The Corporate Sustainability Reporting Directive (CSRD) has introduced a comprehensive sustainability disclosure regime in the EU, which applies to both EU and non-EU companies with significant EU business. The requirements are being phased in, with the first companies due to report in 2025 for the 2024 financial year.

The CSRD is complex and has broad scope. Complying can be a significant undertaking due to the breadth of sustainability topics covered, the requirement to consider these on a "double-materiality" basis across the business' own operations and full value chain, and the detailed and specific disclosure requirements.

In our guide to understanding and implementing the CSRD, we explore what businesses need to know about it and the practical actions to consider when preparing for reporting.

Are you in scope?

This depends on factors including where the company is domiciled, whether and where it is listed, and whether it meets certain financial and employee thresholds. Broadly, the CSRD applies to the following companies and groups from the dates below:

Application of the CSRD

For large international groups, determining which companies are in scope and when may require detailed application of employee and financial thresholds across the group. It is important to do this at the outset, as this analysis can affect the operations, activities, value chain and sustainability matters that need to be considered. Although the reporting requirements will first apply to EU subsidiaries, they may extend to also encompass the global parent from 2028.

What are the main requirements?

The CSRD requires publication of an annual sustainability statement or report with detailed disclosures on the business's material sustainability matters.

The detailed disclosure requirements are set out in the European Sustainability Reporting Standards (ESRS), developed by EFRAG. The first ESRS apply to all EU reporting entities and cover general matters and topic-specific disclosure requirements for various sustainability issues. Further ESRS for specific sectors and company types are in development.

Preparing for CSRD reporting

Carrying out the assessments and gathering the data and information needed for CSRD reporting can require significant time and resource, so it is important to start preparing early. The key steps in the process are:

• Conduct your materiality assessment

First, conduct a CSRD-compliant double-materiality assessment to identify the sustainability matters that are material for your business on which disclosures will be required.

The CSRD and ESRS do not prescribe the methodology or format for the assessment, nor the materiality thresholds to be used, and expect businesses to exercise their judgement. However, the ESRS do set some general requirements on the approach to take, topics and factors to consider and criteria to apply to determine whether a matter is material. There is also detailed guidance from EFRAG on carrying out a materiality assessment.

When carrying out your materiality assessment, it is important to bear the following points in mind:

Carrying out the assessment will therefore involve considering a range of environmental, social and governance topics (listed in the ESRS) on a double-materiality basis. Businesses may need to collect information from different sources and stakeholders to do so, and supplement or update existing assessments to meet CSRD requirements.

• Check disclosure requirements and gather data

Once you have assessed which sustainability matters are material, identify the general and topic-specific ESRS disclosure requirements that apply to them. Topic-specific disclosures are only needed where a matter is determined to be material. These cover climate, nature and environment, human rights, worker and community and governance topics, and generally require disclosures on the material impacts, risks and opportunities identified, related policies, actions and targets, and specific metrics to demonstrate performance.

The ESRS are extensive and require detailed and specific information, so it is important to carefully identify the applicable disclosure requirements and gather the right information to meet them. Even businesses with established sustainability reporting processes are likely to find some adjustment is needed to align to the ESRS.

• Look out for phase-in requirements

Some ESRS disclosure requirements are subject to phase-in periods providing businesses with more time to adjust their processes, gather relevant information and prepare for reporting. These relate, for example, to value chain information, comparative information, certain employee metrics, and certain financial and qualitative metrics.

• Prepare and publish your sustainability statement

EU reporting entities must prepare and publish a sustainability statement containing ESRS-compliant disclosures as part of their annual management report. This must be in the EU's single reporting format, and follow ESRS structure and format requirements. It must also be subject to independent assurance for compliance with CSRD and ESRS requirements.

Non-EU companies with significant EU activities will be required to publish an annual sustainability report.

• Look out for further ESRS

To supplement the existing ESRS, EFRAG is developing further sets of ESRS applicable to specific sectors and types of company, as follows:

Further ESRS

Timelines may change. It is important to monitor the progress and adoption of these ESRS as they may alter or define the extent of applicable disclosure requirements, requiring updates to reporting processes to ensure compliance.