Corporate Sustainability Reporting Directive (CSRD)

EU directive on corporate sustainability reporting and ESG disclosure requirements.

Replacing the Non-Financial Reporting Directive, the Corporate Sustainability Reporting Directive represents the EU's most ambitious effort to standardise and elevate corporate sustainability disclosures. Adopted in late 2022, CSRD dramatically expands the number of companies required to report on environmental, social, and governance matters, and introduces detailed European Sustainability Reporting Standards (ESRS) developed by EFRAG. The directive aims to close the gap between financial and sustainability reporting, making ESG data as rigorous and auditable as financial statements.

CSRD applies in waves based on company size and listing status. Large public-interest entities already subject to the NFRD began reporting under CSRD for the 2024 financial year, with reports published in 2025. All other large companies follow for the 2025 financial year, and listed SMEs for the 2026 financial year, with the option to delay until 2028. Non-EU companies generating over 150 million euros of net turnover in the EU must report from 2028 onwards. In total, approximately 50,000 companies will fall within scope, up from around 11,700 under the NFRD.

Central to CSRD is the concept of double materiality: companies must report not only on how sustainability issues affect their business (financial materiality) but also on how their activities impact people and the environment (impact materiality). The ESRS cover a wide range of topics across environmental, social, and governance dimensions, including climate change, pollution, biodiversity, workforce conditions, supply chain practices, and business conduct. Reports must be published in a dedicated section of the management report and provided in a machine-readable digital format.

A critical requirement is third-party assurance. CSRD mandates limited assurance of sustainability reports by an auditor or independent assurance provider, with a pathway toward reasonable assurance over time. This requirement elevates the reliability of sustainability data and aligns it more closely with the standards expected of financial reporting.

CSRD works in close conjunction with the EU Taxonomy Regulation, which provides the criteria for determining which economic activities qualify as environmentally sustainable. Companies subject to CSRD must disclose the proportion of their activities that are taxonomy-aligned. The directive also interacts with the Pay Transparency Directive through gender pay gap reporting requirements and with broader climate disclosure frameworks, including the US SEC Climate Disclosure Rule. For business professionals, CSRD compliance demands cross-functional coordination between sustainability, finance, legal, and data teams to collect, verify, and report the extensive data required by ESRS.

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