The Corporate Sustainability Reporting Directive, or CSRD, is a regulatory framework in the European Union (EU).
The CSRD focuses on transparency and accountability and mandates that companies disclose comprehensive sustainability information, ensuring that stakeholders are well-informed about environmental, social, and governance, or ESG, impacts.
Understanding CSRD applicability is both important and now mandatory for businesses operating in or interacting with the EU market for every financial year. This will even include businesses not based in the EU but that may have substantial holdings within it.
With over 50,000 companies worldwide expected to comply this year alone, the CSRD aligns corporate practices with important sustainability matters.
In this guide, you'll learn everything you need to know about CSRD applicability and disclosure requirements. After reading, you’ll confidently understand:
- What is required
- Who must comply
- How to prepare effectively
- How to create an effective CSRD management report
Whether you're a business leader, compliance officer, or sustainability professional, this guide provides both the general requirements and the deeper insights needed to navigate the full scope of the CSRD.
How CSRD came to be
CSRD was introduced as a significant improvement to the Non-Financial Reporting Directive (NFRD), which the European Union adopted in 2014.
The NFRD was a foundational step in requiring large public-interest companies and medium-sized enterprises with over 500 employees to report on non-financial aspects like environmental and social matters.
As sustainability challenges grew more pressing, the need for more comprehensive and standardized ESG reporting became all the more obvious.
In response, the EU member states proposed the CSRD in April 2021 to expand and refine the scope of sustainability reporting. The directive aims to increase the quality, consistency, and comparability of sustainability information disclosed by companies.
The European Green Deal was a package of initiatives put forth to cut greenhouse gas emissions and create better sustainability disclosures. Within it, the first set of standards known as the CSRD was formally adopted in November 2022, with the European Financial Reporting Advisory Group (EFRAG) tasked with developing the European Sustainability Reporting Standards (ESRS). These standards underpin the CSRD and provide the framework of requirements.
The final version of the ESRS was released to the European Commission in July 2023, setting the stage for a phased rollout of reporting requirements starting this year, in 2025, and in all following fiscal years.
CSRD is not a national law, but rather a directive and legal framework from the EU. Participating nations implement it to be enforced by their own jurisdiction.
What are the EU CSRD requirements?
CSRD mandates that companies report detailed non-financial and sustainability information.
These reporting obligations include disclosures on ESG metrics and cover things like climate change, resource usage, sustainable finance, value chain sustainability, and social impact.
3 key elements of CSRD reporting requirements
European Sustainability Reporting Standards (ESRS)
The cornerstone of CSRD reporting is compliance with the ESRS. These standards outline the specific information companies must disclose, divided into ESG categories. The ESRS ensures that reporting is both comprehensive and consistent across different sectors and regions.
Double Materiality Assessment
One of the CSRD's distinguishing features is the requirement for a double materiality assessment. Companies must report not only on how sustainability issues affect their financial performance (financial materiality) but also on their impact on the environment and society (impact materiality). This dual focus ensures a full view of corporate sustainability.
Specific Reporting Categories
Under the ESRS, reporting requirements are categorized into several key areas:
- Environmental: Companies must report on climate change, pollution, water and marine resources, biodiversity, ecosystems, and resource use.
- Social: Disclosures must cover workforce practices, impacts on local communities, and relationships with consumers and end-users.
- Governance: Companies need to provide information on business conduct, including anti-corruption measures and board diversity.
As part of CSRD reporting, companies also need to examine cross-cutting issues, or any specific issues that intersect all three aspects of ESG due diligence.
For specific sectors and verticals or for smaller and non-EU enterprises, there are some unique standards:
Sector-Specific Standards: To account for differences across industries, sector-specific standards are being developed. These will provide tailored reporting requirements for high-impact sectors such as mining, oil and gas, agriculture, and transportation.
SME and Non-EU Standards: The CSRD also includes simplified reporting standards for Small and Medium Enterprises, or SMEs, and specific guidelines for non-EU companies that operate within the EU. These tailored standards aim to ensure proportionality while maintaining transparency.
Who does the EU CSRD apply to?
CSRD applicability extends to a broad range of companies, including large EU-based enterprises and listed small to medium enterprises (SMEs).
The directive applies to companies meeting specific criteria related to their workforce size, turnover, and balance sheet total. Non-EU companies with substantial operations in the EU also fall under the CSRD's purview, especially if their annual turnover exceeds €150 million within the EU.
What is the threshold for CSRD in the EU?
The threshold for CSRD compliance includes:
- Large Companies: Otherwise known as large undertakings on the EU regulated market. More than 250 employees, a turnover exceeding €40 million, or a balance sheet total above €20 million.
- SMEs: Listed SMEs must report if they exceed two out of the three criteria—€8 million turnover, €4 million balance sheet, or 50 employees.
- Non-EU Companies: Annual turnover above €150 million in the EU or having an EU subsidiary meeting large company criteria.
Who’s exempt from CSRD?
While CSRD has massively broadened the scope of mandatory sustainability reporting, there are exemptions within EMEA (Europe, Middle East, and Africa) as well as the United States.
One notable exemption is for micro-undertakings or companies that do not exceed two out of the following three criteria:
- A balance sheet total of €300,000
- A net turnover of €700,000
- 10 full-time employees
Additionally, some subsidiaries may be exempt if their parent company provides consolidated sustainability reporting that covers the subsidiary’s activities.
These exemptions are designed to reduce the regulatory burden on smaller entities while maintaining comprehensive sustainability oversight for larger corporations.
CSRD applicability: Reporting mechanisms and disclosures
While we covered the main reporting requirements above, the following includes additional and more detailed disclosures you’ll be required to report on to meet necessary CSRD requirements.
General disclosures
Companies must provide information on their business model, strategy, policies, and the governance of sustainability-related matters. This includes describing the process used to identify and assess sustainability risks and impacts, as well as total assets earned throughout the year.
Performance metrics
Quantitative data on key performance indicators (KPIs) related to ESG factors must be disclosed. This includes metrics on greenhouse gas emissions, energy consumption, employee diversity, and more.
Forward-looking statements
In addition to historical data, companies are required to provide forward-looking information on how they plan to address sustainability risks and leverage opportunities. This includes setting targets and outlining strategies to achieve them.
Preparing for compliance
To meet these comprehensive reporting requirements, companies should do the following:
- Assess applicability: Determine if the CSRD applies to their operations.
- Conduct a gap analysis: Evaluate existing reporting frameworks and identify areas for improvement.
- Conduct a double materiality assessment: Evaluate the financial and societal impact of your operations.
- Develop or source reporting capabilities: Implement or upgrade data collection systems to ensure accurate and timely reporting. Here’s a list of the best ESG reporting tools to consider.
- Engage stakeholders: Train employees and engage with external consultants to ensure thorough understanding and implementation of the CSRD requirements.
By following the CSRD's reporting rules, companies can stay compliant and boost their sustainability image, which can help them appeal to investors, customers, and others who care about sustainable practices.
Timeline and implementation
The CSRD introduces a phased implementation schedule to allow companies adequate time to adjust to the new reporting standards:
Limited vs. reasonable assurance
An important aspect of the CSRD is the requirement for third-party assurance of sustainability reports. The directive outlines two levels of assurance that companies must consider: limited assurance and reasonable assurance.
Limited assurance
Limited assurance is a basic review of a sustainability report, checking for plausibility without deep verification. It's a less rigorous option, often used by companies new to detailed sustainability reporting.
Reasonable assurance
Reasonable assurance offers a thorough review of a sustainability report, requiring evidence to support the findings, similar to a financial audit. This provides greater confidence in the report's accuracy and completeness.
Under the CSRD, companies start with limited assurance and transition to reasonable assurance over time. This phased approach helps businesses strengthen their processes to meet higher scrutiny levels.
Breaking down the difference between CSRD and EU taxonomy
While both the CSRD and the EU Taxonomy aim to drive sustainability, they serve distinct functions.
CSRD focuses on mandatory sustainability reporting for companies and ensures comprehensive disclosures on ESG factors. The EU Taxonomy, however, classifies environmentally sustainable economic activities to guide investments.
Together, they create a robust framework for sustainable corporate practices and investments.
Is your organization ready for CSRD?
Organizations must evaluate their readiness by assessing current reporting practices against CSRD application requirements.
This involves conducting a double materiality assessment and aligning internal processes with ESRS. Companies must ensure their data collection, reporting frameworks, and governance structures meet CSRD standards.
How does the CSRD compare to the SEC climate disclosure rule?
The CSRD and the SEC Climate Disclosure Rule share similarities in enhancing transparency but differ in scope and application.
The CSRD encompasses broader ESG factors and applies to a wider range of companies, including non-EU entities with EU operations. The SEC rule, on the other hand, focuses primarily on climate-related financial disclosures within the U.S. financial market.
Prepare for CSRD with Pulsora
By learning and following these CSRD requirements, companies can handle the directive's challenges and meet the EU's higher standards for sustainability reporting.
More importantly, by implementing the right solutions that help you meet these requirements correctly and efficiently, you’ll never miss a deadline as the CSRD becomes standard across the EU.
Pulsora supports organizations like ANWR, Socfin, and CompuGroup Medical in collecting, organizing, and complying with mandated CSRD reporting. Our streamlined sustainability management platform:
- Gathers and prepares data across your entire organization
- Ensures you meet critical deadlines
- Incorporates auditing and quality assurance
Learn more about our CSRD reporting capabilities, get a walkthrough of our platform, or set up a personalized demo of Pulsora for your company’s unique use case.
