EU CSRD reporting requirements

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The new EU sustainability reporting directive (CSRD) standardizes and expands reporting obligations and the number of companies required to report under the new EU legislation. Standardized reporting standards, double materiality, auditing, and a uniform electronic reporting format are just the most important changes by the CSRD reporting requirements:

Previous ESG Reporting in the EU

Even before the CSRD reporting requirements came into force, many EU companies had to disclose environmental information already. The requirements of the Non-Financial Reporting Directive (NFRD – 2014/95/EU) primarily applied to large public-interest companies with more than 500 employees, listed companies, banks, and insurance companies. Consequently, for example in Germany, around 500 large, capital market-oriented companies as well as banks and insurance companies have been required to prepare so-called “non-financial declarations” since 2017. These “declarations” have to outline specific concepts, risks, and performance indicators regarding environmental, employee, social, human rights, and anti-corruption issues, provided these are deemed material. The (rudimentary) foundations for this were found in the NFRD directive (2014/95/EU) and its national implementation through the CSR Directive Implementation Act (CSR-RUG).

Scope of Previous Reporting

The reporting obligations previously included:

Environmental matters
Social matters and treatment of employees
Respect for human rights
Anti-corruption and bribery
Diversity in company boards (with regard to age, gender, educational, and professional background)

(Previous) Reporting Content under the NFRD Directive

The content for EU sustainability reporting (before the CSRD reporting requirements came into force) was developed in the 1990s and 2000s. For example, the Global Reporting Initiative (GRI) published its first sustainability reporting guidelines in 2000. The following year, the World Business Council for Sustainable Development published the Greenhouse Gas (GHG) Protocol. At the same time, voluntary initiatives such as the UN Global Compact and the Carbon Disclosure Project were established, encouraging actors to disclose sustainability information. Since the financial crisis of 2007/08, further ESG frameworks and standards have emerged. Today, the GHG protocols (and the ISO-1406x standards for greenhouse gases) are among the most relevant frameworks.

New Standards for Sustainability Reporting in the EU under the CSRD

New Regulation from 2024 in the Corporate Sustainability Reporting Directive (CSRD)

Various studies, including those by the German Environment Agency (⁠UBA), revealed deficiencies in the previous reporting standards in the EU. Driven by the „European Green Deal“ and the EUR Commission’s Sustainable Finance-Strategy, the directive was revised from 2021 to 2022. The new Corporate Sustainability Reporting Directive (CSRD – EU 2022/2464) came into force early in 2023. It must be transposed into national law by EU member states by mid-2024. With the revision, sustainability information will in the future have the same importance as a company’s financial information. The new requirements will apply, depending on the company’s size, from the 2024 fiscal year, i.e., for reports from 2025.

New, Expanded Reporting Obligations under the CSRD

The Corporate Sustainability Reporting Directive (CSRD) includes comprehensive changes in various areas of sustainability reporting. The most important before the CSRD reporting requirements are:

Extended Reporting Obligations: Companies must report more comprehensively and according to standardized criteria. By increasing the quantification of reporting content, the measurability and comparability of the information will improve. While the standards are “in flight”, many already existing standards, particularly those of the Global Reporting Initiative (GRI), will be used. For example, on May 31, 2024, the European Financial Reporting Advisory Group (EFRAG) published their comments on the final versions of 3 Implementation Guidance Documents (more on this here). The goal is to create a more coherent and comparable landscape for sustainability reporting worldwide.
New Understanding of Materiality: The CSRD establishes the concept of “double materiality.” Companies are required to report both the impacts of their business operations on people and the environment and the impacts of sustainability aspects on the company. Previously, reporting was only required if both materiality aspects were met.

Other relevant changes under the CSRD

Auditing: Sustainability reporting must be externally audited – just like financial reporting. The EU Commission will establish audit standards for this purpose. Additionally, the depth of the audit will be gradually expanded: initially, a “limited assurance” audit is required. Subsequently, a “reasonable assurance” audit, which corresponds to the depth of audit in financial reporting, will be mandated.
Management Report Obligation: To facilitate access to sustainability information, this information must become a mandatory part of the management report. This demonstrates the high importance of sustainability reporting, which should gradually attain the same importance as traditional financial reporting.
Uniform Electronic Reporting Format: Since January 1, 2020, capital market-oriented companies have been required to disclose their accounting documents in the European Single Electronic Format (ESEF), which is also machine-readable. These requirements will be extended to sustainability reporting under the CSRD.

Scope – Who Must Report and When?

The reporting obligations under the CSRD will be phased in from the already reporting companies to all “large” companies and all listed companies:

Fiscal year 2024: companies previously required to submit a non-financial declaration
Fiscal year 2025: all other “large” companies
Fiscal year 2026: listed small and medium-sized enterprises (except micro-enterprises)
Fiscal year 2028: certain non-EU companies with a net turnover of over 150 million EUR in the EU

A company is considered large if it exceeds two of the following three criteria:

Balance sheet total: 25 million EUR
Net turnover: 50 million EUR
Average number of employees: 250

Application of GHG Reporting Standards in CSRD Sustainability Reporting

The International Sustainability Standards Board (ISSB) has collaborated with EFRAG in developing the European Sustainability Reporting Standards (ESRS) and the IFRS Sustainability Disclosure Standards (ISSB Standards) to achieve a high degree of alignment of the respective standards (with a focus on CO2 reporting). Based on the joint recommendations from May/June 2024, companies must determine their greenhouse gas emissions according to the GHG Protocol unless they are legally required to use another method for measuring greenhouse gas emissions (IFRS S2 – Sustainability Disclosure Standard, Sec. 29, a ii – Climate-related metrics).

Double Materiality in CSRD Sustainability Reporting

According to the new directive, a company must provide sustainability-related information that is material from a financial perspective or an ecological and social perspective (“double materiality”). Criteria and approaches for identifying and assessing material sustainability topics and information are defined in the reporting standards. However, the materiality analysis remains largely a company-specific task, the result of which determines the application of the reporting standards and consequently the reporting content.

EU CSRD reporting requirements