Impact Policy Tracker Policy

Corporate Sustainability Reporting Directive (CSRD) & European Sustainability Reporting Standards (ESRS)



In January 2023, after going through the EU legislative process, the CSRD came into effect, replacing the Non-Financial Reporting Directive (NFRD) adopted in 2014, requiring companies to provide more comprehensive and granular disclosures covering the entire spectrum of sustainability topics, as detailed in the European Sustainability Reporting Standards (ESRS), developed by European Financial Reporting Advisory Group (EFRAG), following an extensive consultation process. Although the Directive entered into force in 2023, with reporting starting for the fiscal period beginning in 2024, in early 2025 the so-called “omnibus simplification bill”, a proposal to “simplify EU rules and boost competitiveness“ by reducing the regulatory burden on businesses, was passed, effectively postponing for two years the effective date of existing reporting requirements for non-listed large entities and for listed SMEs.

Highlights

  • First mandatory sustainability disclosures: the CSRD, together with its predecessor the NFRD, are considered the first regulation globally to legally mandate comprehensive, standardised sustainability disclosures across a broad set of companies.

  • Global ripple effect: the CSRD applies to a large scope of companies, including not only Public Interest Entities but also large and listed companies, listed SMEs and non-EU companies with significant operations in the EU to report. The latter category implies that non EU-headquartered companies could be subject to EU regulation. Overall, this entails a scope of around 50.000, a major expansion from the circa 12.000 affected by the NFRD.

  • Materiality: in contrast to most mandatory sustainability reporting requirements, the CSRD embraces a “double materiality” approach, requiring companies to report not only about their sustainability-related risk and opportunities, but also on impacts. In other words, companies need to report their impacts on society and the planet on top of how sustainability-related matters affect its business performance and position.

  • Key component of a wider sustainability strategy: the CSRD directly supports the European Green Deal, the EU’s flagship strategy to become the first climate-neutral continent by 2050 and is part of wider set of sustainability-related policies, including the Sustainable Finance Disclosure Regulation (SFDR), requiring financial advisers to inform investors about how they consider the sustainability risks, the EU taxonomy, which classifies activities aligned with a net-zero trajectory and broader environmental goals, and the Corporate Sustainability Due Diligence Directive (CSDDD), requiring companies to address human rights and environmental impacts in their value chains.

  • Interoperability with existing (voluntary) standards: although unique in its kind, EFRAG has cooperated with the GRI and the IFRS-ISSB to avoid double reporting, and reducing complexity, fragmentation and duplication for companies applying one or more standards.

Government’s Role:
Market Regulator


Country:
European Union

Policy Type:
Sustainability Disclosure Standards

Year: 2022

Responsible Institution:
European Commission, European Financial Reporting Advisory Group (EFRAG), European Securities and Markets Authority (ESMA), European Parliament, European Council.

Sustainability Disclosure Regulations

What are Sustainability Disclosure Regulations?

Sustainability Disclosure Regulation requires financial market participants to report on their impacts on the economy, people, and planet, alongside financial information. To comply with the regulatory mandate, organisations must use Sustainability Disclosure Standards (SDS),which ensure that the information disclosed is comprehensive, verified, comparable and decision-useful. They can help organisations assess not only how sustainability-related risks and opportunities affect the short, medium and long-term enterprise value (single materiality; only financially-relevant information) but also how their operational impacts affect people and the planet (double materiality). The availability of such information is essential for investors and other key decision makers to integrate social and environmental factors into their investment and decision-making processes.

SDS are one of the most effective mechanisms to achieve comparable, consistent and reliable information on impact. Although companies can opt to report based on existing voluntary standards (such as those from the Global Reporting Initiative - GRI), in some jurisdictions publicly listed companies must abide by mandatory financial and non-financial (i.e. sustainability-related) disclosure requirements issued by financial regulators. These mandatory reporting standards are increasingly being implemented in different countries, both in developed and developing economies, most of which are either adopting the standards set by the IFRS Foundation’s International Sustainability Standards Board (ISSB) in full or working on local adaptations with local specificities to cater for specific nuances, capabilities, readiness and topics relevant to their local markets.