CSRD Handbook

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is the European Union's landmark regulation that significantly expands the scope and detail of mandatory sustainability reporting for companies operating in or connected to the EU. Adopted in November 2022 and entering force in January 2023, the CSRD replaces and strengthens the earlier Non-Financial Reporting Directive (NFRD). It introduces standardized reporting under the European Sustainability Reporting Standards (ESRS), mandatory third-party assurance, and digital tagging of reported data.

Who is Affected?

The CSRD dramatically expands the number of companies required to report. It applies to:

• All large EU companies meeting at least two of three criteria: more than 250 employees, more than EUR 50 million in net turnover, or more than EUR 25 million in total assets.
• All EU-listed SMEs (excluding micro-enterprises), though with simplified reporting standards and a later compliance date.
• Non-EU companies with significant EU activity (net turnover exceeding EUR 150 million in the EU) and at least one EU subsidiary or branch meeting certain thresholds.
• EU-listed companies already subject to the NFRD, which transition first.

In total, approximately 50,000 companies are expected to fall within scope, compared to roughly 11,700 under the NFRD.

Timeline

The CSRD is being phased in over several years based on company size and listing status:

• 1 January 2024: Companies already subject to the NFRD (large, listed companies with 500+ employees) report for financial year 2024, with first reports due in 2025.
• 1 January 2025: Other large companies meeting the size thresholds begin reporting for FY 2025, with first reports due in 2026.
• 1 January 2026: Listed SMEs, small and non-complex credit institutions, and captive insurance companies begin reporting for FY 2026 (with an opt-out possible until 2028).
• 1 January 2028: Non-EU companies with significant EU activity begin reporting for FY 2028, with first reports due in 2029.

ESRS: The Reporting Standards

The European Sustainability Reporting Standards (ESRS) are the technical standards that define what companies must disclose under the CSRD. Developed by EFRAG (European Financial Reporting Advisory Group), the first set of sector-agnostic standards includes:

• ESRS 1 & ESRS 2 -- Cross-cutting standards covering general requirements and general disclosures (governance, strategy, impact/risk/opportunity management, and metrics/targets).
• ESRS E1-E5 -- Environmental standards covering climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use and circular economy.
• ESRS S1-S4 -- Social standards covering own workforce, workers in the value chain, affected communities, and consumers and end-users.
• ESRS G1 -- Governance standard covering business conduct, including anti-corruption, lobbying, and payment practices.

Double Materiality

A defining feature of the CSRD is the concept of double materiality. Unlike traditional financial materiality, which focuses on issues that affect a company's financial performance, double materiality requires companies to assess and report from two perspectives:

• Impact materiality: How the company's activities affect people and the environment (inside-out perspective).
• Financial materiality: How sustainability matters create risks or opportunities that affect the company's financial position, performance, and cash flows (outside-in perspective).

A sustainability topic is considered material if it is material from either perspective. The double materiality assessment is the foundation for determining which ESRS topical standards a company must report on. ESRS 1 and ESRS 2 are mandatory for all companies in scope, while topical standards (E1-E5, S1-S4, G1) apply based on the materiality assessment results.

Reporting Requirements

Under the CSRD, sustainability reports must be included in the management report (not as a separate document), published in a machine-readable XHTML format with XBRL digital tagging, and subjected to limited assurance by an independent auditor or assurance provider. Key reporting requirements include:

• A description of the company's business model and strategy in relation to sustainability
• Time-bound sustainability targets and progress tracking
• The role of governance bodies in sustainability matters
• Principal adverse impacts connected to the company's value chain
• Quantitative and qualitative metrics for all material sustainability topics
• Information about due diligence processes regarding sustainability matters

Steps to Prepare

Organizations should take a structured approach to CSRD readiness. The following steps provide a practical roadmap:

• 1. Determine your timeline. Identify which phase your organization falls into based on size, listing status, and EU nexus.
• 2. Conduct a double materiality assessment. Engage stakeholders, map impacts and dependencies, and identify which ESRS topical standards apply to your business.
• 3. Perform a gap analysis. Compare your current disclosures and data capabilities against ESRS requirements to identify gaps in data collection, processes, and internal controls.
• 4. Build your data infrastructure. Establish data collection workflows, connect source systems, implement quality controls, and designate data owners across your organization.
• 5. Adopt a reporting platform. Use software like LEIFLYTICS to centralize data, automate ESRS-aligned disclosures, generate XBRL-tagged outputs, and maintain audit trails.
• 6. Engage your assurance provider early. Select an auditor experienced in sustainability assurance and involve them in the process design phase, not just the final review.
• 7. Train your teams. Ensure finance, sustainability, legal, and operational teams understand their roles in CSRD compliance and the specific data they are responsible for providing.