Introduction

As we enter 2025, the first batch of companies falling under the Corporate Sustainability Reporting Directive (CSRD) need to publish their reports based on 2024 data.

Proposed by the European Commission in April 2021 as part of the European Green Deal, CSRD aims to make Europe the world’s first climate-neutral continent by 2050. Its primary goal is to provide investors, customers, and stakeholders with reliable sustainability data  and encourage businesses to decarbonise. In this article, we'll attempt to unpack CRSD in 2025 - covering the acronyms, disclosure guidance and what it means for you.

CRSD is Replacing NFRD

CSRD replaces the Non-Financial Reporting Directive (NFRD) and raises disclosure standards to match traditional financial reporting. Here are the four main differences:

1. Who's affected?

NFRD primarily targeted listed companies, banks, and insurance firms. CSRD expands its reach to +50,000 businesses within the EU or with significant operations in Europe.

2. More Disclosure Detail Needed

NFRD required basic non-financial disclosures without formal standards while CSRD requires detailed and standardised reporting on climate change, biodiversity, and supply chain due diligence.

3. Digital Reporting & External Assurance Mandated

NFRD did not mandate digital reporting or external assurance for reported information. CSRD does. It requires companies to obtain limited assurance from external auditors for sustainability reports and introduces requirements for digital tagging of reported information using iXBRL (inline eXtensible Business Reporting Language).

4. Double Materiality

NFRD promoted double materiality, but didn't make mandatory. CSRD establishes double materiality as a foundational principle.

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🔎 Double Materiality: What Is It?

To determine what to report on, it's essential to assess whether an issue is material to your company. The principle of double materiality encompasses two key dimensions: financial materiality, which examines how environmental, social, and governance issues affect a company's financial performance, and impact materiality, which considers how a company's operations influence society and the environment.

This dual perspective requires businesses to disclose not only the risks and opportunities that these issues present to their financial health but also the broader effects of their activities on communities and ecosystems. By understanding both dimensions, companies can align their strategies more effectively with sustainable practices and meet stakeholder expectations.

Based on this, topical disclosure is requested when considered “material”. If any company deems climate as “not material”, it requires a detailed explanation of why not (and a description of what could make climate material in the future).

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Want to learn more about CSRD? Tune in to our podcast episode on how to "Manage and Streamline CSRD Reporting".

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🔥 Where We're At Today

• Only 36% of surveyed companies have integrated climate-related financial impacts into their statements.
• Just over half (51%) of companies have set GHG emission reduction targets beyond 2030.
• Less than half (41%) of large companies globally have published a climate change transition plan. However, in Europe these numbers are slightly higher. Around 60% of EU and UK companies ****have disclosed transition plans - a promising indicator that the pressure of CSRD is driving improvement.‍
  (2024 EY Climate Action Barometer)

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Are You Required to Report?

CSRD will be rolled out in phases, affecting different groups of companies over time. Here’s a breakdown of who needs to report and when:

1. Companies Previously Subject to NFRD:
   • Must publish a CSRD-compliant report in 2025 based on 2024 data.
   • Criteria: +500 employees; +€50 million turnover; +€25 million balance sheet.
2. Large Enterprises (Listed and Unlisted):
   • Must publish a report in 2026 based on 2025 data.
   • Criteria: 250 employees; €50 million turnover; €25 million balance sheet.
3. Small and Medium-Sized Companies Listed on Regulated European Markets:
   • Must publish a report in 2027 based on 2026 data.
   • Criteria: 10 employees; €900k turnover; €450k balance sheet.
4. Large Non-European Companies with Significant EU Revenue:
   • Must publish a report in 2029 based on 2028 data.
   • Criteria: European revenue exceeding €150 million through a subsidiary or branch located within the EU.

🌎 The Global Impact of CSRD

At least 10,000 companies outside the EU will be impacted by the CSRD, including 3,000 in the US (Refinitiv). The European requirements are expected to be much more stringent than those being developed in the US.

The latest ESRS draft mandates that companies disclose sustainability information, even if it is not financially material. While these companies have a couple of years before compliance is required, they need start laying the groundwork now.

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Consequences of Non-Compliance

Failure to comply with CSRD requirements can lead to various consequences categorised as: legal, financial, reputational, or operational risks. For more details on these consequences, see the image below.

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What to Disclose

The European Sustainability Reporting Standards (ESRS) dictate what companies must disclose under CSRD. These standards cover ten sustainability topics and specify detailed technical reporting requirements for each.

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Understanding Climate Standards ESRS E1

The climate standards ESRS E1 align closely with the Task Force on Climate-related Financial Disclosures (TCFD) requirements. Therefore, companies already preparing TCFD disclosures will find this transition smoother.

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🔎 TCFD Disclosure: What Is It?

The Task Force on Climate-related Financial Disclosures (TCFD) provides a framework for companies to disclose climate-related risks and opportunities. Established in 2015, the TCFD aims to enhance the understanding of how climate change impacts financial performance. Its recommendations focus on four key areas: governance, strategy, risk management, and metrics and targets.

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E1-1 / Transition Plan for Climate Change Mitigation

Describe your strategic approach to managing climate impacts and outline your transition plan towards a net-zero economy.

E1-2 / Policies Related to Climate Change Mitigation and Adaptation

Share policies that support your climate strategy, such as energy efficiency measures or renewable energy commitments.

E1-3 / Actions & Resources Related to Climate Change Policies

Detail actions taken towards adaptation and emission reduction efforts across your supply chain.

E1-4 / Targets Related to Climate Change Mitigation and Adaptation

Outline GHG reduction targets aligned with international agreements like the Paris Agreement.

E1-5 / Energy Consumption and Mix

Provide quantitative data on energy use from renewable and non-renewable sources.

E1-6 / Gross Scopes 1, 2, 3 GHG Emissions

Report comprehensive emissions across all scopes following GHG Protocol guidelines.

E1-7 / GHG Removals & Mitigation Projects Financed Through Carbon Credits

Disclose investments made in carbon removal initiatives.

E1-8 / Internal Carbon Pricing

Indicate whether an internal carbon pricing scheme exists within your organisation.

E1-9 / Anticipated Financial Effects From Material Risks & Opportunities

Report potential impacts of climate change on your business's financial health along with potential opportunities arising from these challenges.

Download the breakdown of ESRS E1: Climate Change here.

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Put a Positive Spin On It

While CRSD is a big compliance burden, we are determined to end on a positive note. Regulatory headache or not, CRSD is an opportunity.

• 51% of executives believe CSRD will enhance environmental performance.
• 40% think it will improve risk mitigation and stakeholder engagement.
  ‍PwC Global CSRD Survey

By leveraging the data collected through CSRD disclosures, businesses can more effectively engage with scenario planning, supply chain optimisation, product carbon footprints, internal carbon pricing models, benchmarking against industry peers....the list goes on.

Additional Resources

Want to learn more about the CSRD climate disclosure requirements with a sprinkle to SBTI? Sign up to our upcoming online event “Climate Goal Setting: The Role of Data Management” here.

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