Corporate Sustainability Reporting Directive (CSRD): Sustainability Disclosure in Europe

Background

The Corporate Sustainability Reporting Directive (CSRD) is an initiative by the European Union (EU) aimed at enhancing corporate transparency on environmental, social, and governance (ESG) matters, including carbon emissions. Adopted in 2022 and effective from 1 January 2024, the CSRD replaced and expanded upon the Non-Financial Reporting Directive (NFRD) which was first released in 2014. The NFRD required large public-interest companies with over 500 employees to report on sustainability-related risks and impacts. The NFRD was however criticized for its lack of clear guidelines resulting in inconsistent and often superficial disclosures, reducing stakeholders' ability to effectively assess corporate sustainability disclosures. Some of the NFRD's shortcomings were later addressed with the publication of further clarifications such as the guidelines on reporting climate-related information (2019). The CSRD goes further by establishing a more comprehensive reporting framework under the European Sustainability Reporting Standards (ESRS), requiring companies to provide externally audited sustainability data, including on carbon emissions and climate-related financial risks. The CSRD is a major policy tool within the European Green Deal which aims for an EU economy with no net emissions of greenhouse gases by 2050.

Reporting Requirements

Under the CSRD, affected companies (see next section) must make detailed sustainability disclosures including climate-related information such as greenhouse gas (GHG) emissions, climate risks and opportunities, and strategies for reducing their GHG emissions in the context of their climate mitigation and adaptation strategies. Reporting must follow the European Sustainability Reporting Standards (ESRS), which is consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol. Companies must disclose, in carbon dioxide equivalent (CO₂-eq), their Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased electricity), and Scope 3 (emissions from the value chain) data. Companies' reports must be digitally tagged (i.e. computer-readable) for integration into the European Single Access Point (ESAP), a public repository of financial and sustainability-related information on EU companies and investment products. Moreover, the CSRD requires companies to conduct climate risk assessments and disclose their transition plans, including how their business models align with the EU’s 2050 carbon neutrality ambition set out in the European Green Deal. To ensure the accuracy of disclosures, sustainability reports must pass through third-party assurance or external audits.

Implementation Timeline

The implementation of the CSRD will be conducted in phases, beginning with the large companies:

• For large companies previously subject to the NFRD, CSRD rules shall apply with effect from financial years starting on/after 1 January 2024, for reports published in 2025.

• For large companies not previously subject to NFRD, CSRD rules shall apply from financial years starting on/after 1 January 2025, for reports published in 2028 (covering FY 2027).

• For some non-EU based companies, CSRD rules shall apply with effect from financial years starting on/after 1 January 2028, for reports published in 2029.

Penalties for noncompliance

The CSRD does not stipulate specific penalties for non-compliance as enforcement of the directive is largely the responsibility of individual EU Member States. There is some flexibility or discretion in implementing the CSRD with each country taking into consideration existing sustainability disclosure regulations and enforcement processes, including penalties for noncompliance. All the 17 countries with CSRD-inspired national laws in force have established sanctions for noncompliance. In France, for instance, which took the lead in transposing the CSRD into national legislation, corporate executives may face fines of up to €75,000 and imprisonment for up to five years if they fail to provide the required information for external auditors to certify their CSRD-compliant reports or if they hinder the auditing process in any way. Additionally, they could be sentenced to up to two years in jail and fined up to €30,000 for not having their CSRD report audited by a certified entity. In general, false climate-related disclosures could expose businesses to legal liability, given that stakeholders such as investors and regulators depend on these reports for decision-making. The reporting of false climate-related information is already sanctionable under existing legislation in some EU Member States, especially with anti-greenwashing regulations aiming to prevent misleading corporate environmental claims.

Current Status

As of early July 2025, the CSRD remains in application, but its scope and timing are in flux. The European Commission’s Omnibus simplification package, proposed in February 2025, significantly narrowed CSRD’s original scope—raising employee thresholds from 250 to 1,000, excluding listed SMEs, and adding a €450 million turnover test for non-EU companies. The Council formally adopted its negotiating mandate on these changes on 23 June 2025. Transposition remains uneven: some Member States (e.g., France, Denmark, Ireland, Romania, Slovakia, Sweden, Czechia) have implemented the directive, while others (including Germany) have not yet done so. Overall, CSRD's broader rollout is subject to evolving political and legal developments.

Resources

• Corporate Sustainability Reporting Directive (CSRD)

• Omnibus simplification package

• CSRD Transposition Tracker