What does the EU's CSRD mean for businesses? Here we unpacked key reporting requirements, timelines, and double materiality insights.
Designed to address the limitations of its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD introduces a more robust, standardized, and far-reaching sustainability disclosure regime that expands the scope and depth of reporting requirements.
As the new EU framework for corporate sustainability reporting, the CSRD mandates detailed disclosures on environmental, social, and governance (ESG) matters, aligned with the European Sustainability Reporting Standards (ESRS), and applies to a broader range of companies, including listed SMEs and non-EU undertakings with significant operations in the EU.
As of today, the CSRD stands as a regulatory reality, with its initial phase already in effect.
Companies must now confront the task of embedding its principles deeply within their reporting and strategic operations, while also adapting to the evolving regulatory landscape shaped by the Omnibus Simplification Package and the "Stop the Clock" Directive.
Key Requirements of CSRD Reporting
The CSRD compels large companies and listed SMEs to report on a wide array of ESG issues, using a common set of European Sustainability Reporting Standards (ESRS).
These include mandatory disclosures on climate change, circular economy, biodiversity, workforce composition, human rights, anti-corruption, and governance structures.
Notably, companies must report how sustainability issues affect their business (financial materiality), and how their business affects the environment and society (impact materiality).
The directive also establishes mandatory digital tagging of ESG data using a European Single Access Point (ESAP), facilitating accessibility and comparability.
Timeline for CSRD Compliance
The implementation of the Corporate Sustainability Reporting Directive (CSRD) is progressing in phased stages, though recent regulatory updates (Omnibus simplification package – Stop the clock Directive) have introduced adjustments to ease the transition:
The updated timeline is as follows:
- 2025: Companies already subject to the Non-Financial Reporting Directive (NFRD)—i.e. large public-interest entities with over 500 employees—are still required to publish their first CSRD-compliant sustainability reports in 2025, covering the 2024 financial year.
- 2028 (instead of 2026): Large companies that are not public-interest entities, including the relevant parent companies, originally expected to report in 2026 for the 2025 financial year, will now be required to report for the financial year starting in 2027 with their first sustainability report published in 2028.
- 2029 (instead of 2027): Listed SMEs, small and non-complex credit institutions, and captive insurance/reinsurance undertakings, previously due to start reporting in 2027 for the 2026 financial year, will now begin reporting for the financial year starting in 2028, with publication expected in 2029.
- 2029: The timeline remains unchanged for non-EU companies generating more than €150 million in EU turnover and operating at least one significant EU branch or subsidiary. These entities will be required to report on their EU activities for the 2028 financial year, with reporting due in 2029.
Impact of CSRD on International Companies
Despite being an EU regulation, the CSRD’s implications are global.
Non-European companies with significant business in the EU will be required to provide sustainability reports aligned with ESRS, essentially exporting EU sustainability norms internationally.
This extraterritorial scope means that the CSRD is catalyzing a wave of regulatory alignment across markets and industries, compelling global firms to adopt higher reporting standards or risk limited access to European capital and supply chains.
Navigating the Complexity of Double Materiality
The concept of "double materiality" is central to the CSRD's architecture, distinguishing it from many other regulatory approaches.
Rather than viewing ESG issues purely through a financial lens, double materiality recognizes that companies both affect and are affected by sustainability factors.
This dual obligation, disclosure of impacts on the environment and society as well as on enterprise value, requires a more nuanced understanding of corporate accountability and risk management.
Understanding Double Materiality in CSRD
Double materiality combines two materiality lenses:
- Impact materiality: capturing the company's effect on society and the environment.
- Financial materiality: assessing how sustainability issues affect the company’s future cash flows and valuation.
This approach compels firms to look beyond the narrow confines of investor relevance and consider the full range of their societal and ecological footprint.
Conducting a Double Materiality Assessment
To comply with CSRD, companies must conduct a double materiality assessment, which includes:
- Engaging a wide range of internal and external stakeholders.
- Mapping sustainability topics based on relevance, risk, and regulatory expectations.
- Analyzing topics for both impact and financial risk.
- Prioritizing issues to be included in formal reporting.
This process is dynamic and iterative, requiring ongoing refinement and governance oversight.
Challenges and Opportunities of Double Materiality
The practical challenge lies in gathering and evaluating reliable data across multiple impact areas—especially where data infrastructure is weak or impacts are indirect (e.g. Scope 3 emissions, human rights violations in supply chains).
However, when managed effectively, this requirement becomes a strategic opportunity.
For instance, companies that identify and mitigate biodiversity impacts may not only improve reputational capital but also secure access to sustainable financing mechanisms or preferred procurement status with ESG-conscious buyers.
3 Practical Steps for CSRD Compliance
Transitioning to CSRD compliance is a multi-year transformation that requires investments in governance, technology, and human capital.
Beyond knowing what to report, companies must understand how to build the internal architecture that supports high-quality ESG data and narrative.
1) Building a Sustainability Team
The first and most essential step is assembling a cross-functional team dedicated to sustainability reporting and performance.
This includes legal, risk, ESG, operations, and financial specialists, supported by senior leadership.
Where internal capacity is lacking, companies may turn to external consultants and assurance providers to bridge knowledge gaps during the transition phase.
2) Aligning with European Sustainability Reporting Standards (ESRS)
The ESRS includes sector-agnostic and sector-specific standards, developed by EFRAG, which align closely with international frameworks like GRI, ISSB, and TCFD.
Companies must perform a gap analysis to understand how their current ESG disclosures align with ESRS and adapt both content and format to meet the more rigorous data granularity and qualitative explanations now required.
3) Preparing for Limited Assurance Audits
From the start of the reporting obligation, CSRD mandates that sustainability disclosures be subject to limited assurance by a statutory auditor or independent assurance provider.
This elevates ESG disclosures to the same level of scrutiny as financial statements. Companies must therefore document their data collection methodologies, internal controls, and reporting rationale to withstand external verification.
Strategic Implications of CSRD
Rather than viewing CSRD as a compliance exercise, forward-thinking companies see it as a strategic instrument.
Sustainability reporting, when is well executed, can surface previously hidden inefficiencies, catalyze innovation, and reposition a company as a responsible actor in a fast-changing marketplace facilitating business development and financing.
Integrating CSRD into Business Strategy
Embedding CSRD reporting into the corporate strategy involves more than reporting on existing practices.
It entails using ESG metrics to influence investment decisions, product development, and stakeholder engagement.
For example, a logistics firm may use its CSRD-mandated emissions disclosures to justify a capital expenditure shift toward electric vehicle fleets, simultaneously reducing regulatory risk and improving cost-efficiency over time.
The Role of Technology in CSRD Compliance
Digital tools are indispensable in scaling ESG data collection, validation, and reporting.
Platforms leveraging artificial intelligence, blockchain, and cloud computing can automate traceability, monitor real-time ESG metrics, and support predictive analytics.
By doing so, companies investing early in these capabilities will not only ease the reporting burden but also gain competitive advantages in agility and stakeholder trust.
