Overview
The Corporate Sustainability Reporting Directive (CSRD) was adopted by the EU in December 2022 and began taking effect from January 2024 for the largest companies, with phased roll-out continuing through 2026-2028. It replaced the Non-Financial Reporting Directive (NFRD), which was widely criticised for producing disclosures that were too vague, inconsistent, and unaudited to be useful to investors.
CSRD is a step-change in scope. Where the NFRD applied to roughly 11,000 large EU companies, the CSRD extends mandatory sustainability reporting to approximately 50,000 companies, including many non-EU companies operating in the EU above certain size thresholds. It also requires limited external assurance (third-party verification) of sustainability information, treating it more like financial accounts than a voluntary report.
The framework builds directly on the EU Taxonomy and feeds into the SFDR ecosystem. Companies reporting under CSRD must produce disclosures aligned with the European Sustainability Reporting Standards (ESRS), detailed standards developed by the European Financial Reporting Advisory Group (EFRAG). ESRS cover environmental, social, and governance topics, with climate being the most granular.
Double Materiality: The Key Innovation
The most consequential concept introduced by CSRD is double materiality. Traditional financial disclosure asks only one question: how do external factors (including climate change) affect the company’s financial value? This is “financial materiality” or “outside-in” materiality.
CSRD requires both perspectives simultaneously. Companies must also report on their impact on people and the environment, “impact materiality” or “inside-out” materiality. A company must assess and disclose both how climate change threatens its operations and how its own emissions and activities affect the climate. Neither perspective is optional.
This is philosophically distinct from the approach taken by ISSB, which is explicitly investor-focused and uses single (financial) materiality. The difference is not just philosophical, it affects what gets reported, how much, and to whom. ESRS tends to require more disclosure than ISSB S2 precisely because the audience is broader: civil society and affected communities, not just investors.
What Companies Must Report
Under ESRS, companies report across a full range of sustainability topics. The most detailed standards cover climate, requiring disclosure of Scope 1, 2, and 3 emissions, transition plans, scenario analysis, and EU Taxonomy-alignment KPIs (revenue, CapEx, OpEx). ESRS also cover biodiversity, water, circular economy, workforce, supply chain, governance, and business conduct.
A key CSRD requirement is value chain reporting. Companies must look beyond their own direct operations and assess sustainability risks and impacts in their supply chains (upstream) and in the use and end-of-life of their products (downstream). This is operationally demanding and has been a significant compliance challenge, especially for companies that rely on global supply chains with limited data visibility.
Scope and Phase-In Timeline
The CSRD applies in phases based on company size and type. The largest companies (those previously under NFRD, typically with 500+ employees) began reporting for financial year 2024, with first reports due in 2025. Large companies not previously under NFRD (250+ employees, EUR 40M+ turnover, or EUR 20M+ balance sheet) report from FY2025. SMEs listed on EU-regulated markets follow from FY2026. Non-EU companies with significant EU operations (EUR 150M+ net turnover in EU) face obligations from FY2028.
There have been political pressures to delay and narrow the CSRD’s scope, particularly from industry groups citing compliance costs. As of 2025, the European Commission has proposed amendments to reduce the number of companies in scope and simplify reporting requirements. The direction of travel is still toward greater sustainability transparency, but the pace is contested.