What is the EU CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a policy requiring all organisations 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 organisations’ 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 recognises that climate change poses an economic crisis. Between natural disasters and global conflicts, environmental instability fuels chronic shortages of resources and labour, damaged infrastructure, and disrupted trade. This makes sustainability central to a resilient future economy.

The EU CSRD also resets the pace for global corporate responsibility towards society and 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 established?

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

• Insufficient reporting
  No formal reporting standards were enforced. Companies had full discretion 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 via PDFs. This made data difficult to consolidate into databases for sharing and more in-depth analysis.
• Limited scope
  The NFRD only applies to large EU public interest entities, which include listed companies, banks, and insurance companies with over 500 employees. This excluded major parts of the market.

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

How the CSRD differs from the NFRD

The CSRD’s modernising changes include:

• Broader 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
  Organisations 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 sets out clear criteria to classify the sustainability of economic activities for investors
• Mandatory ESRS
  All sustainability reporting must comply with the European Sustainability Reporting Standards (ESRS), which set out 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 advisers to report ESG information to investors
• Digital format
  Organisations must publish reports in a standardised ESEF/XHTML format so sustainability data can be tabulated in a centralised database
• External auditing
  The CSRD requires independent auditors to verify organisations’ 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 turnover. 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 medium-sized organisations are exempt. Instead, they follow the Voluntary Sustainability Reporting Standard (VSME). This focuses regulatory efforts on entities with the greatest 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 within 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 subsidiaries.

To fall under the CSRD’s remit, these organisations 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 remit, these organisations must have:

• At least 1,000 employees in total across their EU-based branches and subsidiaries
• A €450 million net turnover generated in the UK
• 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 affects 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 organisations 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. Organisations must report direct and indirect business relationships across the value chain. This broadens 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, transport, industrial manufacturing, food and drink, textiles and clothing, utilities, property, retail, technology, and healthcare.

The CSRD provides other governing bodies with a new guiding principle for sustainability standards, potentially reshaping other regulations. The higher quality ESG data also enables 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 overseas must also consolidate sustainability reporting across 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 regulatory thresholds are legally obliged to comply. Beyond legal ramifications, however, businesses also face indirect consequences for non-compliance—and tangible opportunities for embracing sustainability reporting.

The financial implications of non-compliance

• Monetary penalties
  Depending on their EU member state, non-compliance may incur penalties. In France, for example, businesses face fines of up to €18,750 for failing to publish the required sustainability reports.
• Litigation and auditing costs
  CSRD non-compliance exposes organisations to litigation and auditing risks, leading to costly legal battles and investigations.
• Financial restrictions
  Companies may find their business opportunities limited due to non-compliance. Possible scenarios include exclusion from tendering for government contracts.
• Reputational risks
  Customers and investors may perceive non-compliant 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 provide companies with a clearer overview of their entire value chain. This provides valuable insights for building more efficient operations. Organisations can better reduce waste, maximise resources, and discover new markets.
• Brand reputation
  Consumers are increasingly favouring brands that demonstrate environmental and social responsibility. Public ESG reporting offers corporations new opportunities to demonstrate their sustainability commitments and enhance their brand reputation.
• Competitive advantage
  Improved consumer perception resulting from robust ESG reporting can increase 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 that 72% of investors considered a company’s management of sustainability risks and opportunities to be an important factor in their investment decision-making. Eco-conscious businesses also become eligible for government contracts with sustainability requirements.

When must businesses comply with the EU CSRD?

The EU introduced 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 extended preparation deadlines further. The adjustments also spare smaller companies, which are likely to be exempted under the Omnibus package’s higher thresholds, from reporting. These are the new CSRD compliance timelines for companies that 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 monitoring

Environmental standards

• Climate change
  Outline climate risks and mitigation plans, including sustainability incentive programmes, 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 outcomes
• 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 pay, 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 workers' rights across the value chain
• Affected communities
  Assess the impact on affected communities’ economic, cultural, and political rights, and the effectiveness 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 organisational ethics such as executive composition and remuneration, 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. Carry out a gap analysis
   Evaluate the current reporting process and identify any areas that are not aligned with the new CSRD standards. Examine which components do not meet the EU Taxonomy and ESRS criteria. Check for any system fault lines to ensure accurate ESG data aggregation.
2. Create clear goals and action plans
   Establish clear sustainability goals that align with or exceed CSRD requirements. Set clear targets and timelines to measure levels of success and identify data metrics to track performance.
3. Enhance data collection and processing
   The CSRD raises green data reporting standards across the board. Meet these new quality requirements with robust data management architecture across internal operations and associated supply chains. This helps ensure accurate monitoring of key metrics such as carbon emissions, energy usage, 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 monitoring and processes.

Navigating the transition from NFRD to CSRD

At first glance, companies adhering to 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 comply with new double materiality requirements. This means reporting on both social and environmental impacts, as well as on how social and environmental issues create financial risks and opportunities for the organisation.
• Standardised reporting
  Companies can no longer decide what to include and exclude from their sustainability reporting. Ensure reporting data points and processes are aligned with the EU Taxonomy and ESRS criteria.
• Broader scope
  CSRD metrics cover a wider range compared to the NFRD. For example, organisations 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. Collaborate with third-party auditors to verify the accuracy of sustainability data.

Managing sustainability data for reliable CSRD reporting

Organisations require 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 require improved data visibility, integration, and analysis. Consider incorporating these features when building a sustainability data ecosystem:

• Centralised real-time data
  Robust CSRD reporting begins with comprehensive primary data. Centralised data management streamlines this process by importing and harmonising 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 requires 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 such as carbon footprint monitoring.
• Embedded analysis
  Data only becomes valuable in context. Embedded AI-enabled analytics help to extract meaningful performance insights, identifying trends and potential areas for improvement. Users can then compare metrics to CSRD requirements, enabling 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 throughout 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 assess whether specific economic activities comply with 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 re-evaluating sustainability goals and strategies:

1. Think beyond compliance
   Mere gestures towards sustainability are no longer sufficient for organisations operating in the EU. The CSRD represents the minimum sustainability standards for large corporations. To gain market recognition as sustainable and ethical brands, organisations will need to pursue more ambitious ESG goals.
2. View the CSRD as a business opportunity
   The CSRD will introduce significant regulatory responsibilities for most large companies. Early adopters, however, can gain a competitive advantage by using their sustainability obligations to generate new avenues for growth. Reframe CSRD compliance as a strategic opportunity to attract environmentally conscious investors and consumers, and to discover new profit channels through circular markets.
3. Secure executive backing
   Unsupported sustainability initiatives now carry greater consequences, as organisations face major penalties if found non-compliant. To future-proof operations, leadership should embed sustainability into their overall strategy. This requires strong executive commitment to coordinate initiatives and secure the necessary funding and staff.

The future of sustainability reporting

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

• Increased standardisation
  Reporting will require standard presentation and digital formats so stakeholders can compare the same metrics across different organisations
• Mandatory disclosures
  Instead of selectively presenting favourable metrics, organisations 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 precise scope and requirements of the CSRD have not yet been finalised. The European Parliament still needs to resolve outstanding amendments to the CSRD. Meanwhile, organisations should proactively prepare, as they will have limited time to adapt once legislative details are finalised and enacted. Early adaptation will also favourably position organisations to strengthen operational efficiency, attract investors, and pivot to new markets.

• Carry out a double materiality assessment
  Gain a holistic understanding of the organisation’s ESG impact
• Organise data management
  Begin building a data management infrastructure that can track and analyse the required ESG metrics
• Prepare a watching brief
  Monitor legislative changes and approvals that could affect the CSRD’s regulatory scope and requirements

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