What is the Corporate Sustainability Reporting Directive?

What is the Corporate Sustainability Reporting Directive?

The importance of Environmental, Social and Governance (ESG) values

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that came into effect at the beginning of this year and introduces reporting obligations that are being phased in between 2024 and 2029. The CSRD considerably amends and extends the sustainability and reporting requirements which existed under the Non-Financial Reporting Directive (NFRD) and is expected to impact over 50,000 companies, far exceeding the 11,600 companies caught by the NFRD.

Over the past few years, we have seen a rise in EU legislation promoting sustainable economic growth in a bid to combat the increasingly apparent impacts of issues such as climate change, environmental degradation and biodiversity loss. A key focus of the EU’s strategy has been on the information which companies are required to publicise in relation to their environmental, social and governance (ESG) practices.

Despite previous legislation to that effect, in 2021 the European Commission reported finding significant evidence that many companies still do not disclose material sustainability information and that, where information is disclosed, there are problems with its comparability and reliability. We see this practically in the growth of greenwashing, whereby companies make claims as to their eco credentials that cannot be properly substantiated. Companies also face inconsistent and sometimes onerous demands from investors and lenders for sustainability related material in the context of due diligence.  

The CSRD aims to ensure comprehensive and consistent sustainability reporting requirements, increasing both corporate accountability and confidence in companies from third parties such as investors and lenders.

Does the CSRD apply to you?

Subject to certain exemptions, the CSRD applies to the following companies:

  1. Companies with listed securities on regulated markets in the EU, regardless of where they are incorporated (excluding micro-undertakings).
  2. Large undertakings incorporated in the EU which meet two out of three of the following conditions:
    1. More than 250 employees, and/or
    2. Net turnover of over €40m, and/or
    3. Total assets (balance sheet) of over €20m.
  3. EU parent undertakings of a group that meets the large undertaking criteria (above) as a whole.
  4. Parent companies incorporated outside of the EU which have a net turnover of €150 million within the EU and have at least one of the following:
    1. An EU subsidiary which qualifies as a large undertaking (see above)
    2. An EU subsidiary which is a listed SME, or
    3. A branch in the EU that has generated net turnover of more than €40m in the prior financial year.

As the UK is no longer a part of the EU, UK incorporated companies will only be within the scope of the CSRD if they fall into categories (1) or (4) above. Where the CSRD applies by virtue of option (4) above, it will be the qualifying EU subsidiary or branch that is required to publish the sustainability report, not the non-EU parent.

What are the obligations?

In scope, companies are required to report information on a broad range of ESG matters relating to their business, such as emissions reduction targets, net zero transition plans and modern slavery policies.

The CSRD requires a dedicated section in a company’s management reports with sufficient disclosure of information to understand the company’s impact on sustainability matters and vice versa, known as the principle of “double materiality”. Reporting will need to be in line with the European Sustainability Reporting Standards (ESRS), the first set of which was published at the end of July 2023. There is also a new requirement for limited assurance of the report to ensure that the information provided is accurate and compliant. The CSRD leaves penalising non-compliance to the member states. Companies that do not comply could therefore face administrative sanctions which may differ between member states, ranging from public statements about the breach to financial penalties.

The disclosure required is potentially complex and will continue to develop over time so we recommend seeking legal advice if you think your company might be in-scope.

When will it be enforced?

There is a staggered introduction in different stages:



  • 1 January 2024
  • Companies already within the scope of the NFRD to commence reporting


  • 1 January 2025
  • Large undertakings that are not currently subject to the NFRD to commence reporting


  • 1 January 2026
  • Listed SMEs to commence reporting


  • 1 January 2028
  • In scope non-EU companies to commence reporting


What are the impacts of the CSRD?

For in scope companies, we anticipate that the short term costs of compliance with the CSRD will be high as the reporting obligations are extensive. However, the overall cost of compliance will likely decrease in the medium to long term and, once habitual, compliance with the CSRD should improve the dialogue between companies and third parties such as investors and other stakeholders about sustainability metrics and investment opportunities. Having one set of EU-wide reporting standards will also make it easier for businesses with a large EU presence rather than dealing with divergent national standards of reporting. 

We also expect to see a wider knock-on effect for out of scope companies. If the reporting standards envisaged by the CSRD become commonplace in the EU market, stakeholders may begin to expect such standards, even when dealing with out of scope companies. Therefore, UK businesses could find it in their interests to voluntarily comply even without parallel UK legislation requiring them to do so.

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