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Navigating the Corporate Sustainability Reporting Directive (CSRD) Landscape

Written by Meghna Jain, Consultant.


The Corporate Sustainability Reporting Directive (CSRD) entered into force in the European Union (EU) on 5th January 2023, signalling a pivotal moment in the realm of corporate sustainability reporting. Replacing its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD marks a significant shift towards heightened reporting requirements on the companies falling within its scope. This directive not only broadens the spectrum of sustainability reporting but also elevates its depth and rigor, covering categories ranging from carbon emissions to pollution, water management, waste disposal, and biodiversity. The CSRD’s technical standards known as the European Sustainability Reporting Standards (ESRS) lay out what and how the companies need to disclose. Importantly, disclosures pertaining to these standards are mandated to feature prominently in annual reports alongside financial statements, subject to stringent audit scrutiny to ensure credibility and transparency.  

The CSRD presents a unique opportunity for companies to integrate Environmental, Social, and Governance (ESG) considerations into their fundamental business strategies. By fostering greater transparency, the aim of CSRD is to empower stakeholders including investors, analysts, consumers, and the wider public, to assess EU company’s ESG performance and its consequential business impacts and risks.  

The proposed directive will also entail a dramatic increase in the number of companies subject to the EU sustainability reporting requirements, from the 11,000 covered by the NFRD to the nearly 50,000, that will be covered by the CSRD. 

Scope of CSRD

Large Companies: All large EU-stock listed companies, governed by EU Law or established in EU member states, meeting at two of the following three conditions will have to comply with the CSRD: 

  • €40 million in net turnover 

  • €20 million in assets 

  • 250 or more employees 

In addition, non-EU companies that have a turnover of above €150 million in the EU will also have to comply. 

Small and Medium Enterprises: From the 1st of January 2026 SMEs (small-to-medium-sized companies) with securities listed on regulated markets- have to start reporting CSRD-compliant. However, the listed SMEs have simpler standards for reporting than large companies. Non-listed SMEs can choose if they want to use the CSRD’s reporting standards voluntarily. The reporting standards for SMEs will be adopted on the 30th of June 2024. 

CSRD Timeline

The European Commission adopted the CSRD in late 2022. The rules will start applying between 2024 and 2028: 

May 2022 

EFRAG opened the first draft ESRS standards for public comment 

June 2022 

Members of the European Parliament (MEPs) and EU governments confirmed a provisional agreement on CSRD terms and implementation 

Sept 2022 

The European Financial Reporting Advisory Group (EFRAG) sends the first complete version of the ESRS reporting standards to the EU Commission 

Nov 2022 

The EU Commission formally approves and adopts a first set of sustainability reporting and disclosure standards. The CSRD was approved by the EU Parliament on November 10th, and approved by the EU Council on November 28th, 2022 

Dec 2022 

EU Member States adopt the EU Directive into law and publication in the EU Official Journal. It will enter into force 20 days after publication and its provisions will have to integrated into member states’ national laws after 18 months 


The Corporate Sustainability Reporting Directive (CSRD) takes effect for eligible entities in corporate fiscal year 2024 


From 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the Non-Financial Reporting Directive (NFRD), with reports due in 2025. 


From 1 January 2025 for large companies that are not presently subject to the NFRD (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with reports due in 2026 


From 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt-out until 2028 

CSRD Requirements

The CSRD directs the European Financial Reporting Advisory Group (EFRAG) to establish a reporting framework called the European Sustainability Reporting Standards (ESRS). ESRS were developed to align with the Task Force on Climate-related Financial Disclosures (TCFD) and Global Reporting Index (GRI).  

In total, the 12 chapters of the ESRS contain over 80 disclosures and over 1000 both quantitative and qualitative data points related to those disclosures. The framework includes Cross-cutting standards for reporting, required of all organizations governed by the CSRD, while the Topical standards for reporting - environmental, social and governance are mandatory for only those organizations that consider them material. Below is the summary of the standards: 


ESRS Standards 

Related Requirements (not limited to) 


Cross Cutting Standards 

ESRS 1: 

General Requirements 


Double Materiality Assessment 


Time Horizons 



ESG Risks in value and supply chains 


Sustainability policies 


Impact, Risks and Opportunities 

Due diligence 


ESRS 2: 

General Disclosures 

Target Metrics and Transition Plans 


Metrics and Targets 

Identify Sustainability Risks 


Third Party Auditing of report 





Climate Change 

Scope 1, 2, 3 emissions 


Climate related risks 


Carbon Pricing 


Energy mixes 


Transition Plan 


ESRS E2: Pollution 

Pollution of air, soil, and water 


ESRS E3:  

Water and Marine Resources 

Water Consumption 


Water recycled 


Impact on marine ecosystems 


ESRS E4: Biodiversity and Ecosystems 

Impact on natural environment 


Transition plan to address diversity loss 



Resource Use and Circular Economy 

Circular material resource flows 


Types of waste generated 




Own Workforce 

Employee Location, gender 


Child Labor policies 


Alignment with the UN Guiding Principles on Business and Human Rights 



Value Chain 

Policies and processes related to upstream workers 



Affected Communities 

Company’s impact on affected communities 


Policies to address concerns 



Consumers and End-Users 

Company’s impact on end users 


Policies to address concerns 






Business Conduct 

Qualitative and Quantitative disclosures 



   Mandatory for all companies
  Mandatory if material


EFRAG provides a required structure for the report, which they call the “sustainability statement,” to help facilitate comparability of reports. The structure is as follows: 

  1. General information 
  2. Environmental information 
  3. Social information 
  4. Governance information 

Under CSRD, companies need to include information about their sustainability efforts as a separate section in their regular management reports. This information should be submitted electronically in a specific format called XHTML, following the European Single Electronic Format (ESEF) regulation. It will then be uploaded to a new database called the European Single Access Point (ESAP), making it easily accessible to everyone.  

Key Challenges Faced by Institutions

Implementing robust CSRD practices presents several challenges for institutions: 

  • Understanding the Requirements: Compliance with the CSRD, necessitates adherence to the EU Sustainability Reporting Standards (ESRS). With over 80 disclosures available, each with its own set of guidelines, indicators, and reporting requirements, navigating through these standards can be daunting for institutions. 

  • Double Materiality Assessment: One of the main differences of the CSRD from current legislation is the requirement of a materiality analysis using a double materiality approach. This assessment is notably complex as it requires companies to identify both their impacts on people and the environment (impact materiality), as well as sustainability matters that financially impact the organization (financial materiality) across short, medium, and long terms and across operations. 

  • Data Collection and Measurement: Gathering and collating reliable sustainability data across various departments, operations, and supply chains can prove to be a multifaceted endeavour. 

  • Reporting Standardization: Integrating ESRS reporting requirements with the existing reporting frameworks, management systems, and processes, such as management reporting, Pillar 3 reporting, TCFD reporting, financial reporting, risk management, and strategic planning, presents a challenge for institutions. Ensuring alignment and consistency across different reporting frameworks and initiatives necessitates careful coordination and collaboration across various departments and functions. 

  • Resource Constraints: Allocating sufficient resources, including financial, human, and technological resources, to CSR reporting poses a challenge for organizations, particularly smaller ones. 

  • Complex Stakeholder Expectations: Balancing the diverse expectations of stakeholders while maintaining transparency and authenticity poses a significant challenge. 

  • Mandatory Assurance: Companies reporting under the CSRD will need to obtain limited assurance on their sustainability information. While not as stringent as a financial audit, this assurance requires collaboration with an independent organization or auditor experienced in sustainability reporting to review the data for accuracy and reliability. 

The Corporate Sustainability Reporting Directive makes it mandatory to report on sustainability indicators as defined by the ESRS, but adjusting to the new requirements is not easy, and firms have to start preparing now. 

Steps for Adopting the CSRD’s Requirements

1. Scoping requirements

Conduct a legal entity analysis to ascertain which entities within the organization fall under the purview of the CSRD. Determine the most suitable reporting strategy based on business needs, such as reporting at the group level or individual in-scope legal entity level. This decision should be tailored to the specific circumstances of the business.

2. Governance Structure Establishment

Establishing a clear governance structure with defined roles and responsibilities for the management body is paramount at every stage. The board and senior management should bear the responsibility of overseeing sustainability issues and evaluating potential sustainability and climate risks in alignment with the company's overall strategy. Defining the management's roles, structure, and processes related to sustainability, including committees dedicated to sustainability matters, resource allocation, and disclosure, is essential for implementing action plans, data collection, tracking sustainability Key Performance Indicators (KPIs), and ensuring effective oversight.

3. Double Materiality Assessment

Before commencing data, collection or preparing the initial report, it is imperative to conduct a "Materiality Assessment" to determine sustainability goals, targets, and priorities that align with CSRD requirements and compliance.

4. Gap Analysis

Evaluate the organization's adherence to the European Sustainability Reporting Standards (ESRS) requirements based on the Double Materiality Assessment findings. Use this assessment as the foundation for an implementation plan outlining practical changes necessary to align with regulatory standards.

5. Data Availability and Time Horizon

Considerations such as IT systems and controls organization, the number of required reports, operational homogeneity, subsidiary targets and goals, and the relative size of in-scope versus out-of-scope entities are crucial for assessing data availability and determining the appropriate time horizon for reporting.

6. Limited Third-Party Assurance

Organizations reporting under the CSRD will be required to seek limited assurance (third party) on their sustainability information from a neutral, trusted, and experienced third party who reviews the data.


The Double Materiality Assessment in CSRD

According to the latest ESRS guidelines, all companies are required to report general disclosures. In relation to topical standards, companies are only obligated to report on those standards deemed material. However, the process by which companies determine the materiality of standards, whether they are material or immaterial, must be clearly outlined and assured in the general disclosures. The CSRD stipulates that materiality must be assessed through a "double materiality" lens, considering both impact and financial materiality. Consequently, the majority of organizations will undertake a double materiality assessment as an initial step towards CSRD compliance.

Double materiality assessment involves evaluating matters from two perspectives:


Impact Perspective

Financial Perspective

An ‘inside-out’ impact perspective considers the material actual or potential, positive or negative impacts of the organization on people or the environment over the short-, medium-, and long-term. These impacts encompass the organization's own operations, as well as its upstream and downstream value chain, including its products and services, and its business relationships, irrespective of their direct financial implications Environmental factors may involve assessing and disclosing climate-related risks, as the financial institution is faced with the implications of a changing climate on their portfolios. Social considerations include the treatment of policyholders, diversity and inclusion efforts, social inequality, and community development. Economic dimensions extend to the institution’s contribution to local economies and overall societal well-being.

An ‘outside-in’ financial perspective assesses whether a sustainability matter triggers or is expected to trigger significant financial effects on the organization. This occurs when a sustainability issue generates, or may generate, risks or opportunities that materially influence the organization's development, financial position, financial performance, cash flows, access to finance, or cost of capital over the short-, medium-, or long-term. For example, regulatory changes related to carbon emissions may lead to increased compliance costs or reduced market access for certain products or services. Moreover, environmental, and social risks, such as climate change risks, supply chain disruptions, reputational damage, or legal liabilities, can pose significant threats to the institution's financial stability and resilience.


The diagram below illustrates the circular nature of double materiality, highlighting the interconnection between financial materiality and impact materiality:



A topic is deemed material if its impact is significant from either or both perspectives of Double Materiality. Conducting a double materiality assessment is pivotal for laying the groundwork for strategic ESG planning, budget allocation, risk management, and reporting. This assessment aids in identifying and prioritizing climate-related impacts that could potentially influence a company's performance, value creation, reputation, and legal standing. Moreover, the application of double materiality can empower companies to refine their risk management strategies, bolster business resilience, and position themselves more competitively in a market increasingly emphasizing sustainable and socially responsible practices.

Matters deemed material under one or both of these standards must be disclosed. Importantly, companies do not make these determinations in isolation, as materiality assessments are subject to external, third-party assurance in accordance with the CSRD. Additionally, when certain matters are deemed immaterial, companies are required to explicitly state such determinations and provide a comprehensive analysis in their reports.

Steps to Conduct a Double Materiality Assessment

Stage 1: Stakeholder Engagement Strategy

This step entails understanding the fundamental principles and reporting obligations inherent in the Double Materiality Assessment process, examining the interplay between a company's operations and the external environment, analysing the company’s activities, business model, business relationships, and value chain (both upstream and downstream). Additionally, it necessitates establishing time horizons and identifying key stakeholders. Stakeholders serve as vital sources of insights into the material issues affecting the company and the broader community. Engage in substantive dialogue with stakeholders, encompassing investors, customers, employees, and communities, to grasp their expectations and concerns regarding the company's sustainability impacts.

Stage 2: Scoping the Assessment

Utilizing the scoping assessment conducted within the framework of the Corporate Sustainability Reporting Directive (CSRD), we pinpoint potential environmental, social, and economic impacts linked to the company's business activities, spanning both upstream and downstream segments of the value chain. This phase is pivotal for directing efforts towards areas most pertinent to the company and its stakeholders. An effective starting point involves referencing the list of sustainability matters provided by the European Sustainability Reporting Standards (ESRS). Additionally, companies must identify any other pertinent matters relevant to their operations, irrespective of whether explicitly outlined in the ESRS, such as the company's tax policy.

Stage 3: Identification of Material Impacts, Risk and Opportunities

This stage involves meticulously identifying material sustainability matters through extensive consultations with stakeholders. It emphasizes evaluating the impact, risks, and opportunities associated with each matter. Assess sustainability risks and opportunities across short, medium, and long terms, considering factors like regulatory changes and societal expectations. ESRS mandates defining double materiality matters in terms of impacts, risks, and opportunities. While ESRS sets the level of detail, additional granular analysis may be needed. This process helps companies understand their sustainability landscape, fortify risk management, and uncover strategic value creation opportunities. This step might need involvement from a range of experts which can identify events that can either present a risk or an opportunity for the institution, while not losing focus on the bigger picture.

Develop a materiality matrix to visually depict the aggregated identified issues. Utilize this matrix to plot the significance of each issue, considering both its impact on the company's operations and its significance to stakeholders. This prioritization tool aids in identifying the most material sustainability issues necessitating detailed disclosure in adherence to the double materiality principle. While a matrix serves as a conventional means of gauging issue significance, alternative approaches are equally valid if they effectively capture the pertinent considerations.

Stage 4: Data Collection:

Formulate a comprehensive data collection strategy tailored to the company's needs. Collect both quantitative and qualitative data pertinent to the identified material issues, facilitating a comprehensive assessment of the company's sustainability performance. This step is essential for upholding the credibility and precision of materiality assessment.

Stage 5: Assessment of the Materiality of the Impacts, Risks and Opportunities

This step represents the culmination of the aggregated materiality assessment, encompassing both Impact Materiality Assessment and Financial Materiality Assessment.

  1. Impact Materiality Assessment: The company should apply objective criteria, employing appropriate quantitative and qualitative thresholds to gauge the materiality of current and potential impacts, which are evaluated based on severity and, for potential impacts, likelihood as well. For potential adverse impacts, the company estimates the likelihood of occurrence and aligns it with the relevant time horizon. Stakeholders play a pivotal role in this assessment, as they contribute to validating and ensuring the completeness of material impacts.
  2. Financial materiality assessment: Material risks and opportunities for the company typically stem from either impacts or dependencies. To assess their materiality, appropriate quantitative and qualitative thresholds based on anticipated financial effects in terms of performance, financial situation, cash flows, access to and cost of capital are utilized. Sustainability risks and opportunities are evaluated based on their likelihood of occurrence and the potential magnitude of their financial effects across the short, medium, and long-term. Engaging with the company’s business unit functions, alongside investors and other financial counterparties, may be necessary to validate and ensure the comprehensiveness of the list of material risks and opportunities.

Stage 6: Development of Reporting Strategy

This stage involves formally documenting key decisions and updates to policies and procedures, integrating the double materiality assessment into strategic considerations. It also encompasses setting Key Performance Indicators (KPIs), quantitative metric thresholds, and a framework for a repeatable double materiality assessment, facilitating future reviews and updates.


The ESRS represents a significant stride towards a sustainable future, compelling companies to adapt to the new standards to safeguard their long-term viability. The double materiality approach comprehensively evaluates ESG impacts, risks, and opportunities, fostering accountability for environmental and societal impact. Though the additional reporting may appear burdensome, early compliance with CSRD will provide insights into the benefits and cost-savings associated with the enhanced requirements, potentially spurring innovation. This could lead to heightened business resilience, increased access to capital and financing, enhanced reputation, reduced risks of accusations of greenwashing, among other benefits. Furthermore, given the standardized and detailed disclosure requirements of the CSRD, the level of comparability between companies will be heightened.

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