CSRD: A Comprehensive Guide to Sustainability Reporting in the EU

The core objective of the CSRD is to greatly expand and standardize the disclosure of material sustainability information by companies subject to EU jurisdiction. It replaces the existing Non-Financial Reporting Directive (NFRD) covering a significantly larger group of companies (in the range of 50,000) and requiring a more expansive range of data (upwards of 1,000 distinct reporting data points). 

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CSRD’s objectives:

1. Improve the availability of detailed sustainability information for stakeholders, including investors, policymakers and the public.
2. Greatly improve the ability of investors to assess sustainability-related financial risks and opportunities, which is currently very difficult based on the fragmented nature of data that companies disclose.
3. Enable the public, and especially consumers, to make more informed decisions in relation to companies and their products.
4. Enable companies to more easily track and improve performance on sustainability-related issues, from climate change to employee safety.

CSRD compliance deadlines depend on a company’s size, net turnover, balance sheet, EU business presence, and whether its stock trades on a regulated EU market. The specific timeline varies based on these factors and the company’s unique situation.
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Deadlines are staggered over several years:

• Existing NFRD companies
  • Companies with 500+ employees, meeting other size factors, and classified as “public interest entities”
  • Must comply starting from 2025, with reporting based on their 2024 financial year
• Other large companies
  • Companies with 250+ employees, €50 million in turnover, or €25 million in total assets
  • Must comply starting in 2026, reporting on their 2025 financial year
• Listed SMEs
  • Small and medium-sized enterprises
  • Must comply by 2027, reporting on their 2026 financial year
• Non-EU Parent Companies
  • Parents with EU subsidiaries or branches meeting certain criteria
• Must comply by 2029, reporting on their 2028 financial year

The CSRD impacts a wide range of businesses operating inside and outside of the EU. This includes: 

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• Virtually all companies with securities (i.e., stock) trading on an EU market, whether the company is domiciled in the EU or not. The only exception to this is for listed micro-enterprises
• Large private EU companies meeting certain size criteria, even if they are not publicly traded
• Non-EU companies and groups that are not themselves otherwise subject to the CSRD, but which own a subsidiary that is subject to the CSRD or have a sufficiently large EU branch

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Find more details below.

The CSRD requires companies to report sustainability information across 12 standards, including two general standards and ten topical standards spanning the areas of:

• Environment (climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use and circular economy) 
• Social (own workforce, workers in the value chain, affected communities, consumers and end-users)
• Governance (business conduct)

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Double materiality assessment 

A critical starting point in the reporting journey is the materiality assessment. The CSRD requires companies to report material information, considering from both the perspective of financial materiality and impact materiality.

Bringing your business into compliance with the CSRD has a range of benefits beyond simply meeting a new regulatory mandate. Importantly, it will enable your business to understand its ESG impacts and opportunities for improvement, better manage sustainability-related risks, and attract capital with improved performance over time. 

For these reasons, many companies are working to comply with the CSRD well in advance of upcoming deadlines, while others are implementing CSRD reporting systems even though the CSRD is unlikely to apply to their business for the foreseeable future.

Benefits of Early or Voluntary Compliance:

Taking a proactive approach to CSRD compliance can offer several advantages:

• Identify and address sustainability risks
  • By initiating the compliance process early, you can uncover potential compliance risks within your operations and take steps to mitigate them. 
• Gain a competitive advantage: 
  • By starting early, companies can refine their sustainability practices and identify opportunities for innovation and cost savings. 
  • This could involve exploring new sustainable business models, optimizing resource efficiency or developing more sustainable products and services. 
• Simplify the compliance journey: 
  • Early action allows companies to spread out the workload and learning curve associated with CSRD implementation. 
  • This can make the overall compliance process easier when deadlines approach

Every company that must comply with the CSRD will face challenges, from businesses that have been reporting ESG information for two decades to privately held companies that have never prepared a sustainability report. This is because the CSRD represents a new standardized paradigm for disclosure that no company to date has reported against.
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Meeting CSRD obligations will take significant time and effort, as it requires companies to collect, organize, and assess a substantial amount of data, and then report that data following a defined format. 
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While it’s technically feasible to carry out this process manually and in-house, dedicated software solutions and expert support can significantly improve the process, especially when implementing internal reporting and data collection frameworks for the first time. Discover more on CSRD compliance software below.

The CSRD presents both challenges and opportunities for companies. This section provides a roadmap to navigate the compliance process:

• Conduct a gap analysis
  • Begin by assessing your current sustainability reporting practices against the CSRD requirements.
• Implement data management systems
  • Robust data collection and management systems are crucial for accurate and efficient CSRD reporting. Invest in the necessary tools and processes to track relevant sustainability metrics across your operations.
• Develop a reporting process
  • Define a clear and well-documented reporting process. 
  • This includes establishing procedures for data gathering, verification and report assembly. 
  • Ensure the process allows for timely reporting and integrates with your existing financial reporting systems.

• Start reporting
  • Whether doing it in-house or by using trusted third-party CSRD compliance software, reporting should start when qualifying businesses are required to begin to avoid penalties.

The CSRD mandates disclosure of company ESG information at a level and scale that is entirely different from the reporting landscape that preceded it. The comprehensive nature of CSRD reporting can be daunting for companies, especially those new to sustainability reporting. 

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Here’s how CSRD compliance software can streamline the process:

• Streamlined data collection and management
  • CSRD compliance software can help automate data collection from various sources within your organization, ensuring accuracy and consistency. 
  • This can significantly reduce the manual effort and time required for data management.
• Enhanced reporting efficiency
  • CSRD software solutions often offer pre-built templates and reporting tools that align with the CSRD requirements. 
  • This can save time and resources compared to building reports from scratch.
• Improved collaboration and communication
  • Features like centralized data repositories and workflow management tools can facilitate collaboration between the different departments involved in the CSRD reporting process.
• Risk management and audit support
  • Some software offers functionalities for identifying and managing sustainability-related risks. 
  • Additionally, features like audit trails and data verification tools can simplify the audit process.

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Choosing the Right CSRD Compliance Software:

The market for sustainability solutions has been stratifying since the entry into force of the CSRD, with some solutions that continue to provide little to no CSRD-focused support. By incorporating CSRD compliance software into your strategy, you can significantly enhance efficiency, accuracy, and transparency in your sustainability reporting journey.

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Consider these factors when choosing the right one for your company:

• Company size and reporting complexity
  • The level of functionality and features needed will vary depending on the size and complexity of your business and its sustainability reporting requirements.
• Scalability
  • Choose a software solution that can scale with your growing needs as your sustainability reporting practices evolve.
• Integration capabilities
  • Ensure the software integrates seamlessly with your existing data management and financial reporting systems.
• Security
  • Select a software provider with robust security measures to protect sensitive business and sustainability data.