The Corporate Sustainability Reporting Directive (CSRD) is a European Union (EU) law designed to strengthen and standardize sustainability reporting requirements for a significantly expanded number of companies. Enacted on January 1, 2023, and applicable from January 1, 2024, the CSRD aims to enhance transparency regarding companies' impacts on people and the environment, as well as the risks and opportunities arising from social and environmental issues. This directive is a key component of the European Green Deal, intending to help investors, civil society organizations, consumers, and other stakeholders evaluate corporate sustainability performance.

The CSRD is expected to affect approximately 50,000 companies operating within Europe, a substantial increase from the roughly 11,700 companies previously covered by the Non-Financial Reporting Directive (NFRD). The first wave of companies will begin applying these new rules for their 2024 financial year, with reports published in 2025.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is an EU legislative act that amends the accounting directive 2013/34/EU, establishing new rules for how companies must disclose information about their sustainability performance. Its primary purpose, as outlined by the European Commission, is to ensure that companies provide transparent and comparable data on their environmental, social, and governance (ESG) impacts and risks. This helps stakeholders understand how companies address sustainability-related issues and encourages a long-term perspective on sustainability.

The directive significantly expands the scope of sustainability reporting beyond the previous NFRD, introducing more detailed and standardized reporting requirements. It mandates that companies disclose information on what they perceive as the risks and opportunities stemming from social and environmental matters, alongside the impact of their operations on people and the environment. This framework is intended to drive changes in business behavior for companies operating in the EU.

Who Must Comply: Scope and Estimated Impact

The CSRD is projected to bring nearly 50,000 companies within its reporting scope across the EU, a considerable expansion from the approximately 11,700 companies covered by the NFRD. This includes a broad range of entities, from large financial and non-financial corporations to certain medium-sized companies, depending on their public interest score, which considers factors like employee count and net turnover.

The directive generally applies to all large companies and all companies listed on EU-regulated markets, with limited exceptions for listed micro-enterprises. In response to recent inflationary pressures, the European Commission has revised the thresholds for defining "large companies" to prevent smaller entities from being inadvertently subjected to reporting standards designed for larger enterprises. These adjustments aim to balance regulatory compliance with operational feasibility.

Criteria for EU Companies

EU-based companies, both listed and unlisted, must comply if they meet at least two of the following three criteria on a company or consolidated group level:

  • More than 250 employees.
  • A balance sheet total exceeding €25 million.
  • A net turnover exceeding €50 million.

Criteria for Non-EU Companies

Non-EU based companies also fall under the CSRD's scope if they have significant operations within the EU. This includes:

  • Companies with securities, such as stocks or bonds, listed on an EU-regulated market.
  • Companies generating annual EU revenues exceeding €150 million, combined with an EU branch that has an annual net turnover of €40 million or more.
  • Companies generating annual EU revenues exceeding €150 million and owning an EU subsidiary that qualifies as a large company (meeting at least two of the following: more than 250 EU-based employees, a balance sheet exceeding €20 million, or local revenue exceeding €40 million).