What is CSRD?

Why It Matters

The CSRD is, by a considerable margin, the most ambitious mandatory sustainability reporting regime ever enacted. When fully phased in, it will require roughly 50,000 companies to report on a comprehensive set of sustainability topics — up from approximately 11,700 companies under the preceding Non-Financial Reporting Directive (NFRD).

What makes the CSRD genuinely significant isn't just its scope but its structure. Unlike prior EU sustainability reporting requirements, which were largely principles-based and produced inconsistent, hard-to-compare disclosures, the CSRD mandates reporting under the European Sustainability Reporting Standards (ESRS). These standards are detailed, prescriptive, and designed for comparability. They cover climate change, pollution, water and marine resources, biodiversity, circular economy, workforce conditions, communities, consumers, and business conduct.

The directive also introduces mandatory third-party assurance — initially limited assurance, moving toward reasonable assurance. This puts sustainability data on a trajectory toward the same level of scrutiny as financial statements. For sustainability professionals who've spent years arguing that ESG data should be as rigorous as financial data, the CSRD delivers exactly that. Be careful what you wish for.

For companies outside Europe, particularly in the United States, the CSRD matters because its reach extends well beyond EU borders. Any non-EU company with more than €150 million in EU net turnover and an EU subsidiary or branch of sufficient size will need to comply. And even companies below those thresholds will feel indirect pressure, as their EU customers and partners request CSRD-aligned data for their own value chain disclosures.

How It Works

Who Must Report

The CSRD applies to several categories of companies, each with different timelines:

Large EU companies (meeting 2 of 3 criteria: >250 employees, >€50M turnover, >€25M total assets) that were already under the NFRD began reporting for fiscal year 2024.

Other large EU companies meeting the same size thresholds but not previously under NFRD report for fiscal year 2025.

Listed SMEs on EU-regulated markets report for fiscal year 2026 (with an option to delay until 2028). Micro-enterprises are excluded.

Non-EU companies with net EU turnover exceeding €150M and at least one EU subsidiary or branch meeting size criteria report for fiscal year 2028 under a simplified standard set.

The European Sustainability Reporting Standards (ESRS)

The ESRS, developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission, form the backbone of CSRD reporting. The first set includes:

• ESRS 1 — General Requirements (principles and architecture)
• ESRS 2 — General Disclosures (governance, strategy, material impacts, metrics)
• ESRS E1-E5 — Environmental standards (climate change, pollution, water, biodiversity, resource use/circular economy)
• ESRS S1-S4 — Social standards (own workforce, value chain workers, affected communities, consumers)
• ESRS G1 — Governance (business conduct)

ESRS 1 and ESRS 2 are mandatory for all companies. The topical standards (E1-E5, S1-S4, G1) are subject to the double materiality assessment — you report on them if they're material from either a financial or impact perspective.

The Double Materiality Requirement

Every CSRD report starts with a double materiality assessment (see our glossary entry on Double Materiality). This assessment determines which topical standards and specific disclosure requirements apply to your company. It's not optional, and the methodology must be documented and transparent.

The assessment must consider your entire value chain, not just direct operations. It must cover short, medium, and long-term time horizons. And it must incorporate stakeholder perspectives — including affected communities and workers, not just investors.

Assurance and Digital Tagging

CSRD reports must receive third-party assurance. Initially, this is limited assurance (a lower standard than financial audit), but the directive envisions a transition to reasonable assurance as practice matures and standards develop.

Reports must also be digitally tagged using the European Single Electronic Format (ESEF), making the data machine-readable. This enables large-scale analysis by regulators, investors, researchers, and civil society — a significant shift from the PDF-based sustainability reports of the past.

Key Components of Compliance

Governance structures need to be in place. The board or supervisory body must oversee sustainability reporting, and roles and responsibilities must be clearly defined and disclosed.

Transition plans are required for climate-related disclosures. If climate change is material, companies must describe their plans for transitioning to a sustainable economy, including targets, actions, and resource allocation.

Value chain data is essential. Many ESRS disclosure requirements cover upstream and downstream activities. This means companies need systems for collecting supplier data, estimating value chain impacts, and tracking downstream product effects.

Policies, targets, and actions must be disclosed for each material topic. It's not enough to describe risks — companies must explain what they're doing about them.

Council Fire's Perspective

We've been working with clients on CSRD readiness since the directive was first proposed, and the most common mistake we see is treating it as a reporting exercise rather than a strategic one. Yes, you need the data, the systems, and the disclosures. But the double materiality assessment, the value chain mapping, the transition planning — these are strategic activities that should inform how you run the business, not just what you write in a report.

The companies getting the most value from CSRD preparation are those that use it as a catalyst for building sustainability capabilities they needed anyway: better supply chain visibility, clearer climate strategy, stronger stakeholder relationships, and more integrated governance.

Council Fire helps organizations navigate CSRD from gap assessment through implementation and reporting. We bring practical experience with the ESRS, double materiality methodology, and the cross-functional coordination that effective CSRD compliance requires.

Looking Ahead

The CSRD will continue to evolve. Sector-specific standards are in development. The transition from limited to reasonable assurance will raise the bar on data quality. And as the first wave of CSRD reports hits the market, investors and analysts will develop increasingly sophisticated ways of comparing and scrutinizing them.

Companies that treat CSRD as a one-time compliance project will find themselves perpetually catching up. Those that build it into their operating rhythm — integrating sustainability data alongside financial data, embedding double materiality into strategic planning, and maintaining the stakeholder relationships that informed their first assessment — will find each reporting cycle progressively easier and more valuable.