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Writer's pictureGokhan Gureser

Understanding the EU Corporate Sustainability Reporting Directive (CSRD): Requirements of the CSRD, ESRS Standards, and Compliance for Businesses 


Three European Union flags waving in front of the EU headquarters building against a cloudy sky
European Union flags flying outside the EU headquarters, representing unity and governance

What is the EU Corporate Sustainability Reporting Directive (CSRD)? 


In an era where sustainability is central to business operations, organizations are under increasing pressure to demonstrate their commitment to environmental, social, and governance (ESG) principles. The European Union’s Corporate Sustainability Reporting Directive (CSRD) marks a transformative step in this direction, introducing rigorous requirements for ESG reporting to promote transparency, accountability, and comparability across businesses operating in the EU.


The CSRD builds on its predecessor, the Non-Financial Reporting Directive (NFRD), and an essential part of European Green Deal, but with significant expansions and more stringent standards. Unlike the NFRD, which applied to a limited number of large companies, the CSRD extends its scope to cover a broader range of businesses, including both EU-based and certain non-EU entities. This means that even smaller firms and international companies with significant operations in the EU are now required to disclose detailed sustainability metrics. 


To ensure consistency and comparability in reporting, the CSRD mandates the use of European Sustainability Reporting Standards (ESRS), which outline specific metrics and methodologies for assessing and disclosing ESG information in European Commission. These standards provide a structured framework that companies must follow, allowing stakeholders to accurately assess and compare sustainability performance across industries.


In this guide, we’ll explore the essentials of CSRD compliance, providing valuable insights and practical advice to help your business meet these new standards. Whether you’re a large multinational or a small to medium-sized enterprise (SME), understanding the requirements of the CSRD is essential for staying competitive and demonstrating a genuine commitment to sustainable practices. 


Who Needs to Comply with the EU Corporate Sustainability Reporting Directive? 


The Corporate Sustainability Reporting Directive (CSRD) broadens the scope of sustainability reporting requirements to include a diverse range of businesses within and outside the EU, impacting over 50,000 companies. These organizations represent a significant portion of economic activity across the European Economic Area (EEA), with approximately 75% of business activity now under scrutiny for comprehensive ESG reporting.

EU-Based Companies.


For companies based in the EU, the CSRD applies to all publicly listed firms, except for micro-enterprises. Private companies within the EU are also required to comply if they meet the threshold for being classified as "large." A company is deemed "large" if it meets at least two of these criteria: 


Has 250 or more employees Generates annual revenues of €50 million or more Holds a balance sheet total of €25 million or more These criteria ensure that substantial and economically impactful entities within the EU are included under the CSRD’s framework, fostering a consistent and robust approach to sustainability reporting. 


CSRD Compliance for Non-EU Companies: What You Need to Know 


The CSRD also reaches beyond the EU’s borders, impacting non-EU companies with a notable presence in the EU. If a non-EU parent company’s subsidiaries or branches within the EU meet the "large" company criteria, they must also comply with CSRD requirements. Some non-EU organizations may choose to implement CSRD-compliant reporting on a global level to provide a unified view of their sustainability performance.


Looking ahead, the CSRD will require consolidated reporting from non-EU parent companies to report that generate €150 million or more in EU revenue annually. To be covered under this rule, the non-EU company must have a subsidiary or branch within the EU that generates at least €40 million in EU revenue or is publicly listed within the EU. This measure ensures that substantial non-EU businesses with a strong economic footprint in the EU maintain transparency regarding their environmental and social impacts.


The CSRD’s extensive scope reflects the EU’s commitment to holding both domestic and international organizations accountable for sustainable practices, climate change, establishing a global benchmark for corporate sustainability transparency.  


How to Comply with CSRD: Key Steps for EU and Non-EU Companies 


CSRD Assurance involves an independent verification process to confirm the accuracy and credibility of a company's sustainability data. This assurance process is essential for fostering trust among stakeholders, including investors and the public, by offering a reliable evaluation of a company’s ESG performance. For companies falling under the scope of the CSRD, an assurance review of their sustainability reports will be mandatory. This assurance typically occurs after the reporting period concludes but before the final report is published, allowing ample time for a detailed review of the data, methodologies, and assumptions utilized.


CSRD Assurance is available at two levels: limited assurance and reasonable assurance. Limited assurance offers moderate confidence that the sustainability disclosures are free from significant errors, involving a lighter review process. On the other hand, reasonable assurance involves a more in-depth examination, with extensive testing and evidence gathering, giving a higher degree of confidence in the data’s accuracy. Large companies or those with substantial sustainability impacts may choose reasonable assurance to signal a robust commitment to transparency and accurate reporting. 


Understanding Double Materiality in the CSRD Framework 


One of the defining aspects of the CSRD is its emphasis on double materiality. This concept means companies must report on how sustainability issues affect their business and how their operations impact the environment and society. With this dual perspective, the CSRD aims to create a more comprehensive picture of a company’s sustainability efforts and their real-world effects. 


ESRS Standards and Their Role in CSRD Compliance 


The European Sustainability Reporting Standards (ESRS) play a central role in helping companies report and comply with the Corporate Sustainability Reporting Directive (CSRD). These standards provide clear guidelines on what and how to report, ensuring that sustainability information is consistent, comparable, and meaningful across the board.


ESRS is essentially a structured framework developed specifically by EFRAG (European Financial Reporting Advisory Group),  for the EU market to enhance transparency around environmental, social, and governance (ESG) issues. With the CSRD bringing more companies into the scope of mandatory sustainability reporting, ESRS offers the tools they need to meet these new requirements. It defines specific reporting metrics and methodologies, so companies know exactly what data to collect and disclose, whether it’s about greenhouse gas emissions, social impact, or governance practices. 


The standards are designed to support what the CSRD calls "double materiality." This concept means that companies should report on both how sustainability issues affect their business (financial materiality) and how their operations impact the environment and society (impact materiality). This dual perspective gives stakeholders, from investors to policymakers, a complete picture of a company's sustainability efforts and real-world impact.

For companies, ESRS standards provide a practical pathway to CSRD compliance. They take the guesswork out of reporting by laying out clear expectations and creating a common language for sustainability information. By following ESRS, businesses can align with the CSRD's high standards, improve their sustainability transparency, and ultimately build greater trust with their stakeholders. 


Navigating the CSRD Reporting Framework: A Guide to Requirements 


The Corporate Sustainability Reporting Directive (CSRD) establishes detailed reporting requirements that go beyond the previous Non-Financial Reporting Directive (NFRD), providing clearer guidance and a more rigorous framework. Under the CSRD, companies are required to report on a wide range of sustainability issues, including environmental impacts, social responsibilities, human rights, anti-corruption measures, and diversity at the board level.


The CSRD mandates disclosure in several critical areas:


Strategy: Companies must outline their overall sustainability strategy, explaining how they plan to address major environmental, social, and governance (ESG) challenges. This section should demonstrate how sustainability is integrated into the company’s core business operations and strategic vision.


Targets: Organizations are required to set and disclose measurable sustainability goals. These targets should align with the company's long-term sustainability objectives, allowing for ongoing tracking and assessment of progress. This includes metrics that reflect the organization’s dedication to reducing its environmental footprint and enhancing its social impact.


Board and Management: The CSRD emphasizes the active role of a company’s board and executive management in overseeing sustainability initiatives. Companies must report how these leadership teams are involved in setting and monitoring sustainability policies, demonstrating accountability at the highest levels of governance.


Principal Adverse Impacts: Companies are also required to disclose their principal adverse impacts (PAIs) on both the environment and society. This includes identifying potential risks and negative effects throughout their operations and value chains, addressing concerns related to biodiversity, emissions, and social well-being. This aligns with the Sustainable Finance Disclosure Regulation (SFDR), which promotes transparency regarding the negative impacts of business activities.


These requirements aim to create a robust framework that encourages transparency and accountability in corporate sustainability efforts. By meeting these CSRD standards, companies not only align with regulatory expectations but also demonstrate a commitment to sustainable business practices, helping build trust with stakeholders and contributing to a sustainable future.


Preparing for the CSRD: Disclose New Corporate CSRD Reporting Requirements  


Part 1: Understanding and Assessing the Requirements 


Step 1: Familiarize Yourself with the CSRD

Gain a thorough understanding of the CSRD’s scope, including its provisions, reporting obligations, and disclosure requirements. Review the directive, official EU guidelines, and any relevant documents to fully grasp the expectations and commitments necessary for compliance.


Step 2: Evaluate Current Reporting Practices:

Assess your company’s existing sustainability reporting processes to identify any gaps in alignment with CSRD standards. Pinpoint areas where additional data collection, enhanced methodologies, or improved disclosures may be required to meet the new regulatory expectations.


Step 3: Conduct a Materiality Assessment

Perform a materiality assessment to determine the most significant sustainability issues for your organization and stakeholders. This assessment will focus on identifying the ESG topics that hold the greatest importance for your business strategy, ensuring that relevant information is prioritized in your CSRD reporting.


Part 2: Strengthening Data Collection and Alignment


Step 4: Establish Robust Data Collection Systems

Develop systems and processes to accurately collect, manage, and validate sustainability data. Implement methods to gather data from various departments, ensuring accuracy, consistency, and reliability. Streamlining this process is crucial for high-quality, compliant reporting.


Step 5: Align with Existing Reporting Standards

Review recognized reporting standards such as the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) to align your practices. Integrating these standards with your approach will help ensure CSRD compliance and provide a consistent framework for your sustainability disclosures.


Step 6: Engage with Key Stakeholders

Consult with both internal and external stakeholders to understand their perspectives and expectations regarding sustainability reporting. Gathering insights from your stakeholders will enhance the relevance of your report, improve transparency, and strengthen relationships.


Part 3: Building Internal Expertise and Capacity


Step 7: Invest in Training and Capacity Building

Develop internal expertise in sustainability reporting by training staff members involved in data collection and reporting. Providing them with the necessary resources and knowledge will ensure that your team is equipped to handle CSRD requirements effectively.


Step 8: Prepare for Assurance and Auditing Needs

Familiarize yourself with the assurance and auditing requirements associated with CSRD compliance. Determine if your organization has the resources to meet these needs or if engaging external assurance providers will be beneficial to add credibility to your sustainability reports.


Step 9: Stay Updated on Regulatory Changes

Monitor updates from EU regulatory authorities regarding CSRD requirements. As the regulatory landscape may evolve, staying informed about changes will ensure your reporting practices remain compliant and responsive to any adjustments.


Part 4: Implementing and Monitoring Your CSRD Strategy 


Step 10: Develop a Clear Implementation Plan

Create a structured plan for implementing CSRD compliance, with timelines, designated responsibilities, and measurable milestones. A well-organized plan allows for a smooth transition to the new reporting standards and reduces the risk of last-minute challenges.


Step 11: Start Early to Allow Sufficient Preparation

Begin preparations early to allow ample time for data collection, internal coordination, and refining reporting practices. Early action ensures a comprehensive and high-quality report, positioning your company as proactive in meeting CSRD standards.


Step 12: Review and Adjust Based on Feedback

Once your initial CSRD-compliant report is published, review it with a critical eye, gathering feedback from stakeholders and industry experts. Use this feedback to make necessary adjustments, enhancing the quality and transparency of future reports.


Following this structured approach will provide your organization with a solid foundation for CSRD compliance, helping you to meet regulatory expectations while fostering trust with stakeholders and advancing your commitment to sustainability.


EU Corporate Sustainability Reporting: Aligning with CSRD Requirements using Carbonze 


Carbonze is a comprehensive carbon and ESG management platform designed to help businesses achieve their sustainability objectives effectively and efficiently. 


With Carbonze, you will: 


  • Perform a Complete Carbon Footprint Analysis: Gain a deep understanding of your organization's carbon impact across all activities. 

  • Monitor and Optimize Supply Chain Sustainability: Track your supply chain in real-time to ensure all partners meet your sustainability standards. 

  • Achieve Compliance with CSRD and ESG Regulations Swiftly: Meet essential CSRD and ESG reporting requirements in weeks, not months.

  • Enhance Data Reliability with Third-Party Verification: Ensure your sustainability metrics are credible and verified before public disclosure, building trust with stakeholders. 


Carbonze enables you to manage, report, and enhance your sustainability performance—all from one powerful platform. 

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