CSRD & ESRS – Navigating the Future of Sustainability Reporting

Corporate sustainability reporting is undergoing a major transformation, driven by the European Union’s Corporate Sustainability Reporting Directive (CSRD) and its accompanying European Sustainability Reporting Standards (ESRS). These new regulations mark a turning point, pushing companies beyond voluntary sustainability commitments into mandatory, standardized ESG disclosures.

For businesses operating in or connected to the EU market, understanding CSRD and ESRS is no longer optional—it’s essential. These frameworks are designed to ensure companies provide reliable, comparable, and transparent sustainability data, helping stakeholders make informed decisions. Whether you're a multinational corporation or a non-EU business with European operations, these requirements will shape the way you report on ESG (Environmental, Social, and Governance) topics.

A Shift from Voluntary to Mandatory ESG Reporting

For years, many companies have embraced Corporate Social Responsibility (CSR) as a way to showcase their commitment to sustainability. However, CSR initiatives have traditionally been voluntary, leading to inconsistencies in how businesses measure and communicate their impact.

The CSRD changes this landscape by making sustainability reporting as structured and mandatory as financial reporting. It replaces the Non-Financial Reporting Directive (NFRD) and significantly expands the number of companies required to disclose ESG data. Companies falling under the directive must integrate their sustainability reports into their annual management reports, ensuring external assurance and accountability.

To bring uniformity to sustainability disclosures, the European Sustainability Reporting Standards (ESRS) serve as the reporting framework under CSRD. These standards dictate how companies should report on sustainability matters, covering key environmental, social, and governance topics.

How CSRD and ESRS Impact Businesses

The CSRD applies to a broad range of companies, including:

• Large EU companies (covering fiscal year 2025) meeting at least two of the following criteria: average annual workforce of 250 employees, balance sheet of €25 million and net turnover of €50 million.
• Listed SMEs, with some transitional measures allowing them time to adjust.
• Non-EU companies generating €150M+ in the EU, provided they have at least one subsidiary or branch in the region.

The main factors that determine whether an enterprise qualifies as an SME are its staff headcount and either its turnover or total balance sheet. To be classified as an SME, a company must have fewer than 250 employees, a turnover of less than 50 million, and/or a total balance sheet of under 43 million. The roll-out is phased over multiple years and follows a strict timeline.

Companies covered by CSRD must follow ESRS to conduct a “double materiality assessment”, a crucial requirement ensuring organizations evaluate sustainability from two perspectives:

• Impact materiality – How the company’s operations affect society and the environment.
• Financial materiality – How sustainability risks and opportunities impact the company’s financial performance.