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How does the new EU Corporate Sustainability Reporting Directive work?

European Communities, 2006 / Photographer: Christian LambiotteIn June the European Parliament and the European Council have reached a provisional agreement on the Corporate Sustainability Reporting Directive (CSRD). That is, the legislation that regulates the criteria and methods on the basis of which companies must report on the adherence of their activities to certain sustainability criteria.

The new directive amends the previous Non-Financial Reporting Directive (NFRD, 2014/95/EU). The main objectives are:

  • to curb greenwashing;
  • to increase transparency and comparability;
  • to enable the implementation of the Action Plan for Sustainable Finance and the Green Deal.

The main changes concern scope, auditing, reporting standards, the digital tag and the introduction of the concept of dual materiality. All large companies and all companies listed on regulated markets (excluding listed micro-companies) will be subject to CSRD.

  • from 1 January 2024 for companies already subject to the CSRD;
  • from 1 January 2025 for large companies that are not currently subject to the Non-Financial Reporting Directive;
  • from 1 January 2026 for small and medium-sized listed companies, small and non-complex credit institutions and certain insurance companies, while other small and medium-sized companies can wait until 2028.

Non-European companies with a net turnover of EUR 150 million within the European Union, and which have at least one subsidiary or branch in the Old Continent, will also be subject to the directive. This way, the number of companies required to report on sustainability raised from the 11.000 subject to the NFRD to the around 50.000 covered by the CSRD.

The reported information must be independently audited. Reporting will have to be based on the mandatory EU sustainability reporting standards, the European Sustainability Reporting Standards (ESRS). The public consultation, open until 8 August 2022, on the first set of ESRS indicators prepared by EFRAG (the Advisory Group of Financial Experts entrusted by Brussels) is underway.

The first set of standards should be adopted by October 2022, while, after the Commission’s approval by June 2024, the EFRAG will develop sector specific reporting standards and proportionate standards for listed SMEs.

The concept of dual materiality is of fundamental importance for effective and comprehensive reporting on a company's sustainability. It includes not only the financial aspects, but also the company's impacts on the outside world, i.e. on society and the environment (the so-called inside-out perspective). And of course also the company's performance (the outside-in perspective).


EU Corporate Sustainability Reporting Directive