What is CSRD? Your Guide to Corporate Sustainability Reporting Compliance

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation that requires companies to disclose standardised, comparable information on sustainability performance.

It applies to both EU-based organisations and non-EU companies with significant activity in the European market. The directive establishes a consistent structure for reporting environmental, social, and governance information, aligned with the European Sustainability Reporting Standards (ESRS).

Under CSRD, companies must also report on how sustainability factors influence financial performance. This links sustainability reporting more closely with financial reporting and decision-making.

How CSRD fits within the EU regulatory framework

CSRD forms part of a broader set of regulations designed to improve transparency and direct capital towards more sustainable activities.

It works alongside:

• The Sustainable Finance Disclosure Regulation (SFDR), which governs disclosures by financial market participants
• The EU Taxonomy, which defines what qualifies as environmentally sustainable economic activity

Together, these frameworks create a consistent flow of sustainability data between companies, investors, and regulators.

What makes CSRD different from previous reporting?

CSRD introduces a higher level of structure and accountability compared to earlier frameworks.

Key changes include:

• Mandatory reporting aligned to ESRS
• Digital, machine-readable disclosures
• Integration of sustainability data into management reports
• Third-party assurance requirements
• Focus on double materiality

These requirements move sustainability reporting from largely narrative disclosures to structured, auditable data.

Why was the CSRD introduced?

The Corporate Sustainability Reporting Directive was introduced to address limitations in existing sustainability reporting and to improve the quality, consistency, and usability of ESG data across the European market.

Under the previous Non-Financial Reporting Directive (NFRD), companies had significant flexibility in how they disclosed sustainability information. This led to inconsistent reporting, limited comparability between organisations, and gaps in the data available to investors and regulators.

Limitations of previous reporting frameworks

Before CSRD, sustainability disclosures were often:

• Inconsistent across companies and industries
• Difficult to compare due to differing methodologies
• Incomplete, with key risks and impacts not clearly reported
• Largely narrative, with limited structured data

This created challenges for stakeholders trying to assess sustainability performance alongside financial performance.

Rising demand for reliable sustainability data

At the same time, demand for high-quality sustainability data has increased.

Investors, lenders, and regulators now require clearer insight into how companies manage environmental and social risks, particularly as these factors begin to affect financial performance, access to capital, and long-term value.

Sustainability data is also increasingly used to meet regulatory requirements across financial markets, including disclosures under frameworks such as SFDR.

Creating a consistent reporting standard

CSRD introduces a unified framework for sustainability reporting through the European Sustainability Reporting Standards (ESRS).

This ensures that:

• Companies disclose information using a consistent structure
• Sustainability data can be compared across organisations
• The reported information is detailed enough to support decision-making

By aligning sustainability disclosures more closely with financial reporting, CSRD enables stakeholders to assess both performance and risk within a single, coherent framework.

Improving accountability and reducing greenwashing

Another key objective of CSRD is to improve accountability.

By requiring structured disclosures, third-party assurance, and clear documentation of methodologies, the directive reduces the risk of incomplete or misleading sustainability claims.

This strengthens trust in reported data and supports more informed investment, lending, and regulatory decisions.

How the Omnibus package changes CSRD

The CSRD has already undergone significant revision through the EU’s Omnibus simplification package, published in March 2026. It’s important to note that these changes don’t remove the directive. They refine its scope, reduce reporting burden in early phases, and adjust timelines.

For companies preparing for CSRD, this changes how to plan, not whether to prepare.

Narrower scope and higher thresholds

The revised framework concentrates mandatory reporting on the largest organisations.

Companies are now generally in scope if they have more than 1,000 employees and €450 million or more in net annual turnover. These parameters significantly reduce the number of companies required to report under CSRD compared to the original rollout.

Smaller organisations, including listed SMEs, are no longer subject to mandatory reporting. Many are instead classified as “Protected Undertakings” and may report voluntarily using simplified standards.

Adjusted timelines

The Omnibus package delays reporting requirements for several groups. For many companies, first reporting will now begin later than initially planned.

In practice, this creates a staggered timeline:

• Existing NFRD reporters continue first
• Large companies enter in later reporting waves
• Non-EU parent groups follow after that

Organisations now have more time to prepare data, governance processes, and reporting structures.

Simplified ESRS requirements

The European Sustainability Reporting Standards (ESRS) have also been streamlined.

Key changes include:

• Fewer mandatory datapoints in early reporting years
• Greater reliance on materiality to determine what must be disclosed
• Reduced pressure to collect complex value chain data immediately

Companies can use estimates or proxy data where direct data is not yet available, provided assumptions are clearly documented.

What this means in practice

The Omnibus changes reduce immediate reporting pressure, but they don’t change the direction of travel.

Companies still need structured sustainability data, clear ownership across teams, documented methodologies and assumptions and audit-ready processes. Even organisations outside the mandatory scope may still face investor and lender data requests or voluntary disclosure expectations.

CSRD remains a system-level requirement. The timeline has shifted, but the need for reliable, decision-useful sustainability data has not.

Who is in scope, and when does reporting begin

CSRD applies based on company size, financial thresholds, and EU activity. Following the Omnibus revisions, the scope is more focused, but still includes both EU and non-EU organisations.

The table below provides a quick view of which companies are required to report and when.

While this provides a high-level view, the details of scope still depend on organisational structure and EU activity.

EU companies

Large EU-based companies are required to report if they meet both employee and turnover thresholds. This applies to listed and unlisted organisations operating within the EU.

Non-EU parent companies

Non-EU organisations may fall within scope where they generate significant revenue in the EU and maintain a substantial operational presence through subsidiaries or branches.

In these cases, reporting typically covers global operations, not only EU entities.

Companies that are now out of scope

Following the Omnibus changes, listed SMEs and companies below the employee threshold are no longer required to report under CSRD.

However, many of these organisations will still need to provide sustainability data in practice, particularly when working with larger companies, investors, or financial institutions.

Why scope assessment is not enough

Determining whether your organisation is in scope is only the first step.

Companies preparing for CSRD should also:

• Define reporting boundaries across entities and subsidiaries
• Assess current data availability against ESRS requirements
• Align sustainability data with financial reporting structures

Even where reporting is not yet mandatory, building these foundations early reduces future implementation risk and avoids fragmented processes later.

What do companies report under CSRD?

CSRD requires companies to disclose detailed sustainability information aligned with the European Sustainability Reporting Standards (ESRS). These disclosures must be consistent, comparable, and supported by clear documentation.

ESRS structure

The ESRS framework covers a broad set of sustainability topics, including environmental, social, and governance factors.

This includes greenhouse gas emissions across Scope 1, 2, and 3, as well as broader disclosures on resource use, workforce practices, and governance structures.

Key disclosure areas

Companies are expected to report on:

• Sustainability impacts, risks, and opportunities
• Policies, targets, and performance metrics
• Progress against sustainability objectives

These disclosures must reflect the outcomes of the company’s double materiality assessment.

Integration into the management report

Sustainability disclosures must be included within the company’s management report, rather than published separately. This ensures alignment between financial and sustainability information and reflects how sustainability factors influence overall business performance.

Digital reporting and assurance

Reports must be prepared in a structured digital format to support comparability across the EU.

All disclosed information is subject to third-party assurance, requiring companies to maintain clear documentation, traceable data, and consistent methodologies.

Double materiality and practical implementation

One of the unique features of the reporting process under the CSRD is its emphasis on double materiality, which essentially means that companies need to report on two facets of their operations:

• Impact Materiality: The impact of their activities on ESG factors.
• Financial Materiality: How ESG matters affect their operations and their finances.

For example, following a double materiality audit, an infrastructure company might need to report on the health and safety of its staff at a particular site and the risk of flooding to the company’s profitability.

Similarly, a clothing brand might be required to report on employee churn in its factories and the risk of civil or political unrest on its ability to produce clothing items and subsequent financial profitability.

Examples of impact and financial materiality

In practice, the same issue will appear across both dimensions.

A company relying on water-intensive production in regions with limited supply is not only affecting local resources. It is also exposed to rising costs, disruption, and regulatory pressure.

Supply chain risks follow a similar pattern. Weak labour protections create social impact concerns, but they also introduce reputational and commercial risk if issues are exposed.

Governance issues behave in the same way. Gaps in oversight can lead to compliance failures, which in turn affect financial performance and access to capital.

These connections are what double materiality is designed to capture.

How to conduct a double materiality assessment

A double materiality assessment needs to be structured, documented, and repeatable. It should not rely on isolated workshops or one-off scoring exercises.

In practice, most organisations follow a sequence that looks like this:

• Map activities, geographies, and stakeholder groups
• Identify relevant impacts, risks, and opportunities
• Apply consistent scoring criteria across topics
• Prioritise material issues based on severity and financial relevance
• Document assumptions, methodologies, and data sources
• Link outputs directly to ESRS disclosures

The key requirement is consistency. If the methodology cannot be explained and repeated, it will not withstand assurance.

What companies should do now to prepare

Preparation for CSRD requires more than identifying what to report. It involves building the internal structure to support consistent, audit-ready reporting over time.

At a minimum, companies should focus on four areas:

• Confirm whether the organisation is in scope and define reporting boundaries across entities and subsidiaries
• Map ESRS requirements against existing data and identify gaps, particularly across emissions and value chain metrics
• Align sustainability, finance, and compliance teams with clear responsibilities for data collection, validation, and approval
• Begin recording methodologies, assumptions, and calculations to support future assurance requirements

Starting this work early reduces reliance on manual processes and avoids last-minute reporting gaps.

Get a structured starting point for CSRD reporting

If you are preparing for CSRD and need a clearer view of requirements, workflows, and data expectations, our detailed guide breaks down the process step by step.

You can download the full CSRD whitepaper here.

How KEY ESG supports CSRD reporting

Adopting the CSRD is a significant step forward in the EU’s commitment to reporting sustainability performance and marks an essential milestone in the transition to a more sustainable economy.

KEY ESG collates all of the new CSRD requirements and breaks them into simple, actionable steps to facilitate compliance. It sets out the processes required and optimises reporting systems.

From fragmented data to structured workflows

CSRD requires sustainability data to be collected and managed with the same level of control as financial data.

KEY ESG provides a centralised environment where organisations can:

• Collect sustainability data across entities, sites, and teams
• Standardise methodologies and calculations
• Assign ownership and approval workflows
• Maintain consistency across reporting cycles

This reduces reliance on spreadsheets and disconnected processes, which are difficult to scale and audit.

Supporting double materiality and ESRS alignment

Double materiality assessments and ESRS disclosures require structured inputs, clear logic, and documented decisions.

With KEY ESG, companies can:

• Manage double materiality assessments within a consistent framework
• Map material topics directly to ESRS requirements
• Align sustainability data with multiple reporting frameworks from a single data model

This ensures that reporting outputs are not created in isolation but are built on a consistent, reusable foundation.

Audit-ready data and evidence management

CSRD introduces mandatory assurance, meaning companies must be able to explain how every reported figure was produced.

KEY ESG supports this by:

• Capturing supporting evidence alongside reported data
• Maintaining clear audit trails for calculations and assumptions
• Enabling internal review and approval processes before submission

This reduces the risk of delays, rework, and challenges during assurance.

AI-assisted data collection and compliance

Completing CSRD disclosures involves significant qualitative work: drafting policy descriptions, answering long-form disclosure questions, and validating data across entities. KEY ESG uses AI to reduce the manual effort at each of these stages.

Key capabilities include:

• AI auto-fill for qualitative questions - upload a policy document and KEY ESG will automatically generate responses to qualitative CSRD data collection questions based on its contents, reducing time spent on repetitive narrative tasks
• AI policy descriptions - generate accurate policy descriptions directly from supporting documentation already stored in the platform
• Real-time data validation - built-in outlier detection flags anomalies in Scope 1, 2, and 3 submissions by comparing them against historical data, so errors are caught before they reach reviewers

AI-powered access to your ESG data

KEY ESG includes an MCP (Model Context Protocol) server that connects AI tools, including Claude, ChatGPT or Gemini, directly to your live platform data. Rather than exporting to a spreadsheet and pasting into a chat window, users can query verified ESG data in plain language.

One example is LP and vendor questionnaires. Fund managers and ESG teams receive dozens of questionnaires each year, each asking for the same underlying data in a different format. The KEY ESG MCP connector enables an AI agent to draft responses directly from live platform data, with every answer cited back to its source metric or policy and low-confidence items flagged for human review.

Another example is carbon emissions root cause analysis. Users can diagnose anomalies in emissions data through a structured reasoning process, receiving a plain-language diagnosis in minutes rather than manually drilling down across entities and periods.

Designed for ongoing reporting, not one-off compliance

CSRD is an ongoing project that requires ongoing data collection, updates, and continuous improvement.

KEY ESG is built to support this long-term approach by:

• Enabling repeatable reporting processes across cycles
• Supporting portfolio-level and multi-entity reporting structures
• Allowing organisations to expand into additional frameworks without rebuilding data foundations

With these features, organisations can move from reactive compliance to structured sustainability management.

Preparing for CSRD reporting

CSRD sets a new standard for how sustainability data is collected, structured, and disclosed. For organisations in scope, the challenge is to build processes that can support consistent, audit-ready reporting over time.

Companies that invest early in data structure, governance, and internal alignment are better positioned to meet reporting requirements without relying on fragmented or manual processes.

Whether reporting is mandatory now or expected in future cycles, establishing these foundations supports more reliable disclosures, reduces implementation risk, and improves visibility across sustainability performance.

If you are unsure where to start with your CSRD reporting, why not book a free demo of our software? Feel free to contact our team if you have any questions.