- The CSRD requires companies to report on environment, social and governance topics using the European Sustainability Reporting Standards (ESRS).
- Since 18 March 2026 (Omnibus package), 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; entry into force is expected during 2026.
- Smaller companies outside the CSRD scope can report voluntarily using the VSME standard, which is being broadened into the "VS (Voluntary Standard)".
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 Green Claims Directive). 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 now applies 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; entry into force is expected during 2026. For reporting year 2025, there is no obligation to apply the new ESRS unless the law enters into force retroactively.
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 (in force since 18 March 2026) |
| Companies that reported under the old NFRD (Wave 1, over 500 employees) | Still obligated; exemption possible for 2025 and 2026 if under the new thresholds |
| Capital market-oriented SMEs | Obligation shifted; many no longer in scope under new thresholds |
| Non-European companies with over €450m EU 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. Wave 1 companies that no longer meet the new thresholds may be exempt for 2025 and 2026.
Can a company also report voluntarily in accordance with CSRD?
Yes. EFRAG has created a simplified VSME standard for SMEs that wish to report voluntarily. 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 VSME standard is being broadened into the "VS (Voluntary Standard)" (expected as a delegated act later in 2026). It is based on the VSME (EFRAG December 2024) with small content adjustments. The VS will also be relevant for non-SMEs with fewer than 1,000 employees that fall outside the mandatory CSRD scope.
Additionally, CSRD-obligated companies may not require value-chain partners with 1,000 employees or fewer to provide information beyond the voluntary standard.
Use our Word-based VSME 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 recent 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?
Since 18 March 2026, 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. In May 2026, the EU Commission published a draft of simplified "revised ESRS" that cuts 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 is being broadened into the "VS (Voluntary Standard)" later in 2026, which will also cover non-SMEs outside the CSRD scope. Our VSME sustainability report template supports this process.
