What is the EU CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a policy requiring all organizations with either major operations or revenue generated in the European Union to disclose their environmental, social, and governance (ESG) information. Officially adopted by the European Commission in April 2021, the CSRD streamlines and strengthens previous reporting initiatives. This cohesive approach aims to simplify organizations’ regulatory responsibilities while improving their accountability and transparency.

These regulations are part of the European Green Deal—a set of policies focused on building a modern, resource-efficient, and competitive European economy. At its core, this initiative recognizes that climate change poses an economic crisis. Between natural disasters and global conflicts, environmental instability fuels chronic resource and labor shortages, broken infrastructure, and disrupted trading. This makes sustainability central to a resilient future economy.

The EU CSRD also resets the pace for global corporate responsibility to society and to the environment. Corporate sustainability leaders now have an opportunity to drive sustainability innovation forward, turning CSRD compliance into a competitive advantage.

Why was the CSRD created?

The CSRD replaces and strengthens the EU’s previous Nonfinancial Reporting Directive (NFRD). In effect since 2018, the NFRD required large companies to disclose nonfinancial information on social and environmental issues. In practice, however, the existing framework fell short in key ways:

• Insufficient reporting
  No formal reporting standards were enforced. Companies had full discernment over what to include. This often led to reports omitting crucial sustainability information.
• Inconsistent formatting
  The NFRD did not require digital reporting formats. Many instead shared their reporting through PDFs. This made data difficult to consolidate into databases for sharing and deeper analysis.
• Limited scope
  The NFRD only applies to large EU public interest entities, which cover listed companies, banks, and insurance companies with over 500 employees. This left out major parts of the market.

Together, these factors weakened the NFRD’s real-world effectiveness, creating major accountability gaps. The CSRD broadens NFRD’s regulatory reach and solidifies its reporting standards.

How the CSRD differs from the NFRD

The CSRD’s modernizing changes include:

• Expanded coverage
  Instead of covering only listed and public-interest entities, the CSRD now requires all large companies operating in the EU within a set size threshold to comply
• Double materiality
  Organizations must now report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for them
• EU Taxonomy
  Reporting now follows the EU Taxonomy, which defines clear criteria to classify the sustainability of economic activities for investors
• Mandatory ESRS
  All sustainability reporting must adhere to the European Sustainability Reporting Standards (ESRS), which outline the information and ESG metrics companies must disclose in their reporting
• SFDR alignment
  CSRD reporting now requires data needed to comply with the Sustainable Finance Disclosure Regulation (SFDR), which mandates financial market participants and advisors to report ESG information to investors
• Digital format
  Organizations must publish reports in a standardized ESEF/XHTML format so sustainability data can be tabulated in a centralized database
• External auditing
  The CSRD requires independent auditors to verify organizations’ sustainability reports to ensure accuracy and transparency

Who must comply with the EU CSRD?

Mandatory CSRD compliance depends on a company’s size and financial revenue. In February 2025, the European Commission released the EU Omnibus proposal updating the minimum qualifying criteria. The proposed rules now only affect companies operating in the EU with a minimum of 1,000 employees. Small and midsized organizations are exempt. Instead, they follow the Voluntary Sustainability Reporting Standard (VSME). This focuses regulation efforts on entities with the largest social and environmental impact.

Criteria for CSRD compliance

Mandatory CSRD compliance now applies to:

Listed EU-based companies

Large companies that have listed securities on EU-regulated markets or are considered an EU public interest entity. This includes businesses headquartered inside or outside the EU.

Unlisted EU-based companies

Large European-based companies not listed on EU-regulated markets. Their financial and employee threshold calculations must include any non-EU branches and subsidies.

To fall under the CSRD’s purview, these organizations must have:

• At least 1,000 employees
• A net turnover of at least €50 million or total assets of at least €25 million

Non-EU companies with large EU operations

This includes large non-European parent companies with a major EU-based subsidiary or branch. Their financial and employee threshold calculations must include both EU and non-EU operations.

To fall under the CSRD’s purview, these organizations must have:

• At least 1,000 employees in total across their EU-based branches and subsidiaries
• A €450 million net turnover generated in the EU
• An EU-based branch generating €50 million, or an EU-based subsidiary with a €50 million net turnover or €25 million in assets

How the EU CSRD impacts companies worldwide

The CSRD’s authority is technically limited to the EU, but the real-world ramifications are global. Mandatory compliance applies to all large businesses with a significant presence in the EU, regardless of whether they are headquartered in the region. An estimated 10,000 organizations would fall under this scope based on new financial and employee thresholds outlined in the pending Omnibus package.

Sustainability reporting also extends beyond internal operations. Organizations must report direct and indirect business relationships across the value chain. This expands the CSRD’s impact across virtually all international markets and industries, potentially reshaping the global supply chain. The most affected sectors include energy, mining and metals, transportation, industrial manufacturing, food and beverage, textiles and apparel, utilities, real estate, retail, technology, and healthcare.

The CSRD gives other governing bodies a new north star for sustainability standards, potentially reshaping other regulations. The higher quality ESG data also empowers investors and customers to find and support ethical operations.

EU versus non-EU companies

CSRD reporting requirements remain the same for both EU and non-EU companies if they meet their respective thresholds. EU-based parent companies must include activities from their non-EU entities in their sustainability reporting. Large companies based abroad must also consolidate sustainability reporting over their entire operations, even if only one of their branches or subsidiaries is based in the EU.

Why is CSRD compliance important?

All corporations within regulation thresholds are legally obligated to comply. Beyond legal ramifications, however, business also face tangential consequences for noncompliance—and tangible opportunities for embracing sustainability reporting.

The financial implications of noncompliance

• Monetary fines
  Depending on their EU member state, noncompliance may incur fines. In France for example, businesses face fines of up to €18,750 for failing to publish required sustainability reports.
• Litigation and auditing costs
  CSRD noncompliance exposes organizations to litigation and auditing risks, leading to costly legal battles and investigations.
• Financial restrictions
  Companies may find their business opportunities limited due to noncompliance. Possible scenarios include exclusion from bidding for government contracts.
• Reputation risks
  Customers and investors may see noncompliant companies as negligent and unstable. This could ultimately diminish a company’s public prestige, leading to falling profits and share prices.

Long-term benefits of CSRD reporting

• Greater efficiency
  The CSRD’s higher reporting standards give companies a clearer overview of their entire value chain. This provides valuable insights for building more efficient operations. Organizations can better cut waste, maximize resources, and uncover new markets.
• Brand reputation
  Consumers increasingly favor brands that showcase environmental and social stewardship. Public ESG reporting offers corporations new opportunities to demonstrate their sustainability commitments and boost their brand reputation.
• Competitive advantage
  Improved consumer perception from strong ESG reporting can boost a company’s market share, attract talent, and lead to preferential standing in business relationships.
• Financial opportunities
  More investors consider ESG factors in their decision-making process. Strong sustainability credentials can attract this capital. For example, the PwC’s Global Investor Survey 2024 found 72% of investors considered a company’s management of sustainability risks and opportunities an important factor in their investment decision-making. Eco-conscious businesses also become eligible for government contracts with sustainability requirements.

When must businesses be EU CSRD compliant?

The EU phased CSRD compliance deadlines to give companies time to adapt. In April 2025, the European Parliament also approved the EU Omnibus proposal’s “stop the clock” measure, which pushed preparation deadlines further. The adjustments also save smaller companies likely exempted under the Omnibus package’s higher thresholds from reporting. These are the new CSRD compliance timelines for companies who meet the proposed thresholds:

• Large listed EU-based companies
  Continue with mandatory reporting for FY 2025
• Large unlisted EU-based companies
  Prepare for mandatory reporting in 2028 for FY 2027 data
• Non-EU companies with large EU operations
  Prepare for mandatory group-level reporting in 2029 for FY 2028 data

What businesses need to know to remain CSRD compliant

Under the CSRD, companies must report on how sustainability issues affect their businesses and the impact of their activities on people and the environment. However, the new EU Omnibus proposal introduces some legal uncertainty as it undergoes negotiation and potential amendments before full adoption. Companies must stay informed and agile to adapt to these changing requirements.

Disclosure obligations

To comply with the current CSRD regulations, companies must follow the twelve ESRS disclosure standards covering four key areas:

General information

• General requirements
  Follow reporting criteria, including details on value chain information, double materiality assessments, and due diligence procedures
• General standards
  Disclose information on required subject areas, including the company’s sustainability governance, strategies, risk and opportunity management, and metric and target tracking

Environmental standards

• Climate change
  Outline climate risks and mitigation plans, including sustainability incentive programs, performance targets, and progress metrics on reducing energy use and direct and indirect greenhouse gas emissions
• Pollution
  Examine pollution impacts on water, air, and soil conditions, reporting potential risks, preventative measures, and related targets and metrics
• Water and marine resources
  Disclose water consumption and related impact on marine resources, and data measuring mitigation strategies
• Biodiversity and ecosystems
  Identify risks and impact metrics on biodiversity and ecosystems alongside mitigation methods and results
• Resource use and circular economy
  Measure resource inflows and outflows, outline waste and lifecycle management plans, and report data results

Social standards

• Workforce
  Provide information on internal employee conditions, including wages, social protections, skills development, health and safety metrics, diversity levels, and work-life balance
• Workers in the value chain
  Outline policies, processes, and due diligence measures protecting worker rights across the value chain
• Affected communities
  Measure impact on affected communities’ economic, cultural, and political rights, and the success of engagement and remediation processes
• Consumers and end users
  Report impact on consumers and end users in the value chain, assessing issues such as privacy, health and safety, discrimination, and child protection

Governance standards

• Business conduct
  Disclose information on organizational ethics such as executive composition and compensation, corporate policies and culture, supplier and stakeholder relationships, anti-corruption measures, payment practices, and lobbying activities

Four steps to ensure CSRD compliance

If the EU Omnibus proposal is adopted, companies should take the following steps to comply with the new CSRD requirements:

1. Conduct a gap analysis
   Assess current reporting process and identify missing areas not aligned with new CSRD standards. Examine which components fall short of the EU Taxonomy and ESRS criteria. Check for any system fault lines for ensuring accurate ESG data aggregation.
2. Create clear goals and action plans
   Establish clear sustainability goals that align or exceed CSRD requirements. Set clear targets and timelines to measure success levels and identify data metrics to track performance.
3. Upgrade data collection and processing
   The CSRD elevates green data reporting standards across the board. Meet these new quality demands with strong data management architecture across internal operations and related supply chains. This helps ensure accurate tracking of central metrics like carbon emissions, energy use, product lifecycles, and waste.
4. Engage stakeholders
   Meaningful reform will require deep collaboration across the value chain. Leadership should work with investors, employees, and supply chain partners to coordinate sustainability tracking and processes.

Navigating the transition from NFRD to CSRD

At first glance, companies following previous NFRD regulations have a head start. All companies, however, face a major transition process due to the CSRD’s stricter regulations. Consider these factors when reforming ESG strategies and processes:

• Double materiality
  Sustainability reporting must now follow new double materiality requirements. This means reporting on both social and environmental impacts and on how social and environmental issues create financial risks and opportunities for the organization.
• Standardized reporting
  Companies can no longer decide what to include and exclude from their sustainability reporting. Ensure reporting data points and processes align with the EU Taxonomy and ESRS criteria.
• Broader scope
  CSRD metrics cover a wider reach compared to the NFRD. For example, organizations must now track direct and indirect emissions. All sustainability data must also include the entire value chain.
• External auditing
  CSRD reporting requirements now include external auditing. Partner with third-party auditors to validate the accuracy of sustainability data.

Managing sustainability data for reliable CSRD reporting

Organizations need a robust ESG data management and reporting foundation to comply with the CSRD’s mandatory disclosures. This new complexity calls for digital tools that go beyond basic dashboards. Future-proof systems will need better data visibility, integration, and analysis. Consider incorporating these features when building a sustainability data ecosystem:

• Centralized real-time data
  Sound CSRD reporting begins with comprehensive primary data. Centralized data management streamlines this process by importing and harmonizing ESG data from sources across the value chain, creating a unified performance overview. The system can also validate data accuracy by automating checks for errors, inconsistencies, and incomplete information.
• Metric tracking
  CSRD reporting needs precise metrics to measure sustainability performance. Metric management can simplify this process by automating data collection, classification, and calculation across different business areas. Predefined data models in turn align metrics with CSRD requirements. AI mapping tools also enhance core metrics like carbon footprint tracking.
• Embedded analysis
  Data only becomes valuable in context. Embedded AI-enabled analytics help extract meaningful performance insights, identifying trends and potential areas of improvement. Users can then compare metrics to CSRD requirements, empowering leadership to set realistic targets and strategies. Generative AI tools can also automatically produce ESG reports in CSRD-compliant formats, reducing manual tasks.
• Change log management
  Verification requires system-wide transparency, as third-party auditors need to assess both data and data sources. Change log management systems support this process by tracking all updates, changes, and adjustments along the value chain. This documentation provides clear traceability through the process.
• EU Taxonomy classification
  Integrating an EU Taxonomy management system can simplify the classification process. Using calculation models, an end-to-end system can evaluate whether specific economic activities meet the EU Taxonomy. This includes checking activities against the do-no-significant-harm criteria and minimum safeguard requirements.

Best practices for corporate sustainability officers

Consider these holistic principles when reevaluating sustainability goals and strategies:

1. Think beyond compliance
   Mere gestures toward sustainability are no longer enough for organizations operating in the EU. The CSRD represents the minimum sustainability standards for large corporations. To earn market recognition as sustainable and ethical brands, organizations will need to pursue more ambitious ESG goals.
2. Consider the CSRD as a business opportunity
   The CSRD will add immense regulatory responsibilities for most large companies. Early adopters, however, can gain a competitive edge by using their sustainability obligations to generate new growth avenues. Reframe CSRD compliance as a strategic opportunity to attract green-conscious investors and consumers and find new profit channels through circular markets.
3. Secure executive support
   Unsupported sustainability efforts now have greater consequences, as organizations face major penalties if found noncompliant. To future-proof operations, leadership should embed sustainability into their overall strategy. This requires strong executive investment to coordinate initiatives and secure the necessary funding and staff.

The future of sustainability reporting

The EU CSRD now represents the golden standard for sustainability reporting. In the near future, other regional reporting directives may adopt the same core features:

• Increased standardization
  Reporting will require standard presentation and digital formats so stakeholders can compare the same metrics across different organizations
• Mandatory disclosures
  Instead of selectively presenting favorable metrics, organizations must disclose predefined information categories critical for accurate assessments
• Impact measurements
  More sustainability reporting will require double materiality, offering deeper insights into corporations’ social and environmental footprint

Next steps to prepare for the EU CSRD

The CSRD’s exact scope and requirements are not yet finalized. The European Parliament still needs to resolve pending amendments to the CSRD. Meanwhile, organizations should proactively prepare, as they will have limited time to adapt once legislative details are finalized and enacted. Early adaptation will also favorably position organizations to strengthen operational efficiency, attract investors, and pivot to new markets.

• Conduct a double materiality assessment
  Get a holistic understanding of the organization’s ESG impact
• Organize data management
  Start building a data management infrastructure that can track and analyze the required ESG metrics
• Prepare a watching brief
  Track legislative changes and approvals that could affect the CSRD’s regulatory scope and requirements

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