The Corporate Sustainability Reporting Directive (CSRD) is an EU mandate requiring companies to disclose detailed information about their environmental and social impacts.
Adopted by the European Commission in November 2022, the CSRD replaces and expands upon the previous Non-Financial Reporting Directive (NFRD). The new directive establishes stricter requirements for sustainability reporting across the European Union. These requirements focus on environmental, social, and governance (ESG) factors.
The CSRD significantly broadens the scope of companies required to comply with sustainability reporting. While the NFRD applied to approximately 11,700 large public-interest entities, the CSRD extends to nearly 50,000 companies. This includes large private businesses and listed SMEs that meet specific criteria.
The core purpose of the Corporate Sustainability Reporting Directive is to increase corporate accountability and support the EU’s transition to a sustainable economy. Standardized sustainability data helps investors, consumers, and regulators make informed decisions about companies. The directive addresses previous issues of inconsistent and incomparable sustainability reporting across organizations.
Companies will begin issuing their first CSRD reports in 2025, with a phased implementation approach based on company size. The directive requires sustainability information to undergo audit assurance similar to financial data. This is a major shift in how businesses approach and disclose their environmental and social impacts.
Who the CSRD applies to
The CSRD’s requirements extend to a diverse range of businesses operating within or connected to the EU market. Compliance depends on company size, financial activity, and geographic footprint.
Covered entities
EU-based companies must comply if they meet two of three criteria: more than 250 employees, over €50 million in annual revenue, or €25 million in total assets. This includes listed SMEs, excluding micro-enterprises with fewer than 10 employees.
Non-EU companies must be compliant if they generate over €150 million annually in the EU and have at least one EU subsidiary meeting CSRD thresholds or an EU branch generating over €40 million in local revenue. Over 10,000 non-EU businesses, including 3,000-plus U.S. firms, fall under these rules.
Timeline for implementation
The CSRD’s timeline is a phased implementation by entity type over five years. Large public-interest companies (previously under the NFRD) began reporting on 2024 data in early 2025. Other large EU companies start reporting in 2026 for 2025 financials, while listed SMEs follow in 2027.
Non-EU entities face later deadlines: EU subsidiaries align with local timelines, while global parent companies with EU branches must report at the group level by 2028.
Impact on non-EU companies
The CSRD transforms EU sustainability rules into a global compliance challenge. Multinationals without EU headquarters must still disclose ESG data if their EU revenue exceeds €150 million or they maintain significant local operations.
For example, a U.S. tech firm expanding into Europe with a Dublin subsidiary that meets size thresholds must report its global sustainability impacts. Supply chain partners may also face indirect reporting demands as covered companies scrutinize upstream emissions.
Key reporting requirements of CSRD
The CSRD establishes rigorous disclosure standards across ESG domains, mandating both qualitative narratives and quantitative metrics. These requirements aim to standardize sustainability reporting while addressing stakeholder demands for transparency.
- Expanded ESG disclosure. Companies must report environmental impacts (climate change mitigation, resource use), social factors (human rights, community relations), and governance practices (anti-corruption measures, board diversity). Disclosures must cover sustainability risks and opportunities across operations and supply chains.
- Workforce and social reporting. Detailed metrics on employee well-being, diversity (gender, age, ethnicity), equal pay gaps, collective bargaining coverage, and working conditions in global talent operations are mandatory. Companies must also disclose annual training hours and health/safety incident rates.
- Double materiality framework. Organizations must analyze both how sustainability issues affect their finances (financial materiality) and how their operations impact society/environment (impact materiality). This dual assessment determines which ESG factors require disclosure.
- Digital XHTML formatting. Reports must use machine-readable XHTML files with inline XBRL tagging based on the ESRS taxonomy. This enables automated analysis and EU-wide comparability of sustainability data.
- Assurance requirements. Independent limited assurance of sustainability data becomes mandatory by 2026, with stricter “reasonable assurance” (audit-grade verification) phased in from 2028. This applies to all material ESG claims.
- Business model integration. Management reports must explain how sustainability influences corporate strategy, risk management, and long-term viability. This includes transition plans for climate-related business model adjustments.
- Metrics and targets. Companies must establish measurable sustainability goals with annual progress tracking. Disclosures include baseline metrics, improvement rates, and explanations for missed targets.
- Value chain reporting. Organizations must assess ESG risks/impacts across their entire supply chain, including subcontractors and raw material suppliers. This extends reporting obligations beyond direct operations.
The directive requires all disclosures to align with the European Sustainability Reporting Standards (ESRS), which include 82 mandatory and optional data points. Companies must complete a double materiality assessment to determine relevant disclosures before structuring reports. Non-compliance risks reputational damage and exclusion from EU public contracts, though financial penalties remain at the discretion of member states.
How companies can prepare for CSRD compliance
Preparing for CSRD compliance requires strategic planning, cross-departmental coordination, and investments in robust data systems. Organizations should approach implementation as both a regulatory obligation and an opportunity to strengthen stakeholder trust.
- Conduct a sustainability gap assessment. Begin by comparing existing ESG disclosures against CSRD’s European Sustainability Reporting Standards. Identify missing metrics like supply chain emissions or workforce diversity data. Prioritize gaps impacting double materiality assessments and assurance readiness.
- Collaborate across functions. Break silos between HR, legal, finance, and ESG teams. HR must provide global workforce data on training hours and health/safety incidents, while legal confirms jurisdictional compliance. Finance teams should align tax reporting with sustainability strategies to avoid misalignment risks.
- Invest in data collection tools. Adopt centralized platforms that automate ESG data aggregation across international operations. Prioritize solutions with XHTML export capabilities and real-time tracking for metrics like Scope 3 emissions or contractor working conditions.
- Work with compliance partners. Engage global workforce management providers to ensure labor law adherence in all jurisdictions. Partners can streamline data collection on international payroll, benefits parity, and contractor classifications while mitigating cross-border risks.
- Address tax strategy alignment. Integrate tax transparency into sustainability reporting by disclosing payments aligned with the EU’s Green Deal objectives. Assess how tax incentives or cross-border structures impact ESG profiles.
Simon Brennan, leader of Deloitte’s EMEA Sustainability Regulation Hub, emphasizes, “Establish strong governance. Implement controls and oversight to manage key tax risk, ensuring senior leadership owns decisions with reputational impact.”
Proactive companies are using CSRD preparation to future-proof operations—85% of firms adopting these steps report improved investor confidence and supply chain resilience.
Leverage CSRD as a competitive advantage
Companies navigating CSRD compliance can leverage Velocity Global’s expertise in global workforce management to streamline ESG data collection and ensure cross-border labor law adherence. With in-country compliance specialists across 185+ jurisdictions, Velocity Global simplifies reporting on workforce diversity, contractor conditions, and EU-specific metrics. Their integrated platform enables businesses to align HR practices with sustainability goals while mitigating risks in complex markets like the EU. Reach out to learn more.
