The CSRD is reshaping the way businesses report on sustainability and ESG performance in Europe.
For international companies operating within or doing significant business in the EU, understanding CSRD is critical. With mandatory disclosure requirements, greater transparency standards, and harmonized rules, the CSRD aims to create a level playing field and ensure that sustainability reporting holds the same weight as financial reporting.
This guide breaks down what the EU’s guidelines on reporting climate related information (CSRD), who it affects, what needs to be reported, and when. We also cover key definitions and thresholds, so international businesses can stay ahead of compliance.
What is CSRD? (CSRD Meaning)
The Corporate Sustainability Reporting Directive is a European Union regulation that expands and replaces the Non-Financial Reporting Directive (NFRD). It mandates detailed sustainability reporting by companies operating in the EU, including some non-EU firms. It is essentially the European Climate Reporting Standard.
The CSRD was adopted in December 2022 as part of the European Green Deal and the broader EU Sustainable Finance Agenda. Its main objective is to improve the quality, consistency, and comparability of sustainability reporting across companies and industries.
This new framework requires companies to publish an annual CSRD report as part of their management report, following the European Sustainability Reporting Standards (ESRS) developed by EFRAG.
Who Needs to Comply? (Reporting Threshold Pre Omnibus)
As per the EU’s guidelines on reporting climate related information, the following companies need to publish sustainability reports under CSRD:
- Large EU companies meeting 2 of the 3 criteria below:
- Over 250 employees
- Net turnover of more than €50 million
- Total assets exceeding €25 million
- Listed SMEs, except micro-enterprises, with simplified standards and a transition period until 2028.
- Non-EU companies that:
- Have a net turnover of €150 million or more in the EU,
- And own at least one EU-based subsidiary or branch that meets CSRD thresholds.
CSRD Timeline (Pre Omnibus)
The CSRD timeline for publishing sustainability reports is as follows:
Entity Type |
Reporting Begins |
Data Period Covered |
|---|---|---|
Large Companies under NFRD
|
FY 2024
|
Reports due in 2025
|
Large EU Companies newly covered by CSRD
|
FY 2025
|
Reports due in 2026
|
Listed SMEs
|
FY 2026
|
Reports due in 2027
|
Non-EU Companies
|
FY 2028
|
Reports due in 2029
|
Note: Voluntary adoption is encouraged before mandatory deadlines, especially to align with investor expectations and ESG-focused stakeholders.
What Is CSRD Double Materiality Concept?
Double materiality is a core concept in the CSRD Directive. It means that companies must assess and report on sustainability matters from two perspectives:
- Financial Materiality – How environmental, social, and governance (ESG) issues impact the company’s financial position and performance.
- Impact Materiality – How the company’s operations affect people and the environment.
Under CSRD, both angles must be evaluated to provide a full picture of sustainability performance. This goes beyond traditional financial reporting and helps stakeholders better understand a company’s risks and impacts.
This requirement applies to all in-scope companies and is central to the ESRS standards.
Does CSRD Require Scope 3 Emissions Reporting?
The CSRD requires disclosure of Scope 1, 2, and 3 greenhouse gas (GHG) emissions under the European Sustainability Reporting Standards (ESRS E1).
- Scope 1: Direct emissions from owned or controlled sources (e.g., company vehicles).
- Scope 2: Indirect emissions from purchased electricity, heat, or steam.
- Scope 3: All other indirect emissions in the value chain (e.g., supplier emissions, employee commuting, product use).
For many companies, Scope 3 accounts for the largest share of total emissions, and the CSRD emphasizes transparency here. While data availability challenges are recognized, companies are expected to progressively improve their disclosures and estimation methods.
What Are the ESRS (European Sustainability Reporting Standards)?
To ensure consistency and clarity in sustainability reporting, companies must report in line with the European Sustainability Reporting Standards (ESRS).
Developed by EFRAG (European Financial Reporting Advisory Group), these standards outline how and what companies must disclose regarding ESG (Environmental, Social, and Governance) issues.
The ESRS are split into:
- 2 General Standards – providing foundational reporting principles and company-wide disclosures.
- 10 Topical Standards – grouped under Environment, Social, and Governance, focused on material risks, impacts, and opportunities.
Companies are only required to report on data points that are material to them, based on their double materiality assessment. For example, a manufacturer may focus on ESRS E2 (Pollution), while a consumer-focused company may emphasize ESRS S4 (Consumers and End-Users).
Note: Climate-related disclosures (ESRS E1) are presumed material by default. Companies must justify if deemed otherwise.
ESRS 1: General Principles |
ESRS 2: General Disclosures |
|---|---|
Covers: Foundational sustainability principles and reporting concepts
|
Covers: Governance, strategy, impacts, risks & opportunities, measurement, and objectives
|
Environment |
Social |
Governance |
|---|---|---|
ESRS E1 – Climate Change
|
ESRS S1 – Own Workforce
|
ESRS G1 – Business Conduct
|
ESRS E2 – Pollution
|
ESRS S2 – Workers in the Value Chain
| |
ESRS E3 – Water and Marine Resources
|
ESRS S3 – Affected Communities
| |
ESRS E4 – Biodiversity and Ecosystems
|
ESRS S4 – Consumers and End-Users
| |
ESRS E5 – Resource Use and Circular Economy
|
Reporting, Publication, and Assurance
- Format: Reports must be embedded in the annual management report and published in digital x HTML format on the company’s website, unifying financial and non-financial disclosures.
- Timeline: Annual publication, within 4 months of financial year-end.
- Audit: Reports must be audited by an independent party, starting with limited assurance and evolving to reasonable assurance by October 2028.
- SMEs: Simplified sector-specific standards are being developed for listed SMEs, with a two-year opt-out option.
These standards aim not only to increase transparency, but also to embed sustainability into the heart of corporate strategy.
What is Gap Analysis?
Following the identification of material issues for the company and their associated indicators, the next step is to outline the data collection process in preparation for audit phases. This includes describing the data to be gathered: the scope covered, calculation methodology, level of detail, validation methods, etc.
This initial selection and description of data enable the execution of a “gap analysis,” which involves identifying the gap between the information currently available and the reporting requirements.
The process includes:
- Assessing the maturity and completeness of current data against ESRS indicators.
- Identifying missing or insufficient data points and indicators not yet addressed.
- Using findings from the gap and materiality analyses to prioritize actions.
- Developing a structured roadmap and action plan to meet reporting requirements.
- Establishing internal governance to oversee data collection, quality, and monitoring.
- Assigning clear responsibilities for managing and updating sustainability data.
- Implementing internal processes to collect missing or incomplete data.
Since the CSRD reporting exercise is recurs annually, it will allow the company to track its progress over.
Key Definitions Under CSRD
To help international businesses understand the requirements, here are important CSRD terms and their meanings:
- CSRD Omnibus: The set of amendments that align other EU directives and regulations with CSRD.
- CSRD Definition of Turnover: Total net revenue generated by a company during a financial year.
- CSRD Definition of Employee: Includes full-time, part-time, temporary, and seasonal workers under EU law.
- Double Materiality: The principle that companies must disclose how sustainability issues affect their business (financial materiality) and how their operations impact society and the environment (impact materiality).
- CSDDD or CS3D (Corporate Sustainability Due Diligence Directive): An EU directive requiring large companies to identify, prevent, and address adverse human rights and environmental impacts in their operations and value chains. You can learn more about it here.
- SBTi (Science Based Targets Initiative): A global body that helps companies set greenhouse gas emissions reduction targets aligned with climate science and the goals of the Paris Agreement.
- EFRAG (European Financial Reporting Advisory Group): An independent body advising the European Commission on accounting standards and responsible for developing the European Sustainability Reporting Standards (ESRS).
- DPEF (Déclaration de Performance Extra-Financière): A French non-financial reporting obligation for large companies to disclose environmental, social, and governance (ESG) information.
- IRO (Impacts, Risks, and Opportunities): A framework used under the CSRD to assess how sustainability issues affect a company and how the company impacts the environment and society.
- SFDR (Sustainable Finance Disclosure Regulation): An EU regulation requiring financial market participants to disclose how they consider sustainability risks and impacts in investment decision-making.
The European climate reporting standard marks a transformative shift in how sustainability is reported, placing ESG performance on par with financial disclosures. For international businesses, early preparation is key. By understanding evolving thresholds, timelines, and reporting standards like the ESRS, companies can stay ahead of regulatory changes.