What is CSRD? A Complete Guide to the Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) is the European Union's landmark regulation that transforms how companies report on their environmental, social, and governance (ESG) performance. If you're asking "what is CSRD?" — you're not alone. This directive affects tens of thousands of companies across Europe and beyond, making it one of the most significant pieces of sustainability legislation ever enacted.

In this comprehensive guide, we'll cover everything you need to know about CSRD: what it is, who it applies to, the timeline for compliance, the European Sustainability Reporting Standards (ESRS), the concept of double materiality, and practical steps to prepare your organization.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The CSRD is an EU directive that requires companies to disclose detailed information about their sustainability impacts, risks, and opportunities. Adopted in November 2022 and entered into force on January 5, 2023, the CSRD replaces and significantly expands upon the earlier Non-Financial Reporting Directive (NFRD), which applied to only about 11,700 companies.

Under the CSRD, approximately 50,000 companies will be required to report, including many that have never had sustainability reporting obligations before. The directive aims to:

Improve transparency by standardizing sustainability disclosures across the EU
Close the data gap that investors and stakeholders face when evaluating companies' sustainability performance
Drive corporate accountability by requiring companies to report on their impacts on people and the environment
Support the European Green Deal and the EU's goal of becoming climate-neutral by 2050
Enable informed decision-making for investors, consumers, policymakers, and civil society

The CSRD is not just a reporting exercise — it fundamentally changes how companies must think about sustainability. By requiring disclosure of sustainability strategies, targets, and governance structures, it pushes organizations to embed sustainability into their core business operations.

Who Does CSRD Apply To?

One of the most common questions about the CSRD is: who needs to comply? The directive significantly expands the scope of mandatory sustainability reporting. Here are the categories of companies that fall under CSRD requirements:

Large EU Companies

Any EU company meeting at least two of the following three criteria:

More than 250 employees
Net turnover exceeding €50 million
Total assets exceeding €25 million

Listed SMEs

Small and medium-sized enterprises (SMEs) listed on EU-regulated markets are also covered, though with simplified reporting standards and a later deadline. Micro-enterprises (fewer than 10 employees) listed on regulated markets are exempt.

Non-EU Companies with Significant EU Operations

The CSRD also applies to non-EU parent companies that generate more than €150 million in net turnover in the EU and have at least one subsidiary or branch in the EU meeting certain thresholds. This provision ensures that large international corporations with significant European operations cannot avoid reporting obligations.

Financial Institutions

Banks, insurance companies, and other financial institutions that meet the size thresholds are also subject to CSRD requirements, with additional considerations for sector-specific disclosures.

CSRD Timeline: When Do You Need to Comply?

The CSRD is being rolled out in phases, with different compliance dates depending on company type:

Phase 1 — Financial Year 2024 (Reports Due in 2025)

Companies already subject to the NFRD — these are large public-interest entities with more than 500 employees. This includes listed companies, banks, and insurance companies that were already reporting under the previous directive.

Phase 2 — Financial Year 2025 (Reports Due in 2026)

Other large companies meeting the size criteria (250+ employees, €50M+ turnover, or €25M+ assets) that were not previously subject to the NFRD. This is the phase that significantly expands the reporting universe.

Phase 3 — Financial Year 2026 (Reports Due in 2027)

Listed SMEs, as well as small and non-complex credit institutions and captive insurance undertakings. Listed SMEs may opt out for a maximum of two additional years (until financial year 2028).

Phase 4 — Financial Year 2028 (Reports Due in 2029)

Non-EU companies with significant EU presence (€150M+ net turnover in the EU).

It's essential to note that even if your company falls into a later phase, preparation should begin well in advance. Companies in Phase 2 should already be deep in their preparation efforts, as the data collection and systems required for CSRD compliance take significant time to establish.

Key Requirements: The European Sustainability Reporting Standards (ESRS)

At the heart of CSRD compliance are the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG). These standards specify exactly what companies must report and how.

The Structure of ESRS

The first set of ESRS includes 12 standards organized into three categories:

Cross-Cutting Standards

ESRS 1 — General Requirements: Defines the architecture, concepts, and general principles for sustainability reporting
ESRS 2 — General Disclosures: Requires information on governance, strategy, impact management, and metrics that apply to all companies regardless of sector

Environmental Standards

ESRS E1 — Climate Change
ESRS E2 — Pollution
ESRS E3 — Water and Marine Resources
ESRS E4 — Biodiversity and Ecosystems
ESRS E5 — Resource Use and Circular Economy

ESRS S1 — Own Workforce
ESRS S2 — Workers in the Value Chain
ESRS S3 — Affected Communities
ESRS S4 — Consumers and End-Users

Governance Standards

ESRS G1 — Business Conduct

What ESRS Requires

For each material topic, companies must disclose:

Governance — How sustainability matters are governed at board and management level
Strategy — How sustainability matters relate to the company's strategy and business model
Impact, Risk, and Opportunity Management — Processes for identifying and managing sustainability-related impacts, risks, and opportunities
Metrics and Targets — Quantitative and qualitative metrics, including targets and progress against them

Materiality Assessment

Not all standards apply equally to every company. Through a materiality assessment, companies determine which ESRS topics are material to their business. However, ESRS 1 and ESRS 2 are mandatory for all companies, and climate change (ESRS E1) is expected to be material for the vast majority of companies.

Double Materiality: The Core Concept

Perhaps the most distinctive feature of the CSRD is the concept of double materiality. This approach requires companies to report on sustainability from two perspectives:

Impact Materiality (Inside-Out)

How does your company impact people and the environment? This perspective looks at the actual and potential positive and negative impacts of your operations and value chain on sustainability matters. For example:

What are your company's greenhouse gas emissions?
How do your operations affect local communities?
What is the impact of your supply chain on biodiversity?

Financial Materiality (Outside-In)

How do sustainability matters create financial risks and opportunities for your company? This perspective examines how environmental and social issues could affect your company's financial performance, position, and cash flows. For example:

How might climate change regulations affect your cost structure?
Could water scarcity disrupt your supply chain?
What revenue opportunities exist in the transition to a sustainable economy?

Why Double Materiality Matters

A topic is considered material under the CSRD if it is material from either perspective — impact materiality, financial materiality, or both. This is a significant departure from the approach taken by other frameworks like the ISSB standards, which focus primarily on financial materiality.

The double materiality assessment is the foundation of your CSRD report. It determines which topics you report on, making it one of the most critical steps in the compliance process. Companies should conduct this assessment with rigor, involving stakeholder engagement and expert input.

Assurance and Digital Reporting

Two additional requirements set the CSRD apart from previous sustainability reporting obligations:

Mandatory Assurance

CSRD reports must be subject to limited assurance by an independent auditor or assurance provider. This means a third party must verify that your sustainability disclosures are free from material misstatement. The EU intends to move toward reasonable assurance (a higher level of scrutiny) in the future.

This requirement elevates sustainability reporting to a level of rigor comparable to financial reporting and means companies must have robust data collection and internal control processes.

Digital Tagging (XHTML/XBRL)

Sustainability information must be reported in a digital, machine-readable format using the European Single Electronic Format (ESEF). Companies will need to tag their sustainability disclosures using XBRL taxonomy, enabling automated analysis and comparison of sustainability data across companies.

How to Prepare for CSRD Compliance

Preparing for CSRD compliance is a significant undertaking that touches nearly every part of an organization. Here's a practical roadmap:

1. Determine Your Reporting Timeline

First, establish when your company falls under CSRD obligations based on the phased timeline described above. Even if you're in a later phase, starting early gives you a crucial advantage.

2. Conduct a Gap Analysis

Compare your current sustainability reporting practices against CSRD/ESRS requirements. Identify gaps in data collection, governance structures, and reporting capabilities. This analysis will form the basis of your implementation plan.

3. Perform a Double Materiality Assessment

Engage with internal and external stakeholders to identify which sustainability topics are material to your company from both impact and financial perspectives. This assessment drives the scope of your reporting.

4. Establish Data Collection Systems

CSRD requires granular, auditable data across environmental, social, and governance topics. Many companies will need to implement new data collection processes, often extending into their value chain. Consider:

What data do you already have?
What new data points do you need?
How will you collect data from suppliers and other value chain partners?
What systems and tools do you need?

5. Strengthen Governance Structures

Ensure that sustainability oversight is embedded at the board level. The CSRD requires disclosure of governance processes, so your organization needs clear roles, responsibilities, and accountability for sustainability matters.

6. Build Internal Capabilities

CSRD compliance requires expertise across sustainability, finance, legal, and data management. Consider whether you have the internal capabilities needed, or whether you need to hire or upskill staff.

7. Engage Expert Support

Given the complexity and novelty of CSRD requirements, most companies benefit from working with experienced CSRD consultants who understand the regulatory landscape, ESRS standards, and best practices for implementation. External experts can accelerate your preparation, ensure quality, and help you avoid common pitfalls.

8. Prepare for Assurance

Don't wait until the end of the process to think about assurance. Engage with your assurance provider early to understand their expectations and ensure your data and processes are audit-ready.

9. Pilot and Iterate

If possible, conduct a dry run of your sustainability report before the mandatory reporting date. This allows you to identify issues, refine processes, and build confidence in your reporting capabilities.

Common Challenges and How to Overcome Them

Companies preparing for CSRD commonly face several challenges:

Data availability and quality — Many organizations lack the systems to capture the granular ESG data that ESRS requires, especially for value chain disclosures. Start with what you have and build incrementally.

Stakeholder engagement — The double materiality assessment requires meaningful engagement with a wide range of stakeholders. Plan this carefully to ensure diverse perspectives are captured.

Cross-functional coordination — CSRD touches finance, operations, HR, procurement, legal, and more. Establish a cross-functional project team with clear governance.

Regulatory uncertainty — While the first set of ESRS is finalized, sector-specific standards and implementation guidance continue to evolve. Stay close to regulatory developments and be prepared to adapt.

Resource constraints — Particularly for companies reporting for the first time, the investment in time, people, and technology can be significant. Prioritize based on materiality and build capabilities progressively.

CSRD vs. Other Sustainability Reporting Frameworks

You might be wondering how the CSRD relates to other sustainability reporting frameworks:

GRI (Global Reporting Initiative) — EFRAG worked with GRI to ensure a high degree of interoperability between ESRS and GRI Standards. Companies already reporting under GRI will find many familiar concepts.
ISSB (International Sustainability Standards Board) — The ISSB standards focus on financial materiality for investors, while ESRS uses double materiality. EFRAG has published interoperability guidance.
TCFD (Task Force on Climate-related Financial Disclosures) — ESRS E1 on climate change incorporates TCFD-aligned disclosures. Companies already following TCFD will have a head start on climate reporting.
CDP — CDP has aligned its questionnaires with ESRS, and many companies use CDP responses as a data source for CSRD reporting.

The Strategic Opportunity

While CSRD compliance requires significant effort, it also presents a strategic opportunity. Companies that embrace the directive can:

Build trust with investors, customers, and regulators through transparent reporting
Identify risks early and build resilience against sustainability-related disruptions
Uncover opportunities for innovation, cost savings, and new revenue streams
Attract talent — employees increasingly want to work for responsible, transparent companies
Gain competitive advantage by being early movers in sustainability excellence

The most forward-thinking companies view CSRD not as a compliance burden, but as a catalyst for integrating sustainability into their business strategy and creating long-term value.

Find the Right CSRD Expert for Your Organization

Navigating CSRD compliance is complex, and the stakes are high. Whether you're just starting your preparation or looking for specialized expertise in areas like double materiality assessment, ESRS implementation, or assurance readiness, working with an experienced consultant can make all the difference.

At CSRD Experts, we've built the leading directory of vetted sustainability and CSRD consultants across Europe. Browse our directory to find professionals with the specific expertise, industry knowledge, and geographic presence your organization needs.

Find a CSRD Expert →

Don't wait until the deadline approaches. The companies that start preparing today will be best positioned for success — not just in meeting regulatory requirements, but in building a more sustainable and resilient business for the future.