Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is a European Union directive that overhauls and expands corporate sustainability disclosure requirements. Adopted in 2022 and in force since January 2023, it replaces the earlier Non-Financial Reporting Directive (NFRD) and establishes a much more comprehensive framework for environmental, social, and governance (ESG) reporting. The CSRD significantly broadens the scope of companies that must report on sustainability issues – increasing coverage from around 11,000 companies under NFRD to an estimated 50,000 companies across the EU. Under the CSRD, in-scope firms are required to report detailed information on their sustainability risks, impacts, and performance in their annual management reports, using common EU standards. In essence, the directive elevates sustainability reporting to a level on par with financial reporting, embedding ESG disclosure into mainstream corporate reporting and governance.

Improve Transparency and Comparability:
A core goal of the CSRD is to ensure stakeholders (investors, financial institutions, consumers, and the public) have access to reliable, consistent, and comparable ESG information about companies. The directive aims to improve the flow of sustainability data so that it can be readily used in decision-making, much like financial data. By standardizing what companies report, it makes it easier to compare one company’s sustainability performance against another’s on equal terms.

Broaden Disclosure & Prevent Greenwashing:
The CSRD dramatically expands the number of companies required to disclose sustainability information and the level of detail they must provide. This broader reporting mandate is intended to hold more businesses accountable for their social and environmental impacts and to prevent “greenwashing” – i.e. unfounded or misleading claims about sustainability. Companies must report both how sustainability issues affect their business and how their business impacts people and the environment (the CSRD’s “double materiality” approach). By capturing both perspectives, the directive pushes firms to be transparent about their true ESG footprint and challenges, thus discouraging superficial claims and omissions in reporting.

Standardize Sustainability Reporting:
The directive introduces common reporting standards that all covered companies must follow. Under CSRD, firms will report in line with the new European Sustainability Reporting Standards (ESRS), a set of detailed ESG disclosure standards developed for the EU. This harmonization means that all companies report on a core set of metrics and topics, improving consistency. It replaces the patchwork of voluntary frameworks with a single, mandatory EU standard, thereby enhancing comparability across companies, industries, and member states.

Ensure Accountability and Trust:
The CSRD moves sustainability reporting from a voluntary or informal practice to a regulated, audited process. It requires that sustainability information be integrated into annual reports and subject to independent assurance (audit), initially at a limited assurance level. In other words, companies’ ESG disclosures will be verified by external auditors for accuracy and reliability, similar to financial statements. By mandating audit and including ESG data in official reports, the CSRD increases the credibility of the information and holds management accountable. This gives investors and stakeholders greater confidence that the sustainability data reported is robust and truthful.

Support EU Sustainable Finance Goals:
A broader objective of the CSRD is to align corporate reporting with the EU’s climate and sustainability targets. By enhancing transparency, the directive helps channel investments toward sustainable businesses and activities, supporting the European Green Deal ambitions. The CSRD works in tandem with other EU initiatives like the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, ensuring that companies disclose information needed for these frameworks as well. Overall, the directive is meant to drive a shift toward a more sustainable economy by making ESG performance an essential part of how companies are evaluated and financed.

The CSRD applies to a wide range of companies, greatly expanding the scope beyond what the NFRD covered. The main categories of in-scope companies include:

Large EU Companies:
All large companies incorporated in EU member states are subject to CSRD obligations, whether they are listed on a stock exchange or privately held. A company is considered “large” if it meets at least two of the following criteria: (a) more than 250 employees, (b) over €50 million in annual turnover, or (c) over €25 million in total assets. This definition captures many companies that previously had no sustainability reporting requirement under NFRD (which only covered certain large public-interest entities). Now, even large private companies will have to report on ESG matters if they cross these size thresholds.

Listed Companies (Including SMEs):
All companies with securities listed on an EU-regulated market are within CSRD’s scope. This includes large listed companies (which would be in scope anyway by size), but importantly also small and medium-sized listed companies. Listed SMEs (small and medium enterprises) are required to report under CSRD, although the directive gives them a longer phase-in period and allows for proportionate, simplified standards tailored to their size. Listed micro-enterprises (very small public companies) are exempt from CSRD reporting. In summary, if a company is publicly traded in the EU (other than micro-companies), it will eventually have to provide sustainability reports, even if it is relatively small, ensuring transparency for investors across the market.

Non-EU Companies with Significant EU Operations:
The CSRD has an extra-territorial reach, meaning it can also apply to companies headquartered outside of Europe. Non-EU companies are brought into scope if they have sizable business in the EU. In particular, a foreign company must comply with CSRD if it generates over €150 million in annual turnover within the EUand has either an EU subsidiary or a branch meeting certain criteria. If the non-EU firm has at least one large or listed subsidiary in the EU, that subsidiary will need to report in line with CSRD (or the parent can provide an equivalent consolidated sustainability report). Likewise, a non-EU firm with an EU branch that had over €40 million in turnover in the preceding year falls in scope. In practice, this rule ensures that major global companies with substantial EU activities (for example, a large US or Asian multination with significant sales or operations in Europe) must publish ESG reports about their EU operations, either by using EU standards or an accepted equivalent. This prevents an avoidance loophole and creates a level playing field, so that EU-based and non-EU-based companies are all accountable to the same sustainability transparency standards when operating in Europe.

Overall, the CSRD’s scope will encompass nearly all large enterprises in Europe and a considerable number of smaller listed companies, covering an estimated ~50,000 businesses in total. This is a huge increase from the roughly 11,600 entities that were subject to the NFRD, reflecting the EU’s intent to gather ESG data from a much broader portion of the economy.

The CSRD’s reporting requirements will roll out in phases to give companies time to adapt. Different groups of companies have different first reporting years, as summarized below:

2024 (First wave):
Companies that were already subject to the NFRD are the first to implement the CSRD. This primarily includes large “public interest entities” (e.g. EU companies that are listed, or are banks/insurers) with over 500 employees. These companies need to apply the new CSRD rules for reports covering the financial year 2024, meaning their first CSRD-compliant sustainability reports will be published in 2025. Essentially, the roughly 11,700 companies that used to do NFRD non-financial reports will now produce expanded CSRD reports for the 2024 period.

2025 (Second wave):
The next wave is all other large companies in the EU that were not previously reporting under NFRD. From financial year 2025, any EU company meeting the CSRD “large” criteria (250+ employees, €50m+ turnover, etc.) must begin reporting in accordance with the CSRD, even if they are not listed. Their first sustainability reports under CSRD will be published in 2026 (covering the 2025 data). This wave greatly enlarges the pool of reporters to include big private companies and others that hadn’t had to disclose sustainability information before.

2026 (Third wave):
Next, the listed SMEs (and certain small public-interest entities like small banks or insurers) come into scope. Starting with financial year 2026, small and medium-sized companies with securities listed on EU markets will need to comply with CSRD reporting. Their first reports, covering 2026, would be published in 2027. However, recognizing the challenges for smaller firms, the CSRD offers an opt-out until 2028 for listed SMEs. This means a listed SME can choose to delay its first sustainability report by one additional year (by declaring the deferral in its management report). In effect, compliance for listed SMEs is required by 2026 unless they take the option to start in 2027 (reporting in 2028). By 2027, at the latest, even these mid-sized public companies will be reporting on ESG matters.

2028 (Fourth wave):
The final group to phase in are certain non-European companies. From financial year 2028, the CSRD will apply to qualifying non-EU companies with major EU business (those exceeding €150 million EU turnover and with an EU branch or subsidiary, as described above). These companies will need to produce their first sustainability reports in 2029, covering the year 2028. They can either report under the EU’s standards or, if available by then, an equivalent reporting framework deemed acceptable by the EU for third-country companies. This gives multinational companies a bit more time, until the end of the decade, to align their reporting with the CSRD requirements.

2029 and beyond:
By 2029, the CSRD’s phase-in will be complete and all categories of in-scope companies will be under the reporting regime. From that point onward, comprehensive sustainability reporting will be a regular annual practice for tens of thousands of companies in Europe (and those doing business in Europe) as part of their ongoing disclosure obligations. The CSRD is designed to make such reporting a permanent and integral part of corporate accountability moving forward.

Simplification EU Omnibus Package
On 26 February 2025, the European Commission published its first “Simplification Omnibus Package” to reduce the CSRD’s administrative burden and better align it with the Corporate Sustainability Due Diligence Directive (CSDDD). It raises the employee threshold to 1,000 and adds a €450 million net-turnover floor, excluding roughly 80 percent of companies originally in scope. The package also abolishes the Commission’s power to adopt sector-specific ESRS, limits value-chain firms to voluntary datapoints, phases in limited assurance, and mandates a delegated act within six months to slash mandatory ESRS datapoints. Finally, it proposes postponing Waves 2 and 3 of reporting by two years.

Council’s Negotiating Position
On 23 June 2025, the Council of the EU agreed its negotiating mandate on the Omnibus I package, sharpening the Commission’s draft to ease compliance. In addition to the 1,000-employee and €450 million turnover thresholds, member states can exempt certain “first-wave” firms from 2025–26 reporting, and all listed subsidiaries gain an exemption if their parent reports consolidated statements. The Council also capped value-chain information requests, introduced a review clause on scope, and fine-tuned due-diligence triggers to reflect risk-based mapping.

Stop-the-Clock Directive
In April 2025, the EU adopted a “stop-the-clock” Directive delaying key CSRD deadlines for Waves 2 and 3. Large companies that haven’t started reporting—and listed SMEs—benefit from a two-year deferral of entry into application, while the CSRD transposition deadline and first CS3D phase slip by one year. This grants extra time for FY 2025 and FY 2026 disclosures, reducing short-term pressure on firms transitioning to the new regime.

Quick-Fix Delegated Act for ESRS
On 11 July 2025, the European Commission issued a “quick-fix” delegated act allowing Wave 1 companies to carry forward existing reliefs into FY 2025 and FY 2026. All Wave 1 firms can omit detailed metrics on climate-risk financial effects, biodiversity, value-chain workers, affected communities, and consumer topics, while phase-in exemptions for smaller reporters now apply across the board. This targeted flexibility prevents a mid-cycle spike in data-point requirements and smooths the ramp-up to full ESRS compliance.

Next Steps
The European Parliament is expected to adopt its Omnibus I position by October 2025, triggering trilogue negotiations with the Council and Commission. EFRAG continues drafting ESRS revisions as mandated by the Omnibus, aiming to streamline datapoints and clarify ambiguities. Member states are working to transpose both the CSRD and the stop-the-clock Directive into national law by end-2025, while the Commission readies sector-specific standards, digital tagging rules, and explores alignment with global frameworks. Companies should monitor these developments and adjust their reporting roadmaps accordingly.