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The Corporate Sustainability Reporting Directive (CSRD):

Keep reading to learn what the Corporate Sustainability Reporting Directive (CSRD) is, why it’s important, and who may be subject to its reporting requirements.

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What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is a sweeping set of requirements for companies within its scope to provide a range of non-financial public disclosures on environmental, social, and governance (ESG)topics.

The CSRD amends existing EU directives to increase corporate disclosure requirements for companies operating in the EU market and broaden the list of companies in scope. Approximately 11,700 companies are currently required to disclose non-financial information with the CSRD—and it’s estimated that the number will increase to nearly 50,000 companies that are incorporated, listed, or doing business in the EU. The CSRD reporting obligations also apply to non-EU parent companies that have significant business in the EU and at least a branch or subsidiary in the EU.

The EU Commission has stated that the CSRD rules are designed to “create a culture of transparency about the impact of companies on people and the environment.”

Why was the CSRD adopted?

The CSRD was adopted by the European Commission to raise the bar on corporate sustainability reporting. It includes more comprehensive reporting requirements and addresses gaps in previous regulations.

Before the CSRD passed, large EU companies were following reporting principles established under the Non-Financial Reporting Directive (NFRD).

Under the CSRD, companies must report significantly more information, and their sustainability data will be presented in audited form alongside their financial reports.

Who’s impacted by the CSRD?

The Corporate Sustainability Reporting Directive is expected to impact all large EU and EU-listed companies,as well as non-EU companies with a significant business interest operating in the EU market. The CSRD greatly expands the scope of mandatory EU corporate sustainability reporting and is estimated to quadruple the number of companies impacted as compared to the NFRD, which covered only 11,700 companies. The CSRD is expected to expand to more than 50,000 organizations.

Because the specifics of the CSRD are complex, it’s important to have your organization’s expert consultants and advisors closely review the details. In general terms, the CSRD will apply to companies listed on regulated markets in the EU with the exception of listed micro-enterprises, defined as companies with fewer than 10 employees and/or less than €20 million in net turnover. It will also apply to large companies that meet at least two of the following criteria:

  • 250 or more employees
  • More than €40 million in net turnover
  • More than €20 million in total assets

Non-EU companies with a turnover of €150 million or more in the EU and at least one subsidiary or branch in the union also must comply with the CSRD.

The updated corporate sustainability reporting requirements will not apply to small and medium-sized enterprises (SMEs), unless they have securities listed on regulated markets.

When do CSRD rules take effect?

The CSRD rules will roll out in phases between 2024 and 2028 based on several factors, including company size and applicable member state. At a high level, here’s how the timeline breaks down:

  • Large public interest companies: For companies with more than 500 employees that are already subject to the NFRD, the CSRD rules will apply starting January 1, 2024, with reports due in 2025. These companies must continue to comply with the NFRD rules until January 1, 2024.
  • Large companies that aren’t subject to NFRD: Companies with more than 250 employees and/or more than €40 million in net turnover and/or more than €20 million in total assets must comply with the CSRD rules starting January 1, 2025, with reports due in 2026.
  • Listed SMEs: CSRD rules will apply starting January 1, 2026, with reports due in 2027. Listed SMEs can opt out until 2028.

By January 1, 2028, the CSRD rules will apply to all companies that fall under the scope of the directive. For companies within the scope of the CSRD, rules and timelines will vary—so it’s important to consult with your expert advisors and consultants.

What are the CSRD requirements?

Companies that fall under the scope of the CSRD will be required to report on sustainability-related impacts, opportunities, and risks as defined by the European Sustainability Reporting Standards (ESRS). These standards were developed by the European Financial Reporting Advisory Group (EFRAG). EFRAG is a private association funded by the EU that brings together various stakeholders to serve the European public interest in financial and sustainability reporting. To determine how the CSRD’s requirements may impact your organization, it’s important to discuss the details with your expert advisors and consultants.

Under the CSRD rules, reporting entities will be required to report qualitative and quantitative information related to:

  • Sustainability policies, goals, and performance.
  • Greenhouse gas emissions and targets.
  • Social responsibility and employee treatment.
  • Anti-corruption and bribery.
  • Diversity of company boards.
  • Human rights issues.
  • ESG targets and progress in reaching them.
  • Double materiality.

Double materiality includes two angles—how a company impacts the environment and society as a whole, and, conversely, how sustainability risks and opportunities impact the company’s performance and development.

Under the CSRD, an organization must report both retrospective and forward-looking sustainability data, and will also be required to share short, medium, and long-term goals. Companies in scope will also be required to undergo a third-party audit of the sustainability information that they report to ensure the data is complete and accurate. Consult with your company’s expert consultants and advisors to discuss CSRD reporting requirements.

Benefits of adopting more sustainable practices

Even if your organization isn’t required to comply with the CSRD, there are countless benefits to adopting stronger sustainability practices. Not only is sustainability good for the planet—it’s also good for business.

Here are just a few benefits to advancing your sustainability efforts and reducing your carbon footprint:

  1. Cut costs: Slash your organization’s operating costs by improving your energy efficiency and reducing water consumption. Not only will you save money on energy bills, but you also won’t be at the mercy of fluctuating energy prices.
  2. Build trust: Many of today’s consumers are committed to supporting businesses that follow sustainable practices. By reducing your environmental impact, you’ll build brand trust and attract and retain more customers.
  3. Lower risk: As climate change continues to be a more pressing issue for countries around the world, it’s more important than ever to embrace more sustainable business practices. The organizations that aren’t taking steps to reduce their emissions will quickly fall behind. Stay ahead of the game by accelerating your sustainability efforts today to reduce your environmental impact. Get started by calculating your carbon emissions with this Emissions Impact Dashboard.
  4. Empower employees: An increasing number of employees want to work for sustainable, socially responsible companies. By committing to more sustainable business practices, you’ll increase employee satisfaction and productivity and boost employee retention.
  5. Attract investors: When you choose to report your sustainability efforts, you’ll enhance your credibility and be more likely to attract outside investors.

Learn more about the changing ESG regulatory landscape in this Let’s Talk Sustainability video series.

Take the next steps on your sustainability journey

While the CSRD applies only to corporations in the EU and non-EU companies with a significant business interest in the EU, companies across the globe are working to advance their sustainability efforts. In this landscape, now’s the time to accelerate your sustainability journey. Explore how Microsoft technology, including Microsoft Cloud for Sustainability, can help you drive operational efficiencies and meet your sustainability goals.

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Frequently asked questions

  • Reporting obligations under the CSRD will apply to:

    • All “large” listed undertakings in the EU exceeding at least two of the following three criteria: more than 250 employees, a net turnover of more than €40m and/or total balance sheet of €20m.

    • All non-listed EU large companies.

    • Large credit institutions and insurance undertakings.

    • Small and medium-sized companies (SMEs) listed on a regulated market in the EU, which are not micro-companies (i.e., EU companies with less than 10 employees, a turnover of less than €0.7m and/or total assets of less than €0.35m). 

    • Non-EU parent companies, which generate more than EUR 150 million net turnover in the EU and that have at least one subsidiary or branch subject to the CSRD.

  • The CSRD came into force on 5th January 2023. Compliance timelines varies depending on the type of company but start as early as January 2024 for all large EU listed companies.

    • All “large” listed companies in the EU will have to report on their 2024 financial year in their 2025 management report. 

    • All non-listed EU large companies will have to report on their 2025 financial year in their 2026 report.

    • Large credit institutions and insurance undertakings will have to report on their 2025 financial year in their 2026 management report. 

    • Small and medium-sized companies (SMEs) listed on a regulated market in the EU will have to report on their 2026 financial year in their 2027 management report. However, they can decide to delay their reporting to January 1, 2028, with an explanation of why the required information is not provided in their management report. 

    • Non-EU parent companies will have to report on their 2028 data in their 2029 sustainability report.

  • The CSRD itself only outlines information reporting requirements at a general level related to the environmental, social and governance performance. However, the European Commission will develop detailed requirements for company reporting. The European Financial Reporting Advisory Group (EFRAG), the Commission’s advisory body in this space, has proposed or will propose reporting standards in the following areas:

    • European Sustainability reporting Standards (ESRS) Set 1: proposed to the Commission in Nov 2022  for final publication by June 2023. The proposed ESRS for Commission validation currently cover four categories:

    • General – including general requirements for preparing and presenting information.

    • Environmental – including climate change, pollution, water and marine resources, biodiversity and ecosystems, and circular economy related standards.

    • Social – including own workforce, workers in the value chain, affected communities and customers and end users.

    • Governance – including business conduct.

    • ESRS Sector-specific standards Set 2: currently under development for final publication between June 2024 and 2026. We expect the ICT sector to be included in the 2025 batch. These standards will guide companies reporting in the applicable sectors, in addition to Set 1.

    • Standards for SMEs will be published by June 2024.

    • Sustainability Standards for non-EU parent companies are expected for final publication by June 2024. Non-EU parent companies will be able to choose whether to report following the generic ESRS, the Sustainability Standards, or any other standards from a different jurisdiction that are recognized as valid by the EU.

  • The CSRD mandates that EU companies disclose the required information in their management report while non-EU parent companies disclose the required information in a separate sustainability report. Such report should be made public, but the means of publication may differ. The CSRD explicitly empowers (but does not require) member states to further require companies to make the management report directly public on their websites, for example.

  • Reports will need to be validated by an accredited external firm having a high level of expertise in assurance and sustainability. This can be a company’s existing auditors or a new retained firm.

  • Penalties for non-compliance will be determined at the national level. Competent authorities will publish sanctions issued for specific offenders. For non-EU parent companies, the EU cannot legally require non-EU companies to make any disclosure. Therefore, the EU is requiring EU entities to make the CSRD disclosure on behalf of their non-EU parent company.

  • The intent of the CSRD is to have a standardized baseline of reporting at the EU level. Individual EU member states might impose additional reporting requirements, which would further complicate reporting and could lead to a lack of transparency or comparability.

  • No, public sectors institutions are not in scope.

  • Yes, the CSRD is clear that listed SMEs are in scope

  • Microsoft is supportive of increased transparency. We’re committed to helping our customers meet their CSRD compliance and are actively working to extend our own reporting and sustainability solutions to do so. As a large company actively participating in the European economy, we must also be CSRD compliant and so we recognize the significance of this moment and the need for robust tools to help enable our customers to meet their reporting needs.

    • The CSRD amends the EU Non-Financial Reporting Directive (NFRD) and EU Accounting Directive, and it extends its scope and reporting requirements.

    • The NFRD currently applies only to large “public interest” entities with more than 500 employees. In addition to applying to all EU non-listed companies, the CSRD notably extends to non-EU (referred to as third country) undertakings that are not listed on an EU regulated market but have significant activity in the EU (e.g., at least a branch or subsidiary and EUR 150 million turnover).

    • The US Securities and Exchange Commission proposed rule for the Enhancement and  Standardization of Climate-Related Disclosures for Investors would apply to all publicly traded companies (US and foreign-owned). While the CSRD disclosure standards currently under development cover many of the same areas (such as greenhouse gas emissions and climate risk oversight), the CSRD standards go further by mandating extensive social and governance disclosures. 

    • The CSRD potentially allows non-EU parent companies with significant presence in the EU to report under another “equivalent” jurisdictional regime and be exempted from additional reporting under the CSRD. No specific exemptions have been developed or identified at this point. Given the broad scope of CSRD requirements, it is unclear whether a similar regulation (such as the U.S. SEC climate disclosure rules) would be deemed equivalent.

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