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An introductory guide to the Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is a new ESG reporting framework that came into force in January 2024 for organisations and business entities operating in the European Economic Area (EEA). The CSRD replaced the Non-Financial Reporting Directive (NFRD) with stricter eligibility criteria.
As a result of this framework, the European Union (EU) will ramp up efforts towards sustainability reporting. Businesses falling under the new directive's remit will need to improve their reporting processes to comply with more detailed reporting requirements.
This blog explains CSRD eligibility criteria, implementation timelines, and new requirements like double materiality assessments. Companies subject to these regulations must familiarise themselves with these new requirements and ESG criteria.
Additionally, integrating financial and sustainability information within the framework of the CSRD is essential for companies to disclose these types of data cohesively in their reports. For those looking to take the first step towards CSRD compliance, you can download our whitepaper for more details: click here.
As of the 26th February 2025, the European Commission announced its Omnibus Simplification Package which is due to be reviewed and voted upon in April 2025. The Omnibus, if approved, will significantly reduce the number of companies in scope of CSRD (~10,000 down from ~50,000) and decrease the reporting requirements too. To stay up to date with the Omnibus announcement: check back on this article here.
What is CSRD?
The demand for corporate transparency and accountability in sustainability practices is at an all-time high. The CSRD is highly relevant today as it addresses this growing demand for sustainable reporting obligations.
CSRD is an EU regulation that requires large and listed companies and those with a substantial presence in the EU to report on a comprehensive set of Environmental, Social, and Governance (ESG) metrics.
Large companies outside the EU with significant EU turnover must adhere to new detailed reporting standards that address environmental, social, and governance impacts. Non-EU companies must also adhere to the exact sustainability reporting requirements if they exceed certain financial thresholds in the EU market.
In simpler terms, CSRD complements the Sustainable Finance Disclosure Regulation (SFDR). CSRD ensures that companies provide detailed reports on how their operations impact the environment and society, as well as environmental risks, such as how sustainability and social and environmental issues may affect their performance.
A key concept introduced by CSRD is double materiality, which means companies must disclose both the financial impact of sustainability risks and their environmental and social impact. This comprehensive approach promotes a clearer understanding of corporate sustainability efforts.
What is Double Materiality?
One of the unique features of the reporting process under the CSRD is its emphasis on double materiality, which essentially means that companies need to report on two facets of their operations:
- Impact Materiality: The impact of their activities on ESG factors.
- Financial Materiality: How ESG matters affect their operations and their finances.
For example, following a double materiality audit, an infrastructure company might need to report on the health and safety of its staff at a particular site and the risk of flooding to the company’s profitability.
Similarly, a clothing brand might be required to report on employee churn in its factories and the risk of civil or political unrest on its ability to produce clothing items and subsequent financial profitability.
Impact Materiality: How the firm impacts ESG
Environmental: The company uses irrigation on certain cotton farms, relying on local water reserves.
Action Taken: The firm collaborates with local farmers to introduce sustainable farming techniques at the most water-intensive sites, like rainwater harvesting and drip irrigation.
Social: By sourcing materials from specific regions, the company risks indirectly supporting unfair wages and poor working conditions.
Action Taken: The company runs third-party supply chain audits, ensuring all suppliers comply with ethical labour practices.
Governance: Given the company's rapid expansion into new regions, there might be concerns about its supply value chain oversight.
Action Taken: A committee is formed to oversee ethical sourcing and ensure supply chain practices are reviewed and reported correctly.
Financial Materiality: How ESG impacts the firm
Environmental: If the local water reserves are depleted due to excessive water use, cotton yields might decrease, increasing costs.
Mitigation Strategy: Understanding the impact of climate risk and a potential water shortage on profitability enables the company to implement contingency plans to reduce its dependency on local water reserves.
Social: The brand's reputation could be at risk if customers discover its potential endorsement of unethical labour practices.
Mitigation Strategy: By adhering to ethical protocols and promoting community engagement initiatives, the firm aligns itself with customer values and removes the financial risk of corporate reputation damage.
Governance: Shareholders might be concerned about the company's potential legal liabilities or sanctions due to unethical sourcing.
Mitigation Strategy: A governance committee is appointed to maintain corporate governance policies and proactively resolve issues which may negatively impact the company’s financial performance.
CSRD eligibility criteria
CSRD will primarily affect companies based in the EU. However, non-EU firms with a net turnover of above €150 million in the EU must also comply.
Under the previous NFRD, only large entities, specifically banks and insurance companies with over 500 employees, were obligated to adhere to these reporting standards. Now, companies meeting specific financial criteria, including a net turnover of over €40 million, must comply with enhanced reporting regulations. Over 50,000 companies – from SMEs to listed firms – will now have to disclose ESG data. This is an increase from around 10,000 companies required to report on ESG metrics under the NFRD.
CSRD is due to be phased in over the next five years, starting with those companies that already report on NFRD in 2024; “large” undertakings following in 2025, with listed companies and certain financial institutions being required to report in 2026:
1. Company size and type
- January 1, 2024: Large listed companies (those with more than 500 employees) will be required to track and collect ESG data under the CSRD directive (reporting year 2025)
- January 1, 2025: Any company meeting two of the three following criteria will be required to track and collect ESG data under the CSRD directive: 250 employees, €50 million in revenues, or €25 million in balance sheet (reporting year 2026).
- January 1, 2026: Effective date for a law that will require most SMEs (10-250 employees) to commence their reporting (reporting year 2027).
- January 1, 2028: Effective date for CSRD compliance from third-country companies (European subsidiaries of non-European companies with a turnover of more than €150 million).
2. Sector and activity
- The directive encompasses a wide range of sectors, including the banking and insurance sectors.
- As of a recent review and publication by EFRAG, companies will not have to provide sector-specific reporting for another 2 years.
What is the timeline for CSRD implementation?
The CSRD was introduced in January 2023, and the European Commission released the final European Sustainability Reporting Standards (ESRS) in July 2023.
The diagram below demonstrates the phasing in of CSRD. To speak to an expert about your company’s eligibility or timeline for implementation, please contact us.
CSRD compliance requirements
1. Comprehensive reporting on sustainability matters
- Environmental: Companies must report on pollution, circular economy (waste reduction and resource recycling), biodiversity, greenhouse gas emissions, and climate change mitigation.
- Social: Reporting on employee matters such as diversity, inclusion, human rights (both in operations and the supply chain), and impacts on local communities.
- Governance: Disclosure of corporate governance practices, including board diversity, anti-corruption, and bribery policies.
2. Adherence to European Sustainability Reporting Standards (ESRS)
- Companies must prepare their reports according to the ESRS, which provides detailed guidelines on what information should be disclosed under each ESG aspect.
3. Digital reporting and accessibility
- Reports must be prepared in a digital format that aligns with the European Single Electronic Format (ESEF), making sustainability information accessible and comparable across the EU.
4. Third-party assurance
- CSRD mandates that sustainability reports undergo independent third-party assurance to verify the accuracy and reliability of the disclosed information. This aims to enhance trust and reliability in the reported data.
5. Integration into management report
- Sustainability disclosures must be integrated into the company's management report, ensuring that ESG considerations are embedded in the core strategic management processes.
6. Regular updates and continuous improvement
- Companies must regularly update their sustainability disclosures and improve their reporting processes per evolving standards and stakeholder expectations.
ESG Reporting and CSRD
Under the CSRD, ESG reporting is not just a formality but a cornerstone of the directive. Companies must prepare an ESG report that meets the stringent requirements of the CSRD.
This report is crucial as it provides stakeholders comprehensive insights into a company’s environmental, social, and governance performance. The directive mandates that companies report on their ESG performance transparently and comparably, adhering to common standards and guidelines.
The CSRD requires companies to cover a wide range of ESG topics in their reports, including:
- Environmental performance: This includes metrics such as greenhouse gas emissions, water usage, and efforts to mitigate climate change.
- Social performance: Companies must report on labour practices, human rights, and their impact on local communities.
- Governance performance: This involves disclosing information about board composition, executive compensation, and anti-corruption measures.
- Sustainability risks and opportunities: Companies need to address potential risks and opportunities related to sustainability, such as climate change and supply chain vulnerabilities.
By providing detailed and standardised ESG reports, companies can offer stakeholders a clear view of their sustainability efforts and the associated risks and opportunities.
How can KEY ESG help companies adhere to CSRD?
Adopting the CSRD is a significant step forward in the EU’s commitment to reporting sustainability performance and marks an essential milestone in the transition to a more sustainable economy.
KEY ESG's software collates all of the new CSRD requirements and breaks them into simple, actionable steps to facilitate compliance. It sets out the processes required and optimises reporting systems.
The software gathers key information to provide clear audit trails, making it easy for third-party assurers to review any required data. In ensuring that all data is reported digitally from the outset, companies can ensure that they are getting off on the right foot and upholding the new digital reporting requirements from the start.
If you are unsure where to start with your CSRD reporting, why not book a free demo of our software? Feel free to contact our team if you have any questions.
An introductory guide to the Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is a new ESG reporting framework that came into force in January 2024 for organisations and business entities operating in the European Economic Area (EEA). The CSRD replaced the Non-Financial Reporting Directive (NFRD) with stricter eligibility criteria.
As a result of this framework, the European Union (EU) will ramp up efforts towards sustainability reporting. Businesses falling under the new directive's remit will need to improve their reporting processes to comply with more detailed reporting requirements.
This blog explains CSRD eligibility criteria, implementation timelines, and new requirements like double materiality assessments. Companies subject to these regulations must familiarise themselves with these new requirements and ESG criteria.
Additionally, integrating financial and sustainability information within the framework of the CSRD is essential for companies to disclose these types of data cohesively in their reports. For those looking to take the first step towards CSRD compliance, you can download our whitepaper for more details: click here.
As of the 26th February 2025, the European Commission announced its Omnibus Simplification Package which is due to be reviewed and voted upon in April 2025. The Omnibus, if approved, will significantly reduce the number of companies in scope of CSRD (~10,000 down from ~50,000) and decrease the reporting requirements too. To stay up to date with the Omnibus announcement: check back on this article here.
What is CSRD?
The demand for corporate transparency and accountability in sustainability practices is at an all-time high. The CSRD is highly relevant today as it addresses this growing demand for sustainable reporting obligations.
CSRD is an EU regulation that requires large and listed companies and those with a substantial presence in the EU to report on a comprehensive set of Environmental, Social, and Governance (ESG) metrics.
Large companies outside the EU with significant EU turnover must adhere to new detailed reporting standards that address environmental, social, and governance impacts. Non-EU companies must also adhere to the exact sustainability reporting requirements if they exceed certain financial thresholds in the EU market.
In simpler terms, CSRD complements the Sustainable Finance Disclosure Regulation (SFDR). CSRD ensures that companies provide detailed reports on how their operations impact the environment and society, as well as environmental risks, such as how sustainability and social and environmental issues may affect their performance.
A key concept introduced by CSRD is double materiality, which means companies must disclose both the financial impact of sustainability risks and their environmental and social impact. This comprehensive approach promotes a clearer understanding of corporate sustainability efforts.
What is Double Materiality?
One of the unique features of the reporting process under the CSRD is its emphasis on double materiality, which essentially means that companies need to report on two facets of their operations:
- Impact Materiality: The impact of their activities on ESG factors.
- Financial Materiality: How ESG matters affect their operations and their finances.
For example, following a double materiality audit, an infrastructure company might need to report on the health and safety of its staff at a particular site and the risk of flooding to the company’s profitability.
Similarly, a clothing brand might be required to report on employee churn in its factories and the risk of civil or political unrest on its ability to produce clothing items and subsequent financial profitability.
Impact Materiality: How the firm impacts ESG
Environmental: The company uses irrigation on certain cotton farms, relying on local water reserves.
Action Taken: The firm collaborates with local farmers to introduce sustainable farming techniques at the most water-intensive sites, like rainwater harvesting and drip irrigation.
Social: By sourcing materials from specific regions, the company risks indirectly supporting unfair wages and poor working conditions.
Action Taken: The company runs third-party supply chain audits, ensuring all suppliers comply with ethical labour practices.
Governance: Given the company's rapid expansion into new regions, there might be concerns about its supply value chain oversight.
Action Taken: A committee is formed to oversee ethical sourcing and ensure supply chain practices are reviewed and reported correctly.
Financial Materiality: How ESG impacts the firm
Environmental: If the local water reserves are depleted due to excessive water use, cotton yields might decrease, increasing costs.
Mitigation Strategy: Understanding the impact of climate risk and a potential water shortage on profitability enables the company to implement contingency plans to reduce its dependency on local water reserves.
Social: The brand's reputation could be at risk if customers discover its potential endorsement of unethical labour practices.
Mitigation Strategy: By adhering to ethical protocols and promoting community engagement initiatives, the firm aligns itself with customer values and removes the financial risk of corporate reputation damage.
Governance: Shareholders might be concerned about the company's potential legal liabilities or sanctions due to unethical sourcing.
Mitigation Strategy: A governance committee is appointed to maintain corporate governance policies and proactively resolve issues which may negatively impact the company’s financial performance.
CSRD eligibility criteria
CSRD will primarily affect companies based in the EU. However, non-EU firms with a net turnover of above €150 million in the EU must also comply.
Under the previous NFRD, only large entities, specifically banks and insurance companies with over 500 employees, were obligated to adhere to these reporting standards. Now, companies meeting specific financial criteria, including a net turnover of over €40 million, must comply with enhanced reporting regulations. Over 50,000 companies – from SMEs to listed firms – will now have to disclose ESG data. This is an increase from around 10,000 companies required to report on ESG metrics under the NFRD.
CSRD is due to be phased in over the next five years, starting with those companies that already report on NFRD in 2024; “large” undertakings following in 2025, with listed companies and certain financial institutions being required to report in 2026:
1. Company size and type
- January 1, 2024: Large listed companies (those with more than 500 employees) will be required to track and collect ESG data under the CSRD directive (reporting year 2025)
- January 1, 2025: Any company meeting two of the three following criteria will be required to track and collect ESG data under the CSRD directive: 250 employees, €50 million in revenues, or €25 million in balance sheet (reporting year 2026).
- January 1, 2026: Effective date for a law that will require most SMEs (10-250 employees) to commence their reporting (reporting year 2027).
- January 1, 2028: Effective date for CSRD compliance from third-country companies (European subsidiaries of non-European companies with a turnover of more than €150 million).
2. Sector and activity
- The directive encompasses a wide range of sectors, including the banking and insurance sectors.
- As of a recent review and publication by EFRAG, companies will not have to provide sector-specific reporting for another 2 years.
What is the timeline for CSRD implementation?
The CSRD was introduced in January 2023, and the European Commission released the final European Sustainability Reporting Standards (ESRS) in July 2023.
The diagram below demonstrates the phasing in of CSRD. To speak to an expert about your company’s eligibility or timeline for implementation, please contact us.
CSRD compliance requirements
1. Comprehensive reporting on sustainability matters
- Environmental: Companies must report on pollution, circular economy (waste reduction and resource recycling), biodiversity, greenhouse gas emissions, and climate change mitigation.
- Social: Reporting on employee matters such as diversity, inclusion, human rights (both in operations and the supply chain), and impacts on local communities.
- Governance: Disclosure of corporate governance practices, including board diversity, anti-corruption, and bribery policies.
2. Adherence to European Sustainability Reporting Standards (ESRS)
- Companies must prepare their reports according to the ESRS, which provides detailed guidelines on what information should be disclosed under each ESG aspect.
3. Digital reporting and accessibility
- Reports must be prepared in a digital format that aligns with the European Single Electronic Format (ESEF), making sustainability information accessible and comparable across the EU.
4. Third-party assurance
- CSRD mandates that sustainability reports undergo independent third-party assurance to verify the accuracy and reliability of the disclosed information. This aims to enhance trust and reliability in the reported data.
5. Integration into management report
- Sustainability disclosures must be integrated into the company's management report, ensuring that ESG considerations are embedded in the core strategic management processes.
6. Regular updates and continuous improvement
- Companies must regularly update their sustainability disclosures and improve their reporting processes per evolving standards and stakeholder expectations.
ESG Reporting and CSRD
Under the CSRD, ESG reporting is not just a formality but a cornerstone of the directive. Companies must prepare an ESG report that meets the stringent requirements of the CSRD.
This report is crucial as it provides stakeholders comprehensive insights into a company’s environmental, social, and governance performance. The directive mandates that companies report on their ESG performance transparently and comparably, adhering to common standards and guidelines.
The CSRD requires companies to cover a wide range of ESG topics in their reports, including:
- Environmental performance: This includes metrics such as greenhouse gas emissions, water usage, and efforts to mitigate climate change.
- Social performance: Companies must report on labour practices, human rights, and their impact on local communities.
- Governance performance: This involves disclosing information about board composition, executive compensation, and anti-corruption measures.
- Sustainability risks and opportunities: Companies need to address potential risks and opportunities related to sustainability, such as climate change and supply chain vulnerabilities.
By providing detailed and standardised ESG reports, companies can offer stakeholders a clear view of their sustainability efforts and the associated risks and opportunities.
How can KEY ESG help companies adhere to CSRD?
Adopting the CSRD is a significant step forward in the EU’s commitment to reporting sustainability performance and marks an essential milestone in the transition to a more sustainable economy.
KEY ESG's software collates all of the new CSRD requirements and breaks them into simple, actionable steps to facilitate compliance. It sets out the processes required and optimises reporting systems.
The software gathers key information to provide clear audit trails, making it easy for third-party assurers to review any required data. In ensuring that all data is reported digitally from the outset, companies can ensure that they are getting off on the right foot and upholding the new digital reporting requirements from the start.
If you are unsure where to start with your CSRD reporting, why not book a free demo of our software? Feel free to contact our team if you have any questions.
