Corporate Sustainability Reporting Directive (CSRD)

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What is the Corporate Sustainability Reporting Directive?

The CSRD is a European Union directive that will replace the Non-Financial Reporting Directive (NFRD) as the standard for environmental, social and governance (ESG) reporting in the EU. It is part of the commitment the EU made under the European Green Deal and the Sustainable Finance Action Plan. The CSRD requirements expand and enhance the existing requirements of the NFRD to establish a unified and comparable approach for ESG reporting across nations and industries. This requirement will affect listed and privately held companies, requiring them to disclose information on how they monitor a wide range of ESG issues and their impact on our planet.

The primary objective of the CSRD is to foster transparency and accountability while advancing sustainable practices and investments. Under heightened stakeholder scrutiny and expanded reporting obligations, companies are compelled to disclose a broader spectrum of ESG metrics, offering stakeholders greater insight into their sustainability endeavours.

Beyond supporting regulatory compliance, the CSRD requirements present a unique opportunity to deepen an organization’s understanding of sustainability risks and opportunities. By integrating reporting into their business strategy, companies can unlock the dual benefits of profit and purpose, safeguard their reputation, and drive sustainable growth. Ensuring compliance and staying ahead of the curve are imperative for success in today's evolving landscape.

Why CSRD reporting?

Companies must take CSRD reporting seriously for reasons that include the following:

Regulatory compliance: Noncompliance risks fines, reputational damage and market access restrictions.
Investor expectations: Transparent ESG reporting attracts investors and improves access to capital.
Risk management: By identifying sustainability risks, companies can mitigate potential financial losses and disruptions.
Competitive advantage: Companies can enhance market differentiation, improve customer trust and increase long-term profitability.

What businesses does the CSRD affect?

The CSRD will affect a larger number of companies than any previous sustainability regulation, and sets higher standards for ESG disclosures. Around 50,000 companies globally will have to disclose, monitor and assess their sustainability performance. Consumer products, industrial products and financial services companies, in particular, should expect this to be a more significant effort, coupled with additional EU- and country-specific regulations such as modern antislavery legislation, the EU Deforestation-Free Regulation, the Corporate Sustainability Due Diligence Directive, the Carbon Border Adjustment Mechanism, and the Sustainable Finance Disclosure Regulation.

Who is in scope for 2025?

The new regulations affect many types of organizations, including the following:

All listed companies in the EU
All large undertakings that meet or exceed two of these three criteria during the financial year:
- 25 million euros balance sheet total
- 50 million euros in net turnover
- Over 250 employees
In 2026 and beyond, small and medium-sized enterprises listed on EU markets will also fall under the CSRD’s scope, underscoring the urgency of strategy development and implementation. Because of the intricate disclosure requirements and an escalating demand for transparency, companies not directly affected will probably face heightened customer and investor pressure to divulge information in alignment with the CSRD’s reporting requirements. As stakeholders seek to comprehend the correlation between sustainability and broader business risks and opportunities, a key consideration for those in the supply chain of a compliant organization will be demonstrating their own transparency on CSRD-related issues.

What is required to comply with the CSRD?

To comply, companies must prepare and submit a CSRD report in electronic format in accordance with the European Sustainability Reporting Standards (ESRS) framework, track and disclose required information (including materiality process, sustainability risks, ESG performance, targets and goals), and seek limited assurance of sustainability information that will evolve into reasonable assurance over time.

What do U.S. companies need to know about the CSRD?

The CSRD affects non-EU-based subsidiaries connected to EU-regulated markets through their parent companies. It also affects businesses indirectly involved in EU-based value chains due to disclosures related to ESG impacts. The reporting entity may make data requests of companies within these value chains as in-scope entities begin to report.

Non-EU parent companies with EU subsidiaries have multiple reporting options. The specific approach will be decided by management. Although these options are not available for every company, they include the following:

Option 1

Entities consolidate reporting at an EU-parent entity level if there are multiple large entities within the same part of an organizational structure.

Option 2

Each EU subsidiary within the scope of the CSRD issues a separate CSRD-compliant sustainability report.

Option 3

In "artificial consolidation," the largest EU subsidiary produces a consolidated report containing information for all EU subsidiaries within the scope of the CSRD. An organization’s ability to use this approach depends on its legal entity structure and local transposition. This option is available until 2029 and may be affected by member states’ transposition of the CSRD into national law.

Option 4

In this global reporting approach, the non-EU parent company reports in accordance with the CSRD for itself and for all of its subsidiaries.

Entities consolidate reporting at an EU-parent entity level if there are multiple large entities within the same part of an organizational structure.

Each EU subsidiary within the scope of the CSRD issues a separate CSRD-compliant sustainability report.

In this global reporting approach, the non-EU parent company reports in accordance with the CSRD for itself and for all of its subsidiaries.

What actions should businesses affected by the CSRD take?

The CSRD presents both challenges and opportunities for businesses striving to enhance their sustainability practices. By understanding the requirements, assessing current practices, and implementing robust reporting frameworks, organizations can navigate the complexities of CSRD and unlock the benefits of transparent and effective sustainability reporting.

Consulting with sustainability professionals can provide invaluable guidance tailored to the business's specific needs, ensuring CSRD compliance while driving meaningful progress toward a more sustainable future and increasing value and confidence.

Get CSRD-ready with RSM

Prepare for mandatory climate reporting requirements with RSM CSRD services, including the following:

: For organizations with more than one or two EU operating entities, this assessment provides guidance on which entities may be in the scope of the CSRD. It also provides reporting pathways that may reduce the reporting burden, an initial visual timeline for reporting, and identification of any additional regulations that may be applicable.

Companies subject to CSRD reporting must perform a double materiality assessment and undergo limited assurance initially (evolving into reasonable assurance) over the completed process. This assessment is designed to identify the material topics and scope of their reports and support alignment with CSRD guidance. Its significance cannot be overstated, as it forms the foundation for comprehensive, transparent ESG reporting that aligns with stakeholder expectations. It also helps companies consider both their financial risks and the broader societal and environmental impacts of their activities.

Our assessment strives to provide organizations with two perspectives:

Financial materiality (outside-in perspective): This approach, which is compatible with the standards of the IFRS International Sustainability Standards Board, focuses on two types of sustainability matters that may affect the company’s cash flow: those that may influence the company’s ability to use or obtain required resources, and those that may affect the company’s ability to rely on its relationships.
Impact materiality (inside-out perspective): This approach, which is compatible with the Global Reporting Initiative Standards, identifies sustainability matters that may have significant impacts on people or the environment over the short, medium and long term. It includes identifying impacts across the entire value chain that the company directly causes or contributes to.

: This assessment identifies gaps in the CSRD reporting process by analyzing the status of the materially found topics from the ESRS framework and pinpointing the key areas of focus for the achievement of CSRD compliance. In addition, the assessment identifies the minimum disclosure requirement, the available and required data, and the owner responsible for data processes.

This assessment determines the company’s gaps in disclosures, processes and procedures across operational jurisdictions. It provides clients with the following:

Comparative benchmarking
The current state of ESG reporting gaps
A gap list (e.g., a CSRD data-point checklist)
Compliance readiness
Future considerations
Prioritized recommended initiatives

: Our goal is to help companies navigate the complexities of sustainability reporting, risk management and data integration. By centralizing and managing ESG data efficiently, businesses can more effectively meet regulatory requirements, such as the CSRD, and improve decision making. RSM’s ESG software selection and implementation services are designed to simplify this journey, offering a comprehensive approach to identifying and optimizing solutions that align with the company’s unique business goals and drive measurable ESG performance.

Learn more about ESG software offerings

: Given the complexity of the CSRD regulation and requirements, our ESG and Sustainability advisory team can help organizations roadmap and navigate their path to compliance. Our team can assist with outlining beginning steps to take, developing an overarching timeline as well as identifying high-level activities necessary to prepare for reporting requirements.

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