Overview
Introduced: 2021
Effective from: January 5, 2023
Last modified: February 2024
Region(s): European Union
About
The Corporate Sustainability Reporting Directive (CSRD) is a key component of the European Union’s sustainable finance strategy. It mandates comprehensive sustainability reporting for EU companies and qualifying non-EU companies with significant operations in the EU.
The CSRD expands the scope of the previous Non-Financial Reporting Directive (NFRD), introducing the concept of “double materiality,” which requires companies to report both on how sustainability issues affect their business (financial materiality) and how their business impacts society and the environment (impact materiality). The CSRD is designed to enhance the transparency, comparability, and reliability of sustainability information disclosed by companies, which is crucial for investors, policymakers, and other stakeholders in making informed decisions aligned with the EU’s climate goals.
Criteria for compliance
Listed companies
These include any companies listed on an EU-regulated market exchange, except for listed ‘micro undertakings’ that do not meet two of the following three criteria on consecutive balance sheet dates:
- €450,000 in total assets
- €900,000 in net turnover (revenue)
- 10 employees (average) throughout the year
Non-listed companies
These include companies that meet two of the three criteria on any two consecutive balance sheet dates:
- €25 million in total assets
- €50 million in net turnover
- 250 employees (average) during the year
Third-country companies
These include non-EU parent companies with annual EU revenues of at least €150 million for the last two consecutive financial years, and either:
- A large EU-based subsidiary,
- An SME subsidiary listed on an EU-regulated market, or
- An EU branch office with at least €40 million in net turnover in the preceding financial year.
Compliance timelines
Financial year: 2024
Reporting year: 2025
Applicable organization description: Compliance is required for organizations already mandated under the NFRD, including those listed in an EU-regulated market with 500 or more employees.
Financial year: 2025
Reporting year: 2026
Applicable organization description: Compliance is extended to large undertakings not previously mandated under the NFRD.
Financial year: 2026
Reporting year: 2027
Applicable organization description: Compliance is required for listed small- and medium-sized enterprises (SMEs), except micro-enterprises, small and non-complex credit institutions, and captive insurance companies.
Financial year: 2028
Reporting year: 2029
Applicable organization description: Compliance is required for certain third-country undertakings.
Disclosure requirements
European Sustainability Reporting Standards (ESRS)
The ESRS provide a detailed framework for sustainability disclosures required under the CSRD. There are 12 standards across four categories:
- Cross-cutting: ESRS 1 (General requirements) and ESRS 2 (General disclosures).
- Environmental: ESRS E1 (Climate change), ESRS E2 (Pollution), ESRS E3 (Water and marine resources), ESRS E4 (Biodiversity and ecosystems), ESRS E5 (Resource use and circular economy).
- Social: ESRS S1 (Own workforce), ESRS S2 (Workers in the value chain), ESRS S3 (Affected communities), ESRS S4 (Consumers and end-users).
- Governance: ESRS G1 (Business conduct).
Double materiality
The CSRD requires companies to assess and report on both:
- Impact materiality: The impact their businesses have on society and the environment (e.g., carbon emissions, human rights, biodiversity).
- Financial materiality: The impact that sustainability matters have on the company’s financial performance.
Specific disclosures
Companies must provide detailed data and management commentary on:
- Sustainability policies and due diligence processes
- Target metrics and transition plans to achieve net-zero emissions by 2050
- Impacts in value and supply chains
- Sustainability risks, including climate change resilience
Third-party auditing
The CSRD mandates third-party assurance for all disclosures, beginning with limited assurance and transitioning to reasonable assurance by 2028.
Penalties for noncompliance
Each EU member state is responsible for establishing penalties, which are expected to be effective, proportionate, and dissuasive.
