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 former Non-Financial Reporting Directive (NFRD) and substantially expands both the number of companies in scope and the depth of required disclosures.
The directive’s objective: provide investors, business partners, and the public with reliable, comparable information on how companies manage sustainability risks and what impact their operations have on the environment and society. The CSRD was adopted on 14 December 2022 and published in the Official Journal of the EU on 16 December 2022. It entered into force on 5 January 2023.
For compliance professionals in large organizations, the CSRD is significant because it goes beyond a reporting requirement. It demands new processes, data infrastructure, and cross-functional coordination – from double materiality assessments to value chain risk mapping and ESG data collection. In practice, the CSRD reaches deep into existing compliance and governance structures.
Reporting standards
What are the ESRS?
Reporting under the CSRD follows the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission as a delegated act on 31 July 2023.
The ESRS cover three dimensions – Environmental, Social, and Governance – and require both qualitative and quantitative disclosures. A central element is the double materiality assessment: companies must report on how sustainability matters affect their business (outside-in) and on how their operations impact the environment and society (inside-out).
As part of the Omnibus package (see below), the European Commission mandated EFRAG in March 2025 to revise the existing ESRS. The goal is to simplify reporting requirements – including a reduction of mandatory data points and a stronger focus on quantitative information. The revised ESRS are expected to apply mandatorily from financial year 2027, with voluntary early adoption possible for financial year 2026. A “Quick Fix” delegated act adopted in July 2025 already provides additional flexibility for wave one companies through 2026, particularly regarding scope 3 emissions and biodiversity disclosures.
Scope & Timeline
Who Needs to Report – and What Has Changed?
The original CSRD envisaged a phased rollout of reporting obligations. However, the EU Omnibus I package and the “Stop-the-Clock” Directive (EU 2025/794) have significantly altered the timeline and scope.
Wave 1 – already subject to reporting: Large companies of public interest with more than 500 employees have been reporting under CSRD since fiscal year 2024. In Germany, due to the lack of national implementation, NFRD formally still applies for 2024.
Waves 2 and 3 – postponed: 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 Directive adopted by the EU Parliament in December 2025 significantly narrows the scope of application: In the future, only companies with more than 1,000 employees and annual revenue exceeding 450 million euros will be subject to reporting. This exempts an estimated 80% of previously affected companies. Listed SMEs may voluntarily report under the simplified VSME standard. Member states must transpose the amendments into national law within 12 months of publication in the EU Official Journal.
Implementation Across the EU
Where Does National Transposition Stand?
The CSRD required Member States to transpose its provisions by July 2024. Several countries, including Germany, missed this deadline, and implementation remains uneven across the EU.
Germany’s government draft (September 2025) incorporates the Stop-the-Clock postponement and Omnibus thresholds. The Federal Ministry estimates approximately 3,900 German companies will remain subject to CSRD. BaFin enforces sustainability reporting for capital market-oriented companies. For details on German implementation, see the German-language CSRD glossary entry.
Companies operating in multiple EU jurisdictions should track national timelines, as transition provisions may differ between countries.
Regulatory Context
How Do CSRD, CSDDD, and Other Frameworks Connect?
The CSRD does not stand alone. It is part of a broader EU regulatory architecture on sustainability, and its interaction with other frameworks is critical for compliance teams to understand.
CSRD and CSDDD: The Corporate Sustainability Due Diligence Directive (CSDDD/CS3D) complements the CSRD. While the CSRD governs reporting on sustainability risks, the CSDDD requires companies to take active steps – identifying, preventing, and remediating human rights and environmental risks across their value chains. In practice, the data gathered under CSDDD due diligence obligations feeds directly into CSRD reporting, and vice versa. The Omnibus package aims to align the scope of thresholds of both directives to create a consistent regulatory basis.
CSRD and EU Taxonomy: Taxonomy-aligned disclosures are an integral part of ESRS reporting. Companies must disclose the proportion of their turnover, capital expenditure, and operating expenditure that qualifies environmentally sustainable under the EU Taxonomy.
CSRD vs. international frameworks: Companies operating globally face an evolving landscape of sustainability reporting requirements beyond the EU:
The ISSB Standards (IFRS S1 and S2), issued by the International Sustainability Standards Board, focus on sustainability-related financial disclosures for investors. While the ESRS and ISSB standards share common ground, the ESRS are broader in scope – particularly through the double materiality approach and the inclusion of impact reporting (inside-out), which ISSB does not require.
In the United States, the SEC adopted climate disclosure rules in March 2024 but voluntarily stayed enforcement pending judicial review. Under the current administration, the SEC ended its defense of these rules in March 2025. However, state-level requirements are advancing – notably California’s SB 253, which requires scope 1 and 2 emissions reporting in 2026 (CARB has proposed August 2026 as the initial submission deadline).
The United Kingdom applies the Streamlined Energy and Carbon Reporting (SECR) framework, which is narrower than the CSRD, focusing primarily on energy use and carbon emissions. UK companies with significant EU operations may need to comply with both SECR and CSRD.
For multinational compliance teams, the challenge lies in managing overlapping – and sometimes conflicting – reporting requirements across jurisdictions while building a unified ESG data infrastructure.
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. The key challenges lie not in the reporting itself, but in the processes that underpin it.
Value chain data collection: The ESRS require disclosures that extend beyond a company’s own boundaries – including ESG risks associated with business partners and suppliers. Organizations that already operate a structured Business Partner Due Diligence process have a significant head start.
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 in an auditable format.
Automating ESG analysis: The sheer volume of ESG-relevant information – from media reports and supplier data to regulatory changes – makes manual evaluation increasingly impractical. AI-powered tools like the ESG AI-Agent from Compliance Solutions enable automated research, categorization, and prioritization of ESG topics and compliance violations. This saves resources while improving data quality for CSRD reporting.
Audit-ready documentation: CSRD reports are subject to mandatory third-party assurance (initially limited assurance, with a potential move to reasonable assurance). All underlying processes and decisions must be fully documented – requiring a robust audit trail, as provided by professional compliance platforms.
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