview that the CSRD intends to give companies the opportunity to showcase how their global strategy aligns with ESG matters. Properly embracing the CSRD can help as a catalyst for driving meaningful change, fostering a sustainable future, and gaining a competitive edge in the evolving landscape of responsible business practices. Leverage this legal requirement as an opportunity!

Simplifying ESG Reporting with Greenomy

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From data collection, thanks to ESG data libraries that seamlessly integrate diverse data sources, to your dedicated AI Sustainability Advisor, Artemis, to navigate best practices from your industry peers and much more, we help you easily achieve ESG compliance.

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