What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a European Union regulation designed to enhance and standardise how companies report on their environmental, social, and governance (ESG) activities. It replaces the previous Non-Financial Reporting Directive (NFRD) with more detailed and rigorous requirements, aiming to provide consistent and comparable sustainability information across companies operating in or interacting with the EU market.
Who Needs to Comply with CSRD?
CSRD will apply to a broad range of companies, estimated to impact around 50,000 organisations. Specifically, it includes:
Micro-Undertakings
Smallest companies that meet at least two of these criteria:
Balance sheet total ≤ €450,000
Net turnover ≤ €900,000
Average employees ≤ 10
Small and Medium Enterprises (SMEs)
Companies that meet at least two of these criteria:
Balance sheet total ≤ €25 million
Net turnover ≤ €50 million
Average employees ≤ 250
Large Undertakings
Companies that exceed at least two of these criteria:
Balance sheet total > €25 million
Net turnover > €50 million
Average employees > 250
Large Groups
Groups of companies that, on a consolidated basis, exceed at least two of these criteria:
Balance sheet total > €25 million
Net turnover > €50 million
Average employees > 250
Key Components of CSRD Reporting
The CSRD introduces several important reporting elements to ensure transparency and consistency:
Double Materiality: Companies must report on:
Impact Materiality: The effects of the company’s activities on society and the environment.
Financial Materiality: The financial implications of sustainability risks and opportunities on the company.
Mandatory Disclosures: Companies need to provide detailed information in several key areas:
Environmental: Including climate change mitigation and adaptation, pollution, water and marine resources, biodiversity, and circular economy.
Social: This covers employee working conditions, human rights, diversity, and impacts on local communities.
Governance: Reporting on business ethics, anti-corruption measures, and governance structures.
Detailed Materiality Assessment (DMA): Companies are required to conduct a Double Materiality Assessment to identify and prioritize key sustainability issues. This assessment helps determine which ESG topics are most relevant for reporting, ensuring that the information disclosed aligns with stakeholder expectations and regulatory requirements.
Assurance and Digital Reporting: CSRD mandates that reported information undergo limited assurance by an independent auditor to verify accuracy. Additionally, reports must be digitally tagged in a machine-readable format (such as XBRL) to enhance transparency and comparability. Assurance timelines for each standard and applicability to each company type are provided below:
Limited Assurance Standard
Applicable to: All companies within the scope of the CSRD during the initial phase of reporting.
Timeline: To be adopted by 1 October 2026.
Description: Limited assurance focuses on evaluating whether the sustainability information is plausible, with a lower level of scrutiny compared to reasonable assurance.
Reasonable Assurance Standard
Applicable to: All companies under the CSRD, transitioning from limited assurance after the initial phase.
Timeline: To be adopted by 1 October 2028.
Description: Reasonable assurance involves a more thorough examination, providing a higher level of confidence in the accuracy and completeness of sustainability disclosures.
IAASB International Standard on Sustainability Assurance (ISSA) 5000
Applicable to: Likely to be aligned with global assurance requirements for large undertakings and large groups, particularly those operating across multiple jurisdictions.
Timeline: Effective from 15 December 2026.
Description: A globally harmonized standard designed to provide consistent assurance practices for sustainability reporting.
Reporting Timeline: Different types of entities will need to begin reporting under CSRD over the next few years:
Public Interest Entities (PIEs): From the 2025 Annual Report, covering FY 2024.
Other Large or Listed Companies: From the 2026 Annual Report, covering FY 2025.
Small and Medium-sized Enterprises (SMEs): Voluntary reporting starts from the 2027 Annual Report, covering FY 2026.
Why Complying with CSRD is Important
Transparency and Trust: Accurate and comprehensive reporting builds trust with customers, investors, and other stakeholders.
Regulatory Compliance: Complying with CSRD avoids legal risks and penalties while demonstrating commitment to responsible business practices.
Enhanced Decision-Making: Understanding and reporting on ESG factors helps companies make better decisions, manage risks, and capitalize on sustainability opportunities.
Investor Attraction: Growing investor interest in sustainable and ethical businesses means that companies with robust ESG reporting are more likely to attract investment.
Need Help Understanding CSRD?
If you have questions or need assistance navigating the CSRD requirements, reach out to the KEY ESG team. We offer support and guidance to help companies understand their obligations under the CSRD. Contact us via the in-app chat function or email us at support@keyesg.com.