Definition
What is the CSRD?
The CSRD (Corporate Sustainability Reporting Directive) is an EU directive that requires companies to report comprehensively on their sustainability performance. It replaces the previous Non-Financial Reporting Directive (NFRD) and significantly expands both the scope of companies subject to reporting requirements and the extent of the information they must disclose.
The directive’s goal is to provide investors, business partners, and the public with reliable, comparable information about how companies manage sustainability risks and what impact their business activities have on the environment and society. The CSRD was adopted on December 14, 2022, published in the EU Official Journal on December 16, 2022, and entered into force on January 5, 2023.
For compliance officers in large companies, the CSRD is particularly relevant because it introduces not only a reporting obligation but also new processes and data collection requirements — for example, relating to the double materiality assessment, supply chain risks, and ESG metrics. In this way, the CSRD reaches deep into existing compliance and governance structures.
Reporting standards
What are the ESRS?
Reporting under the CSRD is carried out in accordance with the European Sustainability Reporting Standards (ESRS). These standards were developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission on July 31, 2023, as a delegated act.
The ESRS cover three dimensions: Environment, Social, and Governance. A key element is the double materiality assessment: companies must report both on how sustainability issues affect their business (outside-in) and on how their business activities impact the environment and society (inside-out).
As part of the Omnibus Package (see below), the European Commission tasked EFRAG in March 2025 with revising the existing ESRS. The goal is to simplify reporting obligations, including by reducing mandatory data points and placing greater emphasis on measurable metrics. The revised ESRS are set to become mandatory starting with fiscal year 2027; voluntary early adoption may be possible for fiscal year 2026, subject to adoption of the delegated act by the European Commission.
Read more in our ESRS-Article.
Scope & Timeline
Who needs to report - and what has changed?
The original CSRD provided for a phased introduction of reporting obligations. However, the EU Omnibus Package and the so-called “Stop-the-Clock” Directive (EU 2025/794) have significantly altered this timeline:
Wave 1 — already subject to reporting: Large companies in public interest with more than 500 employees have been reporting under the CSRD since fiscal year 2024. In Germany, the NFRD formally still applies for 2024 due to the lack of national transposition.
Waves 2 and 3 — delayed: The Stop-the-Clock Directive postpones the reporting obligation for large companies (Wave 2) and listed SMEs (Wave 3) by two years each — to fiscal years 2027 and 2028 respectively.
Omnibus Package — new thresholds: The Omnibus package, in force since March 2026, significantly narrows the scope: going forward, only companies with more than 1,000 employees and annual revenue exceeding €450 million will be subject to reporting requirements. This is estimated to exempt approximately 80% of previously affected companies. Listed SMEs may voluntarily report under the simplified VSME standard. Member states must transpose the amendments into national law by March 19, 2027.
Implementation Across the EU
What Connects CSRD, CSDDD, and Other Frameworks?
Germany missed the transposition deadline (July 2024). The draft legislation adopted by the federal government in September 2025 already incorporates the Stop-the-Clock delay and the higher thresholds from the Omnibus Package.
Companies with 501 to 1,000 employees will receive a transitional arrangement and will not be subject to reporting requirements until fiscal year 2027. Following transposition of the Omnibus Package, only approximately 3,900 companies in Germany are expected to fall under the CSRD. BaFin oversees the sustainability reporting of capital market-oriented companies through enforcement proceedings.
Regulatory Context
What Connects CSRD, CSDDD, and Other Frameworks?
The CSRD does not stand alone. It is part of a broader EU regulatory framework on sustainability. It is most closely linked to the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D): while the CSRD governs the reporting of sustainability risks, the CSDDD requires companies to actively exercise due diligence, meaning they must identify, prevent, and address human rights and environmental risks in their value chains.
Data from CSDDD due diligence processes, such as information on supply chain risks or environmental impacts, flows directly into CSRD reporting. The Omnibus Package aligns the thresholds of both directives, creating a consistent regulatory basis.
At the national level, the German Supply Chain Due Diligence Act (LkSG) will gradually be replaced by the CSDDD. The EU Taxonomy is also integrated into the CSRD: taxonomy-compliant disclosures form part of ESRS reporting.
Practical Relevance
What Does the CSRD Mean for Compliance Teams?
Even where national thresholds are not yet finalized, the CSRD creates concrete pressure to act for compliance professionals in large organizations.
Data collection across the value chain: The ESRS require disclosures that go beyond a company’s own organizational boundaries — for example, covering ESG risks among business partners and suppliers. Companies that already operate a structured business partner screening system have a head start here.
Double materiality assessment: Identifying and evaluating material sustainability topics requires a systematic approach, ideally supported by a compliance risk management system that structures and documents risk assessments.
Automation of ESG analysis: The sheer volume of ESG-relevant information makes manual evaluation increasingly impractical. AI-powered tools such as the ESG AI Agent from Compliance Solutions enable automated research, categorization, and prioritization of ESG topics and compliance violations — saving resources while improving data quality for CSRD reporting.
Audit-proof documentation: CSRD reports are subject to external audit requirements. All underlying processes and decisions must be fully documented. Professional compliance platforms provide this kind of audit trail as a standard feature.
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