21 December 2022

The Corporate Sustainability Reporting Directive: raising the bar on transparency

The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal on 16 December 2022. Member states will have to now implement the CSRD in their national laws. The CSRD's key element is the introduction of significant – and significantly expanded – EU-wide reporting obligations on sustainability matters. This includes the development of Sustainability Reporting Standards (ESRS), which set out the detailed information that in-scope companies must provide in their management reports. Globally, these standards are unique in type and scope. We will briefly touch upon the ESRS further on in this article.

In 2018, the European Commission made a commitment to review the current Non-Financial Reporting Directive (NFRD), which requires large public-interest entities (PIEs) to publish certain non-financial information. This commitment resulted in the CSRD, which significantly impacts the non-financial reporting framework by introducing a new transparency framework. Reporting under the CSRD framework aims to provide an understanding of the impact of companies (being undertakings within the meaning of the CSRD) on sustainability matters, and the risks to and opportunities for the company arising from those matters. To this effect, the CSRD amends several EU regulations, with the most significant changes being made to the Accounting Directive.

In this article, we will provide you with selected key insights into the CSRD to reflect on. The main questions are: is your company in scope? What must be reported? And does an exemption apply?

Who must report and when?

With the CSRD, significantly more companies will need to report on sustainability information. Broadly speaking, these are:

  • public and private limited liability companies (Dutch NVs and BVs and European equivalents) with a listing in the EU;
  • large public and private limited liability companies (Dutch NVs and BVs and European equivalents) without a listing in the EU;
  • non-EU companies with a listing in the EU; and
  • non-EU companies without a listing in the EU, but complying with the "EU turnover test", so having (i) an annual net turnover at the consolidated or individual level in the EU exceeding EUR 150 million for each of the last two consecutive financial years, and (ii) having either an EU subsidiary (which is either a large EU company, or an EU company listed on an EU regulated market, not being micro) or an EU branch that generated an annual net turnover of more than EUR 40 million in the preceding financial year. In this case, the respective EU subsidiary or branch is responsible for issuing the third-country company's CSRD compliant report, if the third country company does not issue the report itself.

Have a look at this flowchart*

* Updated since this article's publication to include revised size criteria following adoption of Commission Delegated Act amending Directive 2013/34/EU

What must be reported?

The CSRD brings about significant changes in the non-financial reporting framework that currently applies. The CSRD and the ESRS will notably impact the scope and nature of sustainability information to be disclosed and the organisational boundaries relevant to such disclosures.

Sustainability information to be reported under the CSRD (and the ESRS) comprises the (positive and negative) impacts, risks and opportunities relating to environmental, social and human rights, and governance factors (sustainability matters). This includes information on the company's business model and strategy, time-bound targets, the role and expertise of the boards, the company's policies, the existence of incentive schemes, due diligence processes and principal risks, all of course to the extent related to sustainability matters. Companies must also provide information on processes in place to identify this sustainability information. The NFRD's comply-or-explain-principle no longer applies to the reporting on, for example, sustainability-related policies and processes – the CSRD assumes these are in place.

CSRD disclosures should relate to short-, medium- and long-term time horizons. The disclosures must include forward-looking and retrospective, and qualitative and quantitative information, based on conclusive scientific evidence, where possible. However, trade secrets are excluded from disclosure. And finally, non-financial statements should not be made in isolation; where applicable, a connection with the financial statements should be made.

Reporting on climate change

The CSRD requires reporting on the company’s business model and strategy related to sustainability matters. This includes the requirement to report on the plans and implementing actions to ensure that the company's business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement. This constitutes an implicit requirement to have and implement specific plans and actions regarding climate change.

Value chain information

The information should include, where applicable, information on the company's own operations and on its value chain, including its products and services, business relationships, and supply chain. This means that the CSRD requires companies to map their value chains and to have a dialogue with the value chain actors to identify and collect the necessary information. Subject to certain conditions, companies have a three-year window to obtain the information from the value chain, if not all necessary information on the value chain is readily available.


The specific information that companies are required to disclose is set out in ESRS. The European Financial Reporting Advisory Group (EFRAG) – a non-profit association advising the Commission on reporting standards endorsement – has prepared a first batch of 12 draft ESRS for the Commission to include in a delegated act by June 2023. We will discuss these ESRS in more detail in a future article.

Cross-cutting ESRS

Two of these ESRS are "cross-cutting standards", covering general requirements for reporting (ESRS1) and general disclosures (ESRS2) about governance, strategy, impacts, risk and opportunity management, metric and targets, and plans. These ESRS set out the disclosure requirements that apply to all companies regardless of their sector (sector-agnostic) and apply across the sustainability topics (cross-cutting).

Environmental standards

Five "E" ESRS cover "environmental" factors, with ESRS E1 on climate change being the ESRS which will likely have the most significant impact. In-scope companies must disclose information including on (i) their physical and transition risks, and (ii) their resilience as regards, and plans to adapt to, different climate scenarios, (iii) their plans to adapt to the EU 2025 objective of climate neutrality. Other ESRS cover pollution (E2), water and marine resources (E3), biodiversity and ecosystems (E4), and resource use and circular economy (E5).

Social standards

ESRS S1 to ESRS S4 set requirements on "social" factors to be reported about: the own workforce (S1), workers in the value chain (S2), affected communities (S3), and consumers and end-users (S4). Information to be provided includes working conditions, collective bargaining, equality, non-discrimination, diversity and inclusion, and human rights. Data that form part of this information may relate not only to employees, but also to other persons (including selected others working for or on behalf of the company or otherwise affected by its operations). This also implies that related due diligence procedures need to be in place to be able to make the relevant disclosures.

Governance standards

ESRS G1 on business conduct specifies information that companies must disclose on certain specific "governance" factors, including the role of the boards with regard to sustainability matters, and the expertise and skills needed to fulfil that role. G1 disclosures should also cover companies’ corporate culture and approach to business ethics. As part of this, information must be provided about anti-corruption and anti-bribery, and about the company's activities and commitments aimed at exerting its political influence, including its lobbying activities.

Sector-specific standards and third-country companies

In addition to the first set of ESRS (as summarised above), a further set of ESRS is currently in development. This set will specify complementary information that companies should disclose, as well as sector-specific standards and sustainability reporting standards for SMEs and third-country companies. It is envisaged that such further ESRS will be implemented by delegated acts before the end of June 2024.

Baseline reporting and additional reporting based on double materiality assessment

The ESRS introduce baseline reporting with specific ESRS always having to be reported on. In addition, companies are required to report on ESRS that, based on the "double materiality test", are considered material to the company.

Regardless of the materiality assessment outcome, companies must perform baseline reporting and therefore provide at least the following baseline information:

  • all disclosure requirements set out in ESRS 2 (General disclosures), including the datapoints. As mentioned, these disclosures relate to governance, strategy, impacts, risk and opportunity management, metric and targets, and plans;
  • information that stems from other EU legislation, including the Benchmarks Regulation and the Sustainable Finance Disclosure Regulation, which are the datapoints in topical ESRS as prescribed in appendix C of ESRS 2.
  • all disclosure requirements, including the datapoints, related to climate change (ESRS E1); and
  • for companies with more than 250 employees: specific disclosure requirements regarding the own workforce (being ESRS S1-1 to S1-9 in ESRS S1).

In addition, CSRD disclosures should enable relevant stakeholders to understand the company's impact on sustainability matters (impact materiality), and how sustainability matters affect its development, performance and position (financial materiality). To determine the topics that are material from an impact perspective and topics that are material from a financial perspective, the company must conduct this double materiality assessment.

If the company concludes that a topic is material on the basis of either impact materiality or financial materiality, it must report on this sustainability matter in accordance with the relevant ESRS. In addition, if in the company's view the sustainability matter is material to the company but not, or not sufficiently, covered by a specific ESRS, it must develop and provide additional entity-specific disclosures to understand the company's impact, risk and opportunities regarding sustainability matters.

Consolidated reporting; exemptions

The CSRD introduces a new article 29a to the Accounting Directive. This provision will cover consolidated sustainability reporting and includes the same reporting requirements as those for reporting on an individual level via article 19a Accounting Directive (new). This separate regime for consolidated sustainability reporting applies in the following situations:

  • Subsidiaries that are in scope of the CSRD are, under certain conditions, exempted from the reporting obligations, if the parent company makes available a CSRD-compliant report for the entire group. This is also the case where the subsidiary has a non-EU parent that makes available a CSRD-compliant report or reports in a matter that is equivalent to the CSRD and ESRS requirements. What constitutes "equivalent" is still to be determined by the European legislature. These two exemptions do not apply if the subsidiary is a large PIE (for example, a large EU-subsidiary that is also listed);
  • Where multiple subsidiaries of non-EU companies are in scope of the CSRD, one of the largest subsidiaries can prepare a consolidated report for the first seven years from the CSRD's entry into force.

We will provide you with more CSRD insights in due course. Should you have any questions about the CSRD, please feel free to contact any of the experts listed or one of your De Brauw contacts.