A New Obligation for Reporting on Sustainability

CSRD Importance for ESG Reporting

On January 5, 2023, the Corporate Sustainability Reporting Directive (CSRD), designed to standardize sustainability reporting in the EU, came into force. This legislation modernizes and strengthens the rules related to sustainability reporting and social responsibility disclosure by overcoming the limitations of the previous Directive 95/2014 (Non-Financial Reporting Directive – NFRD).

The CSRD aims to improve the disclosure process and provide investors and consumers with a more straightforward and consistent way to understand and compare an organization’s environmental, social, and governance (ESG) impact and make more informed decisions based on sustainability data. The new rules ensure that investors and other stakeholders have access to the information they need to properly assess the risks related to their investments and allow them to create transparency about the business’s impact.

CSRD compliance was initially phased in from 2024, but in 2025, the EU formally adopted a postponement that delays reporting obligations for many companies until the financial year 2028, while large public-interest entities must still report for FY 2024 in 2025.

Expanded Reporting Requirements under CSRD

The legislation expands the category of companies required to report on their engagement in the social and environmental spheres to include large companies, listed SMEs, non-EU companies with subsidiaries in the EU, and even some non-EU companies will be required to report if they generate more than €150 million in the EU market. CSRD requires transparency about the business model, strategy, and risk management systems; that the business model and strategy be compatible with the goal of limiting global warming to 1.5°C; and reporting on the specific sustainability goals set and progress achieved.

However, due to the 2025 ‘stop-the-clock’ decision, listed SMEs and non-EU parent companies will now begin reporting no earlier than financial year 2028 instead of the originally planned 2026–2027 timeline.

The ESRS and Their Role in CSRD Compliance

Companies subject to the Corporate Sustainability Reporting Directive will have to prepare their financial statements according to the European Sustainability Reporting Standards (ESRS), a set of standards to formalize how European companies report on their ESG impacts and be CSRD compliant. These standards were developed in 2022 by the European Financial Reporting Advisory Group (EFRAG), an independent body of diverse stakeholders, which came into effect on January 1, 2023.

The Standards increase transparency and clarity of reporting and require assessing the organization’s impacts on the economy, environment, people, and human rights, thus adhering to the United Nations Guiding Principles on Business and Human Rights.

In essence, the ESRS is a reporting standard that will be used to meet CSRD requirements. While CSRD establishes the reporting requirements and obligations, the ESRS provides the reporting framework and methodology. The new EU Directive assesses businesses’ social and environmental risks and impacts to ensure compliance with standardized criteria that respect the environment, social equality, and human rights. It takes a forward-looking and global approach toward a broad concept of sustainable development.

In 2025, the European Commission announced that ESRS will be revised to simplify requirements for companies and improve alignment with other EU regulations.

Related to this is the one on Green Claims to curb greenwashing, published in the Gazette in March 2024. It places several prohibitions and generic obligations on environmental and sustainability claims to increase transparency.