Approximately 7,000 companies in the European Union (EU) and beyond will have to comply with Corporate Sustainability Reporting Directive (CSRD) reporting. While there is considerable uncertainty regarding CSRD’s timing, thresholds, and reporting requirements, there is value in taking proactive measures to prepare your business and advance compliance.
The Corporate Sustainability Reporting Directive (CSRD) is the European law establishing mandatory environmental, social, and governance (ESG) reporting to be used alongside financial reporting. Its goal is to ensure that investors and other key stakeholders have pertinent information regarding the company's impacts, risks, and opportunities associated with ESG-related issues, including climate change.
Approximately 7,000 companies in the European Union (EU) and beyond will have to comply with CSRD in the coming years. It is being phased in from 2024 to 2029. Beginning in January 2024, it started to apply to EU-based companies and subsidiaries in scope. Over the next four years, the law will extend to more organizations in the EU, plus companies that do business in the EU — even if they are based elsewhere.
Companies initially in scope for CSRD started collecting data in 2024 to report in 2025. And data collection takes time, particularly for companies currently not tracking or reporting ESG metrics. By 2029, all organizations impacted by CSRD will need to be in compliance.
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The Corporate Sustainability Reporting Directive (CSRD) commenced its impact on some EU-based companies in 2024; however, its requirements are presently subject to substantial revision and negotiation. While the directive was initially slated to extend its reach to non-EU companies operating within the EU from 2028, and to include non-EU companies with EU-registered subsidiaries based on criteria such as total company assets, net turnover, and average employee count, the specific thresholds for each phase and the overall implementation timeline are still under active discussion. The ongoing legislative process, involving proposals from the European Commission, Council, and Parliament, means that the final scope and detailed reporting obligations for companies, including both EU and non-EU entities, remain fluid and subject to potential change. Below is a reflection of the current proposals being negotiated, which are subject to change:
| Phase One | Phase Two | Phase Three | Phase Four |
|---|---|---|---|
| 2024: Data collection 2025: Reporting |
2027: Data collection 2028: Reporting |
2028: Data collection 2029: Reporting |
2028: Data collection 2029: Reporting |
| All companies and subsidiaries already in scope for NFRD (including those outside the EU) | Other large EU-based subsidiaries of non-EU companies, and all companies listed on the EU-regulated market | EU-based small and medium enterprises (SMEs) and SME subsidiaries of non-EU-based companies listed on the EU-regulated market Listed SMEs and SME subsidiaries |
Non-EU companies with >€150 million in revenue (to be confirmed) Subsidiaries (same requirement as Phase 2) Large non-EU-based companies (one criterion): |
| Source | Source | Source | Source |
Although each EU member state determines the penalties for noncompliance, companies can anticipate one or a combination of the following consequences:
Existing laws for failing to comply with nonfinancial reporting rules might get more stringent with CSRD. Fines range from €5,000 in Ireland to €10 million or 5% of the total annual turnover (or revenues) or twice the total profits made/losses avoided in Germany. Officials who fail to submit a report or who interfere with assurance may also face jail time in certain countries.
CSRD is a broad-based disclosure requirement that covers a full range of topics across ESG factors, though the scope of the directive is subject to change. The European Sustainability Reporting Standards (ESRS) are the technical requirements within CSRD. Organizations must use the ESRS to comply with CSRD.
ESRS 1 and 2 — These are fundamental, general disclosure requirements and principles that aim to standardize and increase transparency of ESG reporting.
These reporting standards span across ESG topics.
Environmental ESRS E1, E2, E3, E4, and E5 — These encompass such issues as climate change, pollution, biodiversity and ecosystems, water and marine resources, and resource use and circular economy.
Social ESRS S1, S2, S3, and S4 — These include issues such as a company’s workforce, workers in the value chain, affected communities, and consumers and end users.
Governance ESRS G1 — This refers to how companies conduct their business.
These reporting standards will eventually apply to particular sectors of business. In early 2025, the EU delayed the implementation of these standards until at least 2026. The possibility remains that they could be eliminated entirely.
As it stands, however, the drafted standards include...
The cross-cutting disclosures and principles are required for all businesses impacted by CSRD. The issue-specific environmental, social, and governance disclosures are required only when the topic is deemed material for the company.
All businesses were required to report against E1, the Climate Change standard. This standard was the only one not subject to double materiality, so even companies that say it isn’t material will have to explain how and why they came to that conclusion. E1 encompasses greenhouse gas (GHG) emissions — including scope 3. Under this standard, companies will also need to provide an evaluation of climate risks and any plans to mitigate and adapt to climate change.
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The ESRS requires a double materiality assessment be conducted by organizations to comply with CSRD, though uncertainty remains around the specifics. Double materiality refers to the impact of ESG topics on people and the environment, as well as on a business’ financial success in terms of risks and opportunities presented to the business.
In a double materiality assessment, organizations have to determine which ESG topics are most material to their business’ success and impact on society. They must understand and report on how their business is affected by sustainability issues (inward-facing impact) and how their business activities affect society and the environment (outward-facing impact).
To comply with CSRD, companies will also be required to have a third party assure their sustainability information and data.
Companies will first be mandated to secure limited assurance from a third-party auditor. CSRD then outlines a timeline for companies to move to reasonable assurance, in which a third party will carry out a comprehensive assessment of a company’s sustainability disclosures and related operations.
CSRD is an expansion of the EU’s previous ESG reporting requirements under the NFRD. Enacted in 2018, the NFRD focused on financial reporting requirements and provided companies with guidelines to disclose their approach to managing environmental and social challenges in their annual reports, along with financial metrics. As CSRD rolls out, it will supersede NFRD.
The EU’s CSRD and CSDDD serve unique but interconnected purposes. While CSRD sets the standard for transparent ESG reporting and disclosures, the CSDDD is a legislative framework that requires companies to set up due diligence processes to proactively identify, prevent, and mitigate human rights issues and environmental impacts stemming from their value chain.
In short, think of the CSDDD as a mechanism for companies to create systems and processes that improve the sustainability performance of their organization.
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The European Commission created CSRD to ensure high-quality and reliable public reporting by companies to help create a culture of greater public accountability. For decades, ESG reporting has been voluntary, and voluntary frameworks have emerged to help companies report on their ESG metrics. But without laws to ensure all organizations reported or a single framework on which to base their reporting, stakeholders have a difficult time making a fair evaluation between the information disclosed by multiple companies or even the same company across multiple reporting periods. This has complicated decision-making for investors, customers, consumers, partners, and suppliers. Given CSRD’s broad reach — both within Europe and beyond — customers, investors, and other stakeholders might ask you for information in alignment with CSRD, even if the law doesn't apply to you directly.
Although details of the CSRD have yet to be finalized, companies impacted by CSRD face potential challenges, such as increased costs, a lack of trusted data, and difficulty keeping up with evolving regulatory requirements.
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