Corporate Sustainability Reporting in the EU: The CSRD and ESRS Framework

Introduction: From Voluntary ESG to Binding Law

Over the last decade, environmental, social, and governance (ESG) reporting has moved from a voluntary corporate practice to a mandatory legal obligation across Europe. With the climate crisis, green transition, and investor demand for transparency, the EU has taken bold steps to standardize and enforce corporate sustainability reporting.

At the heart of this transformation is the Corporate Sustainability Reporting Directive (CSRD), adopted in 2022 and progressively entering into force from 2024 onward. Together with the European Sustainability Reporting Standards (ESRS), the CSRD creates one of the world’s most comprehensive ESG reporting regimes, covering tens of thousands of companies.

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From NFRD to CSRD: A Major Expansion

The CSRD replaces the older Non-Financial Reporting Directive (NFRD), which applied to about 11,000 large companies. Its main limitations were:

Narrow scope (mostly large listed companies),

Lack of standardized formats,

Low comparability and reliability.

The CSRD significantly expands obligations:

About 50,000 companies in the EU will now be covered,

Reporting applies not only to listed companies, but also large private companies meeting two of the following: €40m turnover, €20m assets, or 250+ employees,

Listed SMEs are included (with some transitional relief),

Non-EU companies with significant EU turnover (€150m+) and an EU subsidiary will also have to report.

This makes sustainability reporting a mainstream legal requirement for nearly all major actors in the European economy.

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The ESRS: Detailed Reporting Standards

To ensure consistency and comparability, the CSRD is implemented through the European Sustainability Reporting Standards (ESRS), developed by EFRAG (European Financial Reporting Advisory Group).

The ESRS require companies to disclose:

Environmental impacts: climate, pollution, water, biodiversity, circular economy,

Social impacts: workforce, communities, human rights in supply chains,

Governance: business conduct, anti-corruption, board oversight of sustainability.

Disclosures must be:

Digital and machine-readable, using the EU sustainability taxonomy,

Assured by auditors, with limited assurance moving toward reasonable assurance,

Double materiality–based, meaning companies must report both:

How sustainability issues affect them financially,

How their activities impact the environment and society.

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Double Materiality: A Defining Concept

Unlike many other reporting frameworks, the CSRD explicitly requires double materiality:

Financial materiality: risks and opportunities from sustainability factors (e.g., climate risks affecting supply chains),

Impact materiality: the company’s own footprint on people and the planet (e.g., emissions, labor rights).

This makes the EU regime broader than U.S. SEC rules or other single-materiality systems, positioning Europe as a leader in holistic ESG regulation.

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Implementation Timeline

The CSRD will apply in phases:

2024: Large listed companies already under NFRD (first reports in 2025),

2025: Large companies not previously covered,

2026: Listed SMEs (with opt-out until 2028),

2028: Non-EU companies with EU subsidiaries/branches.

This staged rollout allows companies time to adapt systems, gather data, and train staff.

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Impact on Companies: Costs and Benefits

Challenges

Significant data collection burden across subsidiaries and supply chains,

Need for new IT systems to gather and disclose sustainability metrics,

Rising demand for specialized expertise (lawyers, ESG officers, auditors),

Risk of greenwashing liability if reports are misleading.

Opportunities

Improved investor trust and access to sustainable finance,

Better risk management through integrated sustainability analysis,

Competitive edge for companies embracing green and social innovation,

Alignment with global trends in sustainable supply chain regulation.

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Enforcement and Liability

Enforcement will be carried out by:

National competent authorities, with powers to issue fines and penalties,

Auditors, required to provide assurance on ESG disclosures,

Market pressure, as investors and consumers increasingly demand credible sustainability data.

Companies may also face civil liability for misleading or incomplete disclosures, especially if investors or stakeholders rely on them in decision-making.

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Global Dimension and Comparisons

The CSRD is part of a global ESG convergence trend, alongside:

The ISSB standards (IFRS S1/S2) on sustainability disclosures,

The U.S. SEC climate disclosure rules (still under debate),

Various national green finance and due diligence laws.

While harmonization efforts are ongoing, the EU has clearly chosen a comprehensive and impact-oriented path, setting a benchmark that many multinationals will follow globally.

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Conclusion: The Legal Backbone of ESG in Europe

The CSRD and ESRS represent a historic leap in corporate law. They transform sustainability reporting from a marketing exercise into a binding legal duty, ensuring that companies disclose not only what affects their bottom line but also what they contribute to society and the planet.

For businesses, this means greater transparency, accountability, and legal responsibility. For the EU, it’s a tool to steer capital toward sustainable transformation and position Europe as the global standard-setter for ESG.

As the first wave of reports comes in 2025, all eyes will be on how effectively companies comply—and how authorities enforce. What’s clear is that sustainability is no longer optional—it’s law.