EU Corporate Sustainability Reporting Directive (CSRD)

Regulatory Overview

The Corporate Sustainability Reporting Directive (CSRD) is the European Union's centerpiece legislation mandating comprehensive environmental, social, and governance (ESG) disclosures from large and mid-sized enterprises. Expanding the scope from the predecessor Non-Financial Reporting Directive (NFRD), CSRD brings approximately 50,000 EU and non-EU companies under mandatory reporting obligations.

Compliance Scope & Phased Implementation

Phase 1: Starting 2025 (Reporting on 2024 Data)

~900 companies affected - Primarily publicly-listed and large private entities already subject to NFRD

• Revenue threshold: €500 million+
• Employees: 500+
• Market cap requirement: €150 million+

Phase 2: Starting 2026 (Reporting on 2025 Data)

~3,000 additional companies - Large private companies not listed

• Revenue threshold: €150 million+
• Employees: 250+

Phase 3: Starting 2027-2028

Remaining scope - SMEs and non-EU subsidiaries of in-scope companies

• Progressive implementation over 2027-2029
• Optional participation for micro-enterprises

ESRS Framework: European Sustainability Reporting Standards

Three Core Dimensions

Environmental (E-standards)

• E1: Climate change
• E2: Pollution
• E3: Water and marine resources
• E4: Biodiversity and ecosystems
• E5: Resource use and circular economy

Social (S-standards)

• S1: Own workforce
• S2: Workers in the value chain
• S3: Affected communities
• S4: Consumers and end-users

Governance (G-standards)

• G1: Business conduct (anti-corruption, ethics)
• G2: Management of material sustainability issues

Reporting Principles

• Double materiality: Assess both financial materiality (business impact) and impact materiality (sustainability impact on society/environment)
• Assurance requirement: Independent third-party audit (limited assurance initially; full assurance by 2028)
• Digital tagging: Inline XBRL format for machine readability
• Value chain coverage: Scope 3 emissions, supply chain due diligence across all tiers

Key Compliance Elements

Scope 1, 2, and 3 Emissions Disclosure

• Mandatory for all in-scope companies starting 2025/2026 reporting cycles
• Scope 3 inclusion: Supply chain, product use, waste management, investments (for financial institutions)
• Science-based targets: Alignment with 1.5°C Paris Agreement pathway expected by Phase 2

Due Diligence & Risk Management

Companies must disclose:

• Human rights due diligence processes
• Anti-corruption and tax governance structures
• Supply chain transparency (including modern slavery indicators)
• Climate scenario analysis (TCFD-aligned for climate physical and transition risks)

Biodiversity & Circular Economy

• Primary pollutant emissions (NO₂, SO₂, PM2.5)
• Water consumption and contamination impacts
• Waste generation and hazardous substance usage
• Circular economy metrics (recycling rates, product durability)

Updated Regulatory Landscape (2025 Omnibus Proposal)

Proposed Changes (February 2025 Commission Proposal)

• Narrowed scope: Potential exemptions for SMEs in non-systemically-important sectors
• Extended deadlines: Phase 1 companies may delay first report to 2027 instead of 2025
• Voluntary taxonomy compliance: EU Taxonomy alignment no longer mandatory for non-financial companies

Assurance Modifications

• Delayed full audit requirement to 2029 (instead of 2028)
• Continued limited assurance for 2026-2028 reporting periods
• Enhanced flexibility for SMEs in assurance rigor

CSRD Financial Impact by Company Size

Strategic Implementation Requirements

Data Infrastructure

• ERP integration: Connect financial and sustainability data sources
• Supply chain visibility: Collect emissions data from suppliers (Scope 3)
• Climate modeling: Build scenario analysis capabilities for TCFD-equivalent disclosures
• Assurance-ready systems: Maintain audit trails for third-party verification

Organizational Structure

• Governance: Establish ESG reporting accountability at board/C-suite level
• Cross-functional teams: Finance, operations, supply chain, legal, HR coordination
• External partnerships: Big 4 consulting firms, specialized ESG consultancies
• Timeline: 6-12 months minimum for Phase 1 companies (2024-2025 preparation)

Technology Solutions

Popular CSRD compliance platforms:

• Salesforce Net Zero Cloud - CSRD reporting module, auto-population from accounting systems
• Persefoni - Scope 1, 2, 3 emissions tracking with built-in CSRD frameworks
• Pulsora/SAP - Enterprise-grade ESG data management
• Sphere - Supply chain emissions intelligence for Scope 3

Penalties & Enforcement

Non-Compliance Consequences

• Public filing requirement: Failure to report triggers regulator notification
• Reputational damage: Exclusion from ESG-focused investment indices, green bond programs
• Market penalties: Stock underperformance vs. compliant peers (30-50 bps basis points estimated)
• Potential fines: Not yet formally specified; likely aligned with financial reporting directive precedents (€500K-€5M+ expected)

Assurance Enforcement

• Non-compliant sustainability statements can be challenged by stakeholders
• Auditor liability for false or misleading disclosures
• Regulatory investigations triggered by material restatements

Harmonization with Global Standards

CSRD & ISSB Alignment

European Sustainability Reporting Standards (ESRS) intentionally designed to harmonize with International Sustainability Standards Board (ISSB) standards, enabling global consistency while maintaining EU regulatory autonomy.

Integration with Other Regimes

• Taxonomy alignment: CSRD recipients can leverage EU Taxonomy work for activity classification
• TCFD framework: ESRS E1 (climate) substantially mirrors TCFD governance, strategy, risk management, metrics
• GRI Standards: 75%+ disclosure overlaps between CSRD and Global Reporting Initiative standards

Document Status

Last Updated: November 2024 | Authority: European Commission DG FISMA | Public Access: Full directive at europa.eu; FAQs updated regularly