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�ճ������(CSRD) is a European Union (EU) directive that requires small, medium and large companies to disclose their environmental, social and governance (ESG) impacts on society as part of an annual non-financial reporting duty.

The CSRD applies to EU member states, as well as European Economic Area (EEA) countries. Specifically, the CSRD applies to all public EU-based companies, as well as private and/or large EU organisations. Non-EU companies that meet certain criteria, and small and medium-sized enterprises (SMEs) that are listed on European markets and meet other criteria, are also required to comply with the CSRD.��

The directive is part of the larger��, which is a set of policies that aim to make the EU climate neutral by 2050.

The CSRD was adopted by the European Commission in November 2022 and took effect on January 5, 2023, and will be implemented within delineated phases through to 2029.

The CSRD replaces the����(NFRD), which was enacted in 2016. The NFRD required large companies to disclose non-financial information in their annual reports and to report on how they manage ESG issues.

The CSRD requires companies to follow the EU’s new����(ESRS) when disclosing information about their environmental and social risks and impacts. As quoted by the��, the standards “cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. They provide information for investors to understand the sustainability impact of the companies in which they invest.”

Current Phasing Timeline

There are four stages by which the Corporate Sustainability Reporting Directive (CSRD) will be phased in to substitute the Non-Financial Reporting Directive (NFRD):

• January 1, 2025��- CSRD will apply to companies, banks and insurance under the NFRD. These entities will have to report the first set of sustainability reporting standards for the financial year 2024.
• January 1, 2026��- CSRD will apply to other large companies not already included under the NFRD. These entities will have to report on the financial year 2025. These companies have more than 250 employees, €50m in turnover and €25m in total assets.
• January 1, 2027��- CSRD will apply to listed small and medium enterprises (SMEs) on public markets. These entities will have to report on the financial year 2026. There is a possible “opt-out” during a transitional period, meaning that SMEs can choose to opt-out from the application of the directive until 2029.
• January 1, 2029��- CSRD will apply to non-EU companies with substantial activity in the EU (net turnover of more than €150m in the EU and at least one subsidiary or branch in the EU that exceeds certain thresholds). These entities will have to report on the financial year 2028.

For each of these deadlines the disclosure will be for the previous financial year, i.e., reporting in 2025 for FY2024.

Notable Numbers - January 2025

• 17��jurisdictions have transposed the CSRD
• 2 jurisdictions have partially transposed the CSRD
• 8 jurisdictions introduced legislation to transpose the CSRD
• Transposition is expected in a further 4��jurisdictions��
• 17 jurisdictions��have received a formal notice of infringement procedures from the European Commission for failing to meet the transposition deadline and/or complete transposition

Key Terms Defined

The list below represents a selection of terms that, in �������ϲ���̳’s view, represent the most significant terms for the CSRD and its initial and ongoing requirements. However, this list should not be considered exhaustive.

* A set of����(FAQs) published by the European Commission on November 13, 2024 clarifies the interpretation of certain provisions on sustainability reporting introduced by the CSRD and updates the numeric thresholds for in-scope companies.
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How to prepare for the CSRD Phase 1

In this section, �������ϲ���̳ provides the fundamental information underlying the CSRD, including but not limited to categories of the European Sustainability Reporting Standards, as well as what sustainability matters are in the context of CSRD, to enable covered undertakings to adequately prepare for the first phase of the directive, which will take effect on January 1, 2025.

I. Categories of ESRS

• Cross-cutting
  • The cross-cutting standards are made up of the provisions of ESRS 1: General Requirements and ESRS 2: General Disclosures. These requirements set forth the sector-agnostic standards regarding the framework of ESRS standards; drafting conventions; fundamental concepts; and general requirements for preparing and presenting sustainability-related information for the required reporting.
  • ESRS 2 outlines the general disclosure requirements that apply to all undertakings regardless of their sector of activity (i.e., sector agnostic) and that apply across sustainability topics. ESRS 2 covers the following reporting areas:
    • Governance.
    • Strategy.
    • Impact.
    • Risk and opportunity management.
    • Metrics and targets.��
  • In summary:��These standards provide the “how” and certain “what” of the required sustainability matter reporting.
• Topical
  • The topical standards pertain to specific areas of ESG matters. In total, there are ten categories, with additional sub-topics indicating further specific disclosure requirements where relevant.
  • The categories are as follow:
    • Climate change (ESRS E1)
    • Pollution (ESRS E2)
    • Water and marine resources (ESRS E3)
    • Biodiversity and ecosystems (ESRS E4)
    • Circular economy (ESRS E5)
    • Own workforce (ESRS S1)
    • Workers in the value chain (ESRS S2)
    • Affected communities (ESRS S3)
    • Consumers and end-users (ESRS S4)
    • Business conduct (ESRS G1)
  • Topical standards complement the general level disclosure requirements of ESRS 2, with specific additional requirements in topical ESRS that undertakings must apply in conjunction with the general level requirements of ESRS 2 ().
  • In summary:��These standards provide the specific “what” and “whys” of required sustainability matter reporting with regard to relevant categories.
• Sector-specific
  • The sector-specific standards have yet to be finalised with the European Commission; however, the publication and adoption of said standards are expected to occur in June 2026.
  • These standards pertain to undertakings within a given specific sector. Such standards are meant to indicate and capture impacts, risks and opportunities likely to be material for all undertakings within the given specific sector and which are not, or not sufficiently, covered by the relevant topical standards.
  • These standards are cross-topical and pertain to matters particularly relevant to a given specific sector.
  • In summary:��These standards are expected to be finalised and adopted in June 2026 and will cover the granular “what” and “whys” within the given industry and sector that the specific undertaking carries out its business.
• Miscellaneous Reporting
  • Notwithstanding the three categories of ESRS standards, if an undertaking within its assessments concludes that an impact, risk or opportunity is not covered, or not covered with sufficient granularity, by an ESRS but is nevertheless material due to its specific facts and/or circumstances, the undertaking must provide additional entity-specific disclosures to enable users to understand the undertaking’s sustainability-related impacts, risk and opportunities.
  • In summary:��These standards are meant as a catch-all if an undertaking concludes within its required assessments that a particular sustainability matter merits additional disclosure given certain relevant factors and material importance.

II. Sustainability Statements

Sustainability statements are the fundamental underpinning of sustainability disclosures under the CSRD. In this section, �������ϲ���̳ addresses what must be included within these statements, how these must be formatted and time intervals for reporting to enable covered undertakings to structure their reports in proper compliance with the CSRD.

• What to know:��
  • Sustainability statements are part of an undertaking report which contains sustainability information which must be reported on by CSRD ().
    • The statements must take the same form as the financial reporting statements ().
    • The statements must be presented in a way that allows a distinction between the information required by disclosures in ESRS and other information included in the management report ().
    • The statements must be in a structure that facilitates access to and understanding of the sustainability statement in a format that is readable by both humans and machines ().
    • For opportunity reporting, the disclosure should consist of descriptive information that allows the reader to understand the opportunity for the entity or entire sector, with special consideration to the materiality of the information that needs to be disclosed ().��
    • What should the sustainability statements include?��
      • The statement should be structured in four parts ():
        • General information.
        • Environmental information.
        • Social information.��
        • Governance information.
      • The statements should include information on:
        • The disclosure pursuant to����of the European Parliament and the Council ().
        • The European Commission’s����that specifies the content and other modalities of those disclosures ().
        • Disclosures relating to each of the environmental objectives defined in the��, presented together in a clearly identifiable part of the environmental section featured within the sustainability statement ().��
• Why you need to know:
  • Entities must provide information that enables users of its sustainability statements to understand the connections between different pieces of information within the statement, as well as the connections between the information in the sustainability statement and other information that the undertaking discloses in other parts of its corporate reporting ().
  • Appropriate linkages must also be established in sustainability statements between retrospective and forward-looking information, when relevant, to foster a clear understanding of how historical information relates to future-oriented information ().
  • The reporting period must be consistent with that of the entity’s financial statements ().
  • When preparing the sustainability statement, the entity must adopt the following time intervals as of the end of the reporting period ():
    • Short: The period adopted by the undertaking as the reporting period in its financial statements.
    • Medium: From the end of the short period to a maximum of five years.
    • Long: More than five years.��
  • A base year is the historical reference date or period for which information is available and against which subsequent information can be compared over time ().
• Key aspects:
  • How to prepare:
    • Create a framework for the statement to be used in the first year of the required reporting and then use it as a baseline to report against in future statements.
    • With a framework created, entities can use it as a benchmark throughout the reporting period to understand the progress against their statements.

III. Interconnections of Information

Disclosures provide the necessary roadmap for covered undertakings in terms of what must be contained within their sustainability statements and how these statements must be formatted for proper compliance with the CSRD. In this section, �������ϲ���̳ addresses how disclosures guide sustainability statements, and specific timelines for which information must be reported for CSRD compliance.

• What to know:
  • Disclosures are the guidance that is used to determine what should be disclosed within the sustainability statements.��
  • ��lays out all disclosure requirements, including the basis of preparing sustainability statements (BP-1), disclosures related to specific circumstances (BP-2), and minimum disclosure requirements (MDR) related to policies, actions, metrics and tracking.
  • Are there specific timelines and/or transitions?
    • A company’s sustainability statements should align the time period with their financial statements ().
    • A company should link retrospective and forward-looking information within its sustainability statements ().
    • Reporting must be done against a base year, which is defined as a historical reference date for which information is available and against which subsequent information can be compared over time ().��
    • The company should present comparative information in respect of the base year for amounts reported in the current period. This can be done unless the relevant disclosure requirement already defines how to report progress ().
• Why you need to know:
  • The company should disclose comparative information from the previous period for all quantitative metrics and monetary amounts disclosed in the current period. When relevant to an understanding of the current period’s sustainability statement, the undertaking must also disclose comparative information for narrative disclosures.
  • All the qualitative characteristics of the information, as described above, are laid out in detail within��, under the headings: relevance, faithful representation, comparability, verifiability, and understandability.
• Key aspects:
  • Potential hazards:
    • Measurement uncertainty may arise due to the lack of consistent and/or accurate quantitative metrics and monetary amounts. These should be disclosed in sustainability statements. In order to solve this, companies can include a scenario or sensitivity analysis ().
    • ESRS 1 also outlines methods of reporting errors in prior periods, which are omissions or misstatements featured in the company’s sustainability statement. These errors include:
      • Calculation errors
      • Mistakes in applying the definitions for metrics or targets
      • Oversights or misinterpretation of facts
      • Fraud ().
  • Firms should note that the requirement for entity-specific disclosures is likely to reduce over time as more sector-specific standards are adopted.
  • Until such time that entity-specific disclosures are phased out, the company can adopt transitional measures, including:
    • Entity-specific disclosures that it reported in prior periods, if these disclosures met the qualitative characteristics that are laid out in Section 2 of ESRS 1.
    • Adding disclosures to topical ESRS which cover sustainability matters that are material for the company within its sector, by using best practices as laid out in the International Financial Reporting Standards and by Global Reporting Initiative (.

IV. Comparative Information Reporting

Comparative information is how progress towards sustainability goals is measured. In this section, �������ϲ���̳ addresses what type of comparative information must be disclosed, and the proper format in which this must be carried out to ensure a covered undertaking is complying with the CSRD.

• What to know:
  • What comparative information must be disclosed?
    • Comparative information in respect of the previous period for all quantitative metrics as well as monetary amounts disclosed in the current period.��
    • When relevant to an understanding of the current period’s sustainability statement, the entity must also disclose comparative information for narrative disclosures ().
  • How must this be disclosed?��
    • When the entity reports comparative information that differs from the information reported in the previous period, it must disclose:
      • The difference between the figure reported in the previous period and the revised comparative figure ().
      • The reasons for the revision of said figure ().
    • In certain cases, where it is impracticable to adjust comparative information for one or more prior periods to achieve comparability with the current period, the entity must disclose this fact ().
    • When an ESRS requires the entity to present more than one comparative period for a metric or datapoint, the requirements of that ESRS prevail ().
    • Comparative information must be disclosed in the sustainability information ().��
    • When an entity receives information after the reporting period but prior to approval of the management report for issuance, and such information provides evidence or insights about conditions existing at the period’s end, the entity must, where appropriate, update estimates and sustainability disclosures ().
    • When such information provides evidence or insights about material transactions, other events and conditions that arise post-reporting period, the entity must, where appropriate, provide narrative information indicating the existence, nature and potential consequences of these post-year end events ().
• Why you need to know:
  • Comparative information is the quantitative tool to measure an entity’s progress towards its sustainability goals.��
• Key aspects:
  • How to prepare:
    • Entities should start thinking about what quantitative and qualitative measurements they can use to achieve sustainability goals.��
    • Entities can start creating a baseline framework for reaching these goals.��

Presentation of Information

I. Classified and Sensitive Information Disclosures

�ճ����CSRD permits covered undertakings to exempt certain proprietary information from disclosure to maintain a competitive advantage while complying with the directive’s reporting requirements. In this section, �������ϲ���̳ addresses the circumstances that permit such exemption, including the type of information and required preventative steps to keep the information propriety, for an entity to benefit from this exemption while staying compliant with the CSRD.

• What to know:
  • Will classified and/or sensitive information be protected under CSRD/ESRS 1?��
    • Yes. The undertaking is not required to disclose classified information or sensitive information, even if such information is considered material ().��
  • What information may be exempted from disclosure?��
    • Where a specific piece of information corresponding to intellectual property, know-how or the results of innovation is relevant to meet the objective of a disclosure requirement, the undertaking may omit that specific piece of information if it:
      • Is secret in the sense that it is not, as a body or in the precise configuration and assembly of its component, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
      • Has commercial value because it is secret; and
      • Has been subject to reasonable steps by the undertaking to keep it secret.��().
  • Does it matter if the exempt information is material?
    • No.��
• Why you need to know:
  • Allowing certain information to be exempted from disclosure enables businesses to maintain competitive advantage, while meeting and maintaining their reporting obligations.
• Key aspects:
  • What may be considered as “secret”?��
    • Information may be exempt from disclosure if:��
      • It is secret in the sense that it is not, as a body or in the precise configuration and assembly of its component, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
      • Has commercial value because it is secret; and
      • Has been subject to reasonable steps by the undertaking to keep it secret.��().��
  • Does commercial value impact disclosure?��
    • Yes. When disclosing information about its strategy, plans and actions, where a specific piece of information corresponding to intellectual property, know-how or the results of innovation is relevant to meet the objective of a disclosure requirement, the undertaking may nevertheless omit that specific piece of information if it:
      • Is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question.
      • Has commercial value because it is secret.
      • Has been subject to reasonable steps by the undertaking to keep it secret.��().��
  • Must the concerned entity undertake preventative steps to keep information protected in order to make it exempt from disclosure?��
    • Yes, the information must have been subject to reasonable steps by the undertaking to keep it secret ().

II. Opportunity and Risk Reporting

The CSRD requires covered undertakings to report certain financial opportunities and risks related to sustainability. In this section, �������ϲ���̳ addresses how opportunities and risks are identified; the type of identified opportunities and risks that must be reported; and how these opportunities and risks must be reported by covered undertakings for proper compliance with the CSRD.

• What to know:
  • Risks and opportunities refers to the undertaking’s sustainability-related financial risks and opportunities, including those deriving from dependencies on natural, human and social resources, as identified through a financial materiality assessment ().
  • Specifically, risks and opportunities are uncertainties related to ESG factors that, if they do happen, could negatively or positively impact the company’s business and sustainability strategies.Think of this like the “outside-in” impact of ESG factors on the company, as compared to the “inside-out” double materiality impact of the company’s business on the environment.��
  • This means that the company must identify if the opportunity has a material and positive impact on its finances either through:
    • Influencing the company’s ability to continue to use or obtain the resources needed in its business process. ().
    • Affecting the company’s ability to rely on relationships needed in its business processes on acceptable terms ().
  • When reporting on risks and opportunities, the disclosure should consist of descriptive information allowing the reader to understand the risk and opportunity for the company or the entire sector. The company should consider the materiality of information disclosed, as well as other factors like:
    • Whether the opportunity is currently being pursued and is incorporated in its general strategy.
    • Whether the inclusion of quantitative measures of anticipated financial effects is appropriate, taking into account the number of assumptions that it could require.
  • All identifiable sustainability information must be presented alongside financial statements within a company’s management reports in the form of a sustainability statement.
  • The format of the sustainability statement is contained in��.
  • As of October 2024, all cross-cutting general disclosures and climate change disclosures (E1) are mandatory.
  • If the company concludes that a topic, other than climate change, is not material and therefore omits all the disclosure requirements in the corresponding topical ESRS, it may provide a brief explanation of the conclusions of its materiality assessment for that topic ().
• Why you need to know:
  • Does an entity have to report all identified risks and opportunities that may impact its industry, or solely those directly pertaining to the undertaking?
    • Mostly the disclosures relate to the relevant undertaking only. However, when assessing materiality, undertakings must also report on activities and direct and indirect business relationships across the undertaking’s value chain that affect or may affect, positively or negatively, interests of affected stakeholders (.
    • The entity must also continuously engage with stakeholders as part of its ongoing due diligence process. This includes its processes to identify and assess actual and potential negative impacts that can be included in the sustainability reporting. (.
• Key aspects:
  • Narrative description of impacts��
  • Process of information collection
    • The risk and opportunity reporting process starts with a materiality assessment. This process is described in detail in��.
    • As it relates to opportunities, the company must disclose:
      • An overview of the process used to identify, assess, prioritise and monitor risks and opportunities that have or may have financial effects. The disclosure shall include:
        • How the undertaking has considered the connections of its impacts and dependencies with the risks and opportunities that may arise from those impacts and dependencies;��
        • How the undertaking assesses the likelihood, magnitude, and nature of effects of the identified risk and opportunities (such as the qualitative or quantitative thresholds, and other criteria used as prescribed by ESRS 1’s Section 3.5��Financial Materiality); and
        • How the undertaking prioritises sustainability-related risks relative to other types of risks, including its use of risk-assessment tools. (.
  • Potential impacts and uncertainties:
    • According to��, when referring to an “impact”, firms must refer to the positive and negative sustainability-related impacts that are connected with its business, as identified through an impact materiality assessment, which refers to actual and potential impacts.��

Additional Resources

• EU CSRD Interactive Map
• EU CSRD Transposition Analysis