- The CSRD requires companies to report on environment, social and governance topics using the European Sustainability Reporting Standards (ESRS).
- The Omnibus Directive has been in force since 18 March 2026: from financial year 2027, only companies with more than 1,000 employees AND more than €450m net turnover are obligated to report.
- Double materiality is the central concept: companies must assess both their impact on the world and financial risks from sustainability issues.
- Germany's national transposition law is not yet in force; there is no fixed date for its adoption (as of September 2026).
- Companies outside the CSRD scope can report voluntarily using the "VS (Voluntary Standard, formerly VSME)", in force since 24 September 2026.
In our fast-paced business world, sustainability reporting is becoming increasingly relevant. It is no longer just a trend, but a decisive factor in creating trust between companies and stakeholders and avoiding greenwashing (see our Green Claims checklist). The Corporate Sustainability Reporting Directive (CSRD for short) is a key instrument in this regard. But what is actually behind these four letters? This article explains CSRD in simple terms.
Why is sustainability reporting mandatory?
Before we go into detail, let's take a look back. The introduction of the CSRD and the EU Taxonomy Regulation are due to the growing awareness of sustainable business practices and the urgency of the climate crisis. The European Union recognized the need to regulate companies in terms of sustainability reporting in order to ensure transparency and comparability. The aim is to strengthen the European single market for sustainable investment and increase public confidence in business.
What exactly is the CSRD?
The CSRD specifies what information companies must share on the environment, social issues, human rights and corporate governance. This information should cover the company's short, medium and long-term plans for the future. The CSRD sets higher requirements than the previous regulation known as the NFRD (Non-Financial Reporting Directive), which was implemented in Germany as the CSR Directive Implementation Act (CSR-RUG), and replaces it.
What are the core elements of the CSRD report?
The Corporate Sustainability Reporting Directive divides sustainability reporting into three different areas:
- Environment: Topics such as climate change, resource use and biodiversity.
- Social: Social relations, human rights and the treatment of employees.
- Governance: Corporate governance, anti-corruption measures and tax transparency.
A central point of the CSRD is the principle of "double materiality". This means that two perspectives are combined: one on the actual impact (impact materiality) and one on the financial significance (financial materiality). A sustainability issue is particularly important if it matters from one of these two perspectives, or from both. To determine this, a double materiality analysis is required.
What must be included in the sustainability report?
The following information must be included in sustainability reporting in accordance with the CSRD requirements:
- The company's business model and strategy
- The sustainability targets set for the company
- The tasks and knowledge of management and supervisory bodies regarding sustainability issues
- The company's strategies and principles on sustainability issues
- The incentive systems linked to sustainability goals
- The due diligence process showing how the company ensures it acts sustainably
- Negative CSR impacts that arise or may arise from business operations and the value chain
- The measures taken in relation to these negative impacts and their effectiveness
- The company's main risks regarding sustainability
- Other indicators relevant to the required disclosures, including information on the value chain, products and services, business relationships and the supply chain
Who is affected by the CSRD?
Following the Omnibus package, the CSRD reporting obligation applies from financial year 2027 (first reports in 2028) only to companies that meet both of the following criteria:
- More than 1,000 employees, and
- More than €450m net turnover
This replaces the earlier "2 of 3 criteria" approach and significantly reduces the number of companies in scope.
The new EU rules on CSRD reporting must be transposed into national law by all EU member states by 19 March 2027. Germany's national transposition law (CSRD-Umsetzungsgesetz) is not yet adopted (as of September 2026). There is no fixed date for its adoption: according to the federal government (27 August 2026), the further timetable is up to the Bundestag. For reporting year 2025, the CSR-RUG still applies under current law and there is no obligation to apply the ESRS. However, the coalition amendment of 31 March 2026 would apply the new rules retroactively to financial years beginning on or after 1 January 2025; the DRSC and IDW consider this constitutionally questionable.
Which companies are affected?
| Company type | Status |
|---|---|
| Companies with more than 1,000 employees AND more than €450m turnover | Reporting obligation under the new thresholds from financial year 2027 (Omnibus in force since 18 March 2026) |
| Companies that reported under the old NFRD (Wave 1, over 500 employees) | Still obligated for 2025 and 2026 unless the member state exempts companies below the new thresholds (option still open in Germany) |
| Capital market-oriented SMEs | No longer in scope (the planned LSME standard was dropped) |
| Non-European companies with over €450m EU turnover (plus an EU subsidiary or branch with more than €200m turnover) | Reporting obligation from financial year 2028 at the earliest |
| SMEs and companies below the new thresholds | Not obligated; voluntary reporting possible (see VSME/VS below) |
Which companies are NOT affected?
The following companies are not required to prepare and publish a CSRD report:
- SMEs that are below the new thresholds and are not capital market-oriented
- Capital market-oriented micro-enterprises with a balance sheet total below 450,000 euros, turnover below 900,000 euros, and a maximum of 10 employees on average
- Non-European companies unless they exceed the requirements outlined above
What does capital market-oriented mean?
Capital market-oriented generally means that shares in the company are traded on an organized market, for example a stock exchange. This usually applies to stock corporations (AG), partnerships limited by shares (KGaA) and European stock corporations (SE), but not to a GmbH or a partnership.
Can I exempt my company from the reporting obligation?
Under the Omnibus rules, many companies previously in scope no longer meet the new thresholds and are no longer obligated. Member states may exempt Wave 1 companies that no longer meet the new thresholds for financial years 2025 and 2026 (still open in Germany).
Can a company also report voluntarily in accordance with CSRD?
Yes. EFRAG published a simplified VSME standard for SMEs that wish to report voluntarily in December 2024; it has since become the VS. With significantly fewer disclosure requirements and no obligation to carry out the double materiality analysis, the VSME report can be completed with manageable effort.
The EU Commission adopted the VSME standard on 3 July 2026 as the "VS (Voluntary Standard)". It has been in force as Delegated Regulation (EU) 2026/1560 since 24 September 2026, builds on the VSME (EFRAG December 2024) and is open to all companies not subject to mandatory CSRD reporting.
Additionally, from financial year 2027, CSRD-obligated companies may not require value-chain partners with 1,000 employees or fewer to provide information beyond the VS.
Use our Word-based VS template to prepare a voluntary sustainability report with manageable effort, even without a full double materiality analysis.
How can I prepare my company for the CSRD Report?
Implementing CSRD requirements requires both strategic and operational thinking. Some steps to prepare:
- Form a CSRD team from various departments such as Finance, Human Resources, Supply Chain and Environmental Management.
- Use dedicated tools that support the analysis of double materiality and help with data collection. See our list of the top 8 ESG software solutions.
- Invest in training through CSRD training courses and workshops or work with external CSRD consultants.
A 2023 PwC study analyzes the status of companies regarding their CSRD efforts and examines which CSR software solutions are used most frequently.
Our step-by-step Excel template guides you through the double materiality analysis and automatically generates your materiality matrix.
Summary and outlook
The CSRD marks an important step towards more transparent and responsible corporate governance in Europe. Like all significant regulatory changes, it brings new challenges for companies. Companies that care about values and have strong forward-thinking management will see these requirements as an opportunity. An opportunity to position the company as a sustainability leader in its industry and to remain relevant for employees, customers and investors over the long term.
The Omnibus changes (in force since March 2026) have reduced the number of companies in scope substantially. Companies that are still in scope should use any available transition time wisely rather than waiting. Good sustainability data, solid processes and a clear strategy deliver real value beyond compliance.
Frequently asked questions about the CSRD
Who is affected by the CSRD after the Omnibus changes?
The Omnibus Directive has been in force since 18 March 2026: from financial year 2027, only companies with more than 1,000 employees AND more than €450m net turnover are obligated to report. This replaces the old "2 of 3 criteria" rule (250 employees, €25m balance sheet, €50m turnover). Non-European companies with more than €450m in EU turnover are in scope from financial year 2028 at the earliest.
What is double materiality and why does it matter?
Double materiality means that companies must assess sustainability topics from two directions: the impact their business has on people and the environment (impact materiality), and the financial risks and opportunities that sustainability topics create for the company (financial materiality). A topic is material if it is significant from either direction, or both. The double materiality analysis determines which ESRS topics a company must report on.
What is the difference between CSRD and ESRS?
The CSRD is the EU directive that establishes the legal obligation to report. The ESRS (European Sustainability Reporting Standards) are the detailed standards that specify what exactly must be reported. Think of the CSRD as the law and the ESRS as the technical rulebook. The revised ESRS were adopted on 3 July 2026 and published in the EU Official Journal on 21 September 2026 as Delegated Regulation (EU) 2026/1563. They apply mandatorily to financial years beginning on or after 1 January 2027. They cut mandatory data points by over 60% and total data points by over 70%.
Can smaller companies use a simpler reporting standard?
Yes. EFRAG created the VSME standard for voluntary reporting by smaller companies. It has far fewer disclosure requirements and does not require a full double materiality analysis. The VSME has become the "VS (Voluntary Standard)", in force since 24 September 2026 as Delegated Regulation (EU) 2026/1560 and open to all companies not subject to mandatory CSRD reporting. Our VS sustainability report template supports this process.
