Important note (26.02.2025):
Some details of this article may be outdated due to the current EU omnibus proposal. This applies in particular to the scope and deadlines of the CSRD. For up-to-date information and implications for companies, please read our blog post on CSRD Omnibus: CSRD Omnibus – What the EU proposal means for companies. All other content remains valid.
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.
CSRD in figures
What are the core elements of the CSRD report?
The Corporate Sustainability Reporting Directive divides sustainability reporting into three different areas:
- Environment: This includes topics such as climate change, resource use and biodiversity.
- Social: This includes social relations, human rights and the treatment of employees.
- Governance: This relates to corporate governance, anti-corruption measures and tax transparency, among other things.
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 therefore particularly important if it is important from one of these two perspectives – or even from both. To determine this, a double materiality analysis is required.
What must be included in the sustainability report to fulfill the CSRD requirements?
The following information must be included in sustainability reporting in accordance with the CSRD requirements. A description of…
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- the company’s business model and strategy
- the sustainability targets set for the company
- what tasks the company management and supervisory bodies have with regard to sustainability issues and what knowledge they have in this regard
- the company’s strategies and principles with regard to sustainability issues
- the incentive systems linked to the sustainability goals
- the due diligence process how the company ensures that it acts sustainably
- negative CSR impacts that arise or may arise from business operations and their value chain
- the measures taken by the company in relation to these negative impacts and their effectiveness
- the company’s main risks with regard to sustainability
- other indicators that are relevant to the required disclosures. Where applicable, information on the company’s activities and its value chain is presented transparently, including products and services, business relationships and the supply chain.
Who is affected by the CSRD? And when does the regulation come into force?
The new EU directive on CSRD reporting must be transposed into national law by Germany and all other EU member states in the coming months. In the future, significantly more companies will be affected by the CSRD reporting obligation than before, as in addition to large companies, small and medium-sized enterprises (SMEs) will also be affected, provided they are capital market-oriented and, under certain conditions, non-European companies. In Germany alone, around 15,000 companies will be affected. Across Europe, around 50,000 companies will be affected.
Which companies are affected by the CSRD?
The Corporate Sustainability Reporting Directive comes into force in stages. The criteria will be gradually adapted over the coming years. Every year, more companies are affected and must prepare a sustainability report in accordance with the European Sustainability Reporting Standards (ESRS). Specifically, the following companies are required to report (incl. CSRD timeline):
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- Large companies (regardless of capital market orientation) from 2025 (large companies with more than 500 employees from 2024) that meet two of the following three criteria
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- Balance sheet total of more than EUR 25 million (increase in the threshold due to EU regulation)
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- Turnover greater than EUR 50 million (increase in the threshold)
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- Over 250 employees
- Large companies (regardless of capital market orientation) from 2025 (large companies with more than 500 employees from 2024) that meet two of the following three criteria
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- Capital market-oriented small and medium-sized enterprises (SMEs) as of 2026
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- Non-European companies from 2028 onwards that generate a turnover of over 150 million in the EU and have at least one subsidiary or branch in the EU
Which companies are NOT affected by sustainability reporting?
The following companies are not obliged to prepare and publish a CSRD report:
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- SMEs that are below the requirements of large companies and are not capital market-oriented, i.e. most smaller limited liability companies and partnerships
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- Capital market-oriented micro-enterprises. Companies are defined as micro-enterprises if they fulfill at least two of the three characteristics on the balance sheet date:
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- Balance sheet total below 450,000 euros (increase in the threshold value)
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- Turnover less than 900,000 euros (increase in the threshold value)
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- Maximum average of 10 employees in the financial year
- Capital market-oriented micro-enterprises. Companies are defined as micro-enterprises if they fulfill at least two of the three characteristics on the balance sheet date:
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- Non-European companies, unless they exceed the requirements (see above).
What does capital market-oriented mean?
Capital market-oriented generally means that shares in the company are traded on an organized market, e.g. a stock exchange. This usually applies to stock corporations (AG), partnerships limited by shares (KGaA) and European stock corporations (SE) and not to a GmbH or a partnership.
Can I exempt my company from the reporting obligation?
Exemption is theoretically possible on a temporary basis during a transitional period until 2028. Capital market-oriented SMEs can apply for this opt-out. The exemption from the CSRD reporting obligation for subsidiaries by means of an overarching CSRD report of the group should no longer apply to capital market-oriented subsidiaries.
Can a company also report voluntarily in accordance with CSRD?
Yes, EFRAG has created a greatly simplified VSME standard for SMEs that wish to report voluntarily. With significantly fewer disclosure requirements, many customization options and no obligation to carry out the double materiality analysis, the VSME report can be mastered with manageable effort.
How can I prepare my company for the CSRD Report?
Implementing CSRD requirements requires both strategic and operational thinking. Some steps to prepare could be:
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- Formation of a CSRD team: Consisting of members from various departments such as Finance, Human Resources, Supply Chain and Environmental Management.
- Use of CSR toolsThere are specialized software solutions that support the analysis of double materiality or tools that can help with data collection and analysis. We have created a CSRD tool overview and a list of the top 8 ESG software solutions.
- Consulting and trainingCSRD training courses and workshops help to better understand the requirements and implement them effectively. However, hiring external CSRD consultants or freelancers is also a popular way of mastering CSRD.
A recent PwC study analyzes the status quo of companies with regard to their CSRD efforts and examines which CSR software solutions are used most frequently.
Summary and outlook
The Corporate Sustainability Reporting Directive (CSRD) marks an important step towards more transparent and responsible corporate governance in Europe. Like all innovations, this additional reporting requirement will bring new challenges for companies. Companies that care about values and have a strong forward-thinking management team will see these requirements as an opportunity. As an opportunity to position the company as a “green leader” in its industry and thus remain relevant not only for employees, but also for customers and investors in the long term.
