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What Is CSRD? The EU Corporate Sustainability Reporting Directive Explained

Apr 25, 2026 What Is CSRD? The EU Corporate Sustainability Reporting Directive Explained

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The EU Corporate Sustainability Reporting Directive is the most significant expansion of sustainability reporting requirements in European regulatory history. It applies to thousands of companies globally, including many organizations headquartered outside the EU that operate within it.

If your organization sells into European markets, manufactures there, or has EU-based subsidiaries, CSRD compliance is not a future consideration. For many large companies, it is already a present obligation.

Quick Answer

The CSRD, or the Corporate Sustainability Reporting Directive, is an EU regulation that requires large companies to disclose detailed information about their environmental, social, and governance (ESG) impacts and risks. It expands upon and largely replaces the earlier Non-Financial Reporting Directive (NFRD), expands the scope of companies required to report, mandates reporting under European Sustainability Reporting Standards (ESRS), requires third-party assurance, and introduces the concept of double materiality, meaning companies must report on how sustainability affects their business and how their business affects sustainability.

Table of Contents

What Is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is an EU legislative framework that requires companies to disclose comprehensive information about their sustainability performance, risks, and impacts. Adopted by the European Parliament in November 2022 and entered into force in January 2023, it replaces the Non-Financial Reporting Directive (NFRD) that had governed ESG disclosure requirements for large European companies since 2014.

The CSRD represents a fundamental shift in how sustainability reporting is treated. Under the NFRD, reporting requirements were relatively flexible, with limited standardization across jurisdictions and no assurance requirement. Under the CSRD, reporting must follow standardized European Sustainability Reporting Standards (ESRS), be subject to independent third-party assurance, and be integrated into the company’s annual management report alongside financial disclosures.

The intent is to make ESG data comparable, reliable, and actionable for investors, regulators, customers, and other stakeholders, rather than allowing companies to select their own metrics and present their own narrative.

Who Must Comply with the CSRD?

The CSRD applies to a more targeted population of companies following the Omnibus I Amending Directive (Directive (EU) 2026/470), which entered into force on March 18, 2026.

Large EU companies and groups that exceed both of the following cumulative criteria are in scope: an average of more than 1,000 employees and a net turnover exceeding €450 million. This shift has reduced the number of in-scope EU entities to approximately 5,000 to 10,000, a significant decrease from the initial estimate of 50,000.

Listed SMEs have been removed from the mandatory scope altogether. They may report voluntarily using simplified standards, but no longer face a legal obligation to do so.

Non-EU parent companies are in scope only if they generate more than €450 million of net turnover in the EU for two consecutive years, provided they also have at least one EU subsidiary or branch that itself generates more than €200 million in net turnover.

The Omnibus I Amendment (Directive (EU) 2026/470) has drastically narrowed the CSRD’s scope, reducing the number of regulated companies by 80–90% to an estimated 5,000–10,000 companies. While the NFRD applied to approximately 11,700 companies, for those remaining in scope, the depth of reporting is significantly higher than under the NFRD.

For companies navigating this leaner but more complex landscape, tracking these rapid shifts in thresholds is a critical compliance task. Tools like C2P from Compliance & Risks are essential for monitoring the evolving Omnibus amendments across the EU and managing the specific reporting triggers for global organizational profiles.

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What Is Double Materiality?

Double materiality is one of the most important conceptual shifts introduced by CSRD. It requires companies to assess and report on sustainability matters from two distinct perspectives:

Financial materiality (outside-in): How do sustainability risks and opportunities affect the company’s financial performance and position? This is the traditional single materiality lens used in financial reporting.

Impact materiality (inside-out): How does the company’s activities, products, and supply chain affect people, communities, and the environment? This second lens is what makes the CSRD’s approach distinctive.

A company must report on a sustainability matter if it is material from either perspective, or both. The practical implication is that companies cannot limit their disclosure to only those ESG factors that affect financial performance. They must also disclose significant impacts their operations have on the broader world, even where those impacts may not yet translate into financial risk.

Conducting a proper double materiality assessment is a significant analytical undertaking that requires engagement with internal stakeholders, external stakeholders, and reference to the European Sustainability Reporting Standards to determine which topics require disclosure.

As part of the Omnibus I Amendment finalized in March 2026 (Directive (EU) 2026/470), the European Commission is working toward far-reaching amendments to the ESRS, set for adoption in September 2026. The amendments aim to reduce mandatory data points by approximately 60% and introduce additional reliefs. An in-depth analysis of the proposed changes is available at Compliance & Risks: EFRAG’s Proposed Simplification of ESRS.

In addition, the Omnibus I Amendment eliminated the introduction of sector-specific standards for high-risk sectors such as minerals, oil, agriculture, and textiles..

What Are the European Sustainability Reporting Standards (ESRS)?

The European Sustainability Reporting Standards (ESRS) define the specific content, structure, and metrics that CSRD-reporting companies must use. Developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission, the ESRS consist of cross-cutting standards and topic-specific standards covering environmental, social, and governance matters.

The cross-cutting standards establish general requirements and the disclosure framework that applies across all sustainability topics. Topic-specific standards cover areas including climate change, pollution, water and marine resources, biodiversity, circular economy, workforce conditions, affected communities, business conduct, and governance.

Not every standard is mandatory for every company. The double materiality assessment determines which topics are material for a given organization and therefore which ESRS standards require full disclosure. However, certain climate-related disclosures are subject to a mandatory reporting presumption, meaning companies must provide that information unless they can demonstrate it is not material.

The specificity of the ESRS requirements distinguishes the CSRD from earlier sustainability reporting frameworks. Rather than selecting metrics from a menu of voluntary standards, CSRD-reporting companies are reporting against a defined, auditable set of requirements.

What Does the CSRD Require Companies to Report?

CSRD reporting encompasses a broad range of sustainability disclosures, organized under the ESRS topic structure. Required disclosures include:

Governance: How does the company’s governance structure address sustainability risks and opportunities? What are board and management roles in sustainability oversight?

Strategy: How do sustainability matters affect the company’s business model and strategy? How is the company adapting its strategy to address material sustainability risks?

Impacts, risks, and opportunities: What are the company’s significant positive and negative impacts on people and the environment? What sustainability-related financial risks and opportunities has the company identified, and how is it managing them?

Metrics and targets: What specific quantitative data supports the disclosures? What targets has the company set, and what is its progress against them?

Value chain: The CSRD requires companies to report on sustainability matters not only within their direct operations but also across their upstream supply chains and downstream value chains, to the extent that information is available or reasonably obtainable.

The value chain component is particularly significant for global manufacturers. It extends the compliance obligation beyond the company’s own operations into supplier practices and product end-of-life impacts, areas that require both data collection infrastructure and supplier engagement programs.

Regarding value-chain disclosures, it is crucial to note that the Omnibus I Amendment (Directive (EU) 2026/470) has introduced a new “value-chain cap” to protect smaller companies. If a supplier in a reporting company’s value chain has fewer than 1,000 employees, the company is now prohibited from demanding data that exceeds the content of the voluntary standards for protected companies (to be adopted).

What Is the CSRD Reporting Timeline?

The CSRD is being phased in following the “Stop-the-Clock” delay (Regulation (EU) 2025/794) and the Omnibus I Content Amendment (March 2026):

Financial Year 2024 (reporting in 2025): Large public-interest entities (PIEs) and groups with more than 500 employees already subject to the predecessor NFRD. Member States have discretion to exempt those companies that will not meet the upcoming higher thresholds of 1,000 employees and €450 million annual turnover applicable from financial years beginning on or after January 1, 2027.

Financial Year 2026 (reporting in 2027): Entities and groups which exceed a net turnover of €450 million and an average of 1,000 employees during the financial year.

Financial Year 2028 (reporting in 2029): Non-EU parent companies generating more than €450 million in EU turnover, provided they have an EU subsidiary or branch that itself generates more than €200 million.

Note that these timelines reflect the current CSRD schedule following the Omnibus amendments. Individual EU member states may have implementation variations. Organizations should monitor regulatory developments actively.

CSRD vs. NFRD: What Changed?

The shift from NFRD to CSRD involves changes across several dimensions that matter for compliance teams:

Scope: The NFRD applied to approximately 11,700 large public-interest entities. The CSRD applies to over 50,000 companies in the EU, plus non-EU companies with significant EU revenue.

Standards: The NFRD allowed companies to reference a range of voluntary frameworks. CSRD mandates reporting under the ESRS, providing standardized, comparable disclosures.

Double materiality: The NFRD required consideration of financial materiality only. The CSRD requires assessment and disclosure of both financial materiality and impact materiality.

Assurance: The NFRD had no audit requirement. The CSRD now requires third-party limited assurance. The potential future move to reasonable assurance was eliminated by the Omnibus I Amendment.

Digitization: The CSRD requires sustainability information to be disclosed in XHTML format with digital tagging aligned with the European Single Electronic Format (ESEF), enabling machine-readable reporting.

Integration: CSRD sustainability disclosures must be included in the annual management report, not published as a separate sustainability report.

These changes collectively make the CSRD a significantly more demanding framework than what large companies have been reporting under, even those with mature voluntary sustainability disclosure programs.

How the CSRD Affects Non-EU Companies

The Omnibus I Amending Directive (Directive (EU) 2026/470) has changed the compliance landscape for non-EU organizations. While the reach of the CSRD remains global, it is now focused exclusively on the largest multinational players.

Direct applicability: A non-EU parent company is directly subject to CSRD obligations if it generates a net turnover in the EU of more than €450 million (for two consecutive years) and has at least one EU subsidiary or branch with a net turnover exceeding €200 million. This group will be required to report for financial years starting on or after January 1, 2028, using the specialized Non-EU Sustainability Reporting Standards (NESRS).

Value chain requirements: While data requests for non-EU companies from European customers will continue, they are now strictly limited by the Value Chain Cap. Large reporting entities are legally prohibited from demanding information from non-EU suppliers with fewer than 1,000 employees that exceeds the requirements of the voluntary standard for protected undertakings (to be adopted). This prevents the “trickle-down” of complex ESRS data points to mid-sized global suppliers.

For non-EU manufacturers selling into European markets or supplying EU-based companies, the practical implication is that CSRD-related data requests from customers will continue but are now constrained in scope and complexity.

Teams managing compliance across global markets can track CSRD developments through the Compliance & Risks blog and The Pulse Newsletter.

What Assurance Does CSRD Require?

CSRD introduces a mandatory assurance requirement for sustainability disclosures. Companies must obtain third-party assurance of their CSRD reports from an accredited independent auditor or assurance provider.

Under the Omnibus I Amendment, the level of scrutiny is now permanently set at limited assurance. This involves analytical procedures and inquiries to ensure the report is free from material misstatement. The original legislative intent to progress toward reasonable assurance (the higher, audit-grade standard used for financial reporting) has been eliminated.

Despite the permanent limited assurance model, the operational implications remain high. The data and methodologies underlying CSRD disclosures must be sufficiently documented and supported by robust internal controls to withstand external scrutiny. Because the revised ESRS (to be adopted in 2026) focus on a leaner set of approximately 320 high-impact data points, auditors will now be looking for higher precision in these specific metrics rather than broad, narrative-heavy disclosures. Organizations must ensure their data collection systems are audit-ready well before their first reporting cycle begins.

How to Prepare for CSRD Compliance

Organizations approaching CSRD compliance for the first time should work through several foundational steps:

Confirm applicability: Determine when the CSRD applies to your organization based on size, jurisdiction, and market presence.

Conduct a double materiality assessment: Identify which sustainability topics are material to your organization from both the financial materiality and impact materiality perspectives. This assessment drives all downstream reporting decisions.

Map to ESRS: For each material topic, understand the applicable ESRS disclosure requirements and identify what data you currently have, what data you need to collect, and what gaps exist in your current reporting infrastructure.

Engage your value chain: Develop a supplier data collection program that supports the value chain reporting obligations. This requires both technical infrastructure and supplier engagement.

Prepare for assurance: Assess your current data governance and internal controls against the requirements of a limited assurance engagement. Identify gaps and address them before your first assurance engagement.
Monitor regulatory developments: CSRD implementation continues to evolve, with the European Commission issuing guidance, member states implementing the directive. Active monitoring is essential for organizations building multi-year compliance programs.

FAQ

  • Does the CSRD apply to companies outside the EU?
    Yes, in two ways. First, non-EU parent companies are in scope of the CSRD if they generate a net EU turnover exceeding €450 million (up from €150 million) for two consecutive years and have at least one EU subsidiary or branch that generates more than €200 million in net turnover. These companies will begin reporting for financial years starting in 2028. Second, EU companies subject to CSRD reporting must report on their supply chain, which creates a practical data demand for non-EU suppliers, though this is now strictly limited by the new “value-chain cap” for suppliers with fewer than 1,000 employees.
  • What is double materiality under the CSRD?
    Double materiality requires companies to assess sustainability matters from two angles: how they affect the company’s financial performance (financial materiality) and how the company’s operations and products affect people and the environment (impact materiality). A topic is reportable under the CSRD if it is material from either or both perspectives.
  • What are the ESRS?
    The European Sustainability Reporting Standards (ESRS) are the mandatory reporting standards that CSRD-scope companies must follow. Developed by EFRAG, they cover cross-cutting requirements and topic-specific standards across environmental, social, and governance matters. Unlike voluntary frameworks such as GRI or SASB, ESRS reporting is legally required and subject to third-party assurance.
  • When does CSRD reporting begin for large companies?
    Large EU companies meeting the new thresholds (1,000 employees and €450 million turnover) begin CSRD reporting for financial year 2026, with reports published in 2027. Companies already subject to NFRD began CSRD reporting for financial year 2024. Non-EU companies with significant EU revenue begin reporting for financial years starting in 2028.
  • How is the CSRD different from voluntary ESG reporting frameworks?
    CSRD is a mandatory legal requirement, not a voluntary framework. It mandates specific disclosures under ESRS, requires third-party assurance, must be integrated into the annual management report, and requires digital tagging in a standardized format. Voluntary frameworks like GRI or SASB can inform a CSRD compliance program but do not substitute for it.
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