Understanding the Impact of CSRD on Business Strategy and ESG Compliance
The Corporate Sustainability Reporting Directive (CSRD) is one of the most transformative sustainability-related legislations introduced by the European Commission. Adopted on April 21, 2021, as part of the Sustainable Finance Package, CSRD significantly expands sustainability reporting obligations. From 2024 onwards, over 50,000 European companies,from large corporations to listed SMEs, will be required to disclose standardized Environmental, Social, and Governance (ESG) information. This directive is not just another bureaucratic regulation; it represents a shift in how businesses communicate their social and environmental impact.
What Is CSRD About?
Replacing the existing Non-Financial Reporting Directive (NFRD), the CSRD raises the bar for transparency and accountability. Under CSRD, companies will need to report on a wider range of ESG factors, including climate-related risks, diversity, labor practices, and governance structures. The reporting must adhere to harmonized EU sustainability reporting standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG).
Key changes include:
- A broader scope covering all large companies and all listed entities on EU-regulated markets (excluding micro-enterprises).
- A legal requirement for auditing and certification of sustainability reports.
- More detailed and granular disclosures aligned with European sustainability standards.
CSRD also reflects the EU’s ambition to align corporate behavior with the European Green Deal and the global Sustainable Development Goals (SDGs).
Who Will Be Affected?
The directive applies to all large EU companies meeting at least two of the following:
- Balance sheet total of more than €20 million
- Net turnover exceeding €40 million
- More than 250 employees on average during the financial year
In addition to large EU-based companies, the directive will impact:
- SMEs listed on EU-regulated markets (with simplified requirements and a transitional opt-out until 2028)
- Non-EU companies generating over €150 million in net turnover within the EU and operating through branches or subsidiaries
These companies will be required to report on their ESG impacts in line with CSRD standards, ensuring consistency and comparability across the EU market.
Assurance, Audit, and Transparency
One of the most groundbreaking aspects of the CSRD is its mandatory audit requirement. All sustainability data must be verified by an independent auditor or certifier, guaranteeing reliability. This aims to resolve the current lack of confidence in corporate ESG disclosures.
Member States may authorize non-traditional assurance providers, expanding the sustainability assurance market beyond financial auditors. Non-EU companies must have their reports certified either by European auditors or by auditors based in third countries meeting EU standards.
Reports must be published in a dedicated section of the annual management report, ensuring improved accessibility and transparency for all stakeholders.
Compliance Costs and Strategic Benefits
Although CSRD compliance may require upfront investment in resources, data systems, and audits, it also offers long-term strategic advantages. Today, many companies already face mounting pressure from investors, regulators, and civil society to disclose ESG-related data. CSRD provides a standardized framework to streamline this reporting.
The directive reduces the complexity of responding to numerous overlapping reporting standards and fragmented information requests. In this way, CSRD not only ensures regulatory compliance but also enhances efficiency, stakeholder trust, and investor confidence.
Preparing for CSRD Compliance: First Steps
If your company is likely to fall under the CSRD, it is crucial to begin preparing now. Even though the final ESRS were published in 2023, early preparation can prevent last-minute disruptions and ensure a smooth transition.
Start with a gap analysis: assess your current sustainability disclosures and identify missing elements. Then, build a roadmap to achieve compliance:
- Conduct a double materiality assessment: Understand where your business has an impact and where it is vulnerable to ESG risks.
- Map your stakeholders and their expectations.
- Establish data collection systems to track relevant ESG metrics.
- Define governance structures to oversee sustainability reporting.
Companies already publishing sustainability reports aligned with international frameworks like GRI or SASB are at an advantage. However, aligning with CSRD still requires adjusting practices to meet new levels of granularity, auditability, and consistency.
Timeline: When Does CSRD Apply?
CSRD will be rolled out in three phases:
- January 1, 2024: Companies already subject to NFRD
- January 1, 2025: Large companies not previously subject to NFRD
- January 1, 2026: Listed SMEs, small and non-complex banks, and captive insurance companies
Regardless of the timeline, it’s wise to begin implementation as early as possible.
Why CSRD Matters
CSRD elevates sustainability from a voluntary initiative to a core element of corporate accountability. It equips investors, regulators, and stakeholders with consistent, reliable data and fosters a culture of transparency. For companies, it is not just a compliance exercise—it’s a strategic tool that can boost brand credibility, access to capital, and competitive positioning.
If your company expects to be subject to CSRD, now is the time to act. The journey toward compliance begins with awareness and is sustained by strategy. To explore how we can support your CSRD transition.
