The Corporate Sustainability Reporting Directive (CSRD) has been adopted


After lengthy negotiations between the European institutions, which included amongst other things the timetable and the wide scope of the directive and a preliminary political agreement in June 2022, the Corporate Sustainability Reporting Directive (CSRD) was adopted on 10 November 2022. The Taxonomy Regulation has also become an integral part of these reporting requirements. This is an important step towards creating more transparency, to transforming the real economy,  strengthening sustainable business and implementing the legislative package for Sustainable Finance.

The CSRD replaces the Non-Financial Reporting Directive (NFRD or "CSR Directive"). Under the CSR Directive, large capital market-oriented companies with more than 500 employees, credit institutions and insurance companies have so far been required to provide "non-financial reporting".

For companies affected by the scope of the CSR Directive, the Taxonomy Regulation has already extended the reporting requirements to include information on environmental sustainability. Since January 2022, companies in the real economy have to report about the share of their sales revenues, investments (capex) and operating expenses (opex) associated with environmentally sustainable economic activities in terms of the first two environmental objectives under the Taxonomy Regulation (climate change mitigation and climate change adaptation). This reporting requirement was initially limited to an assessment of taxonomy eligibility. Since 2023 companies in the real economy have to report their taxonomy alignment with regard to the environmental objectives climate change mitigation and climate change adaption.From 2024 companies have to report taxonomy-eligibility with regard to all environmental objectives and taxonomy alignment one year later.

The CSRD is gradually expanding the scope of its application. Companies that are already subject to the CSR Directive will be required to report from 2025 (i.e. already for the 2024 financial year). From 2026 (i.e. already for the 2025 financial year), all other large companies will follow, and from 2027 (i.e. already for the 2026 financial year), small and medium-sized capital market-oriented companies will also be subject to these reporting requirements.

With the CSRD there follows sustainability reporting 2.0

The CSRD replaces the "non-financial statement" (nichtfinanzielle Erklärung). The term "non-financial information" used in the CSR Directive has often been criticised by stakeholders because it implies that sustainability information has no financial relevance . However, compared to the NFRD, the changes in the CSRD are not just limited to changing the terminology. Compared to the non-financial statement (nichtfinanzielle Erklärung), the reporting requirements under the CSRD are significantly more detailed and comprehensive.

For example, in addition to information related to the past, more forward-looking information (both qualitative and quantitative) is to be included in the report. Reporting is to be based on the comprehensive ESG concept, which includes governance factors in addition to environmental and social aspects.

New is, for example, providing information on the resilience of the company's business model and strategies for risks related to sustainability aspects, as well as providing information on the company's opportunities related to sustainability aspects. Disclosure should also be made on how the company intends to ensure that its business model and strategy are in line with the Paris Climate Agreement and the goal of climate neutrality by 2050. Furthermore, corporate due diligence must be disclosed within the value chain, taking into account the Corporate Sustainability Due Diligence Directive (CSDDD).

The CSRD requires a description of the role of the administrative, management and supervisory bodies in relation to sustainability aspects as well as their sustainability expertise. This also highlights the increasing importance of sustainability factors at management level and the need to anchor sustainability in a company's corporate governance: according to the CSRD, sustainability does not consist of a sum of individual measures, but rather is reflected in a holistic corporate strategy that is to be implemented in terms of organisation in the company. In this respect, it is essential when establishing good ESG organisation and effective ESG management that a sustainability strategy and the sustainability goals are defined by the administrative, management and supervisory bodies of the company.

In addition, under the CSRD, the "comply-or-explain principle", i.e. the possibility to not report on a component at all if there is meaningful justification, has also been abolished. This is another way to increase the transparency and comparability of sustainability disclosure.

The principle of double materiality is now enshrined in the law

Another innovation of the CSRD worth mentioning is the legal anchoring of the principle of double materiality. Accordingly, companies must report on both which sustainability aspects have a material impact on their economic situation and business performance (outside-in perspective), and which of their business activities, products and/or services have a material impact on people and the environment (inside-out perspective).

Each materiality aspect must be taken into consideration separately. Information that is material under both aspects must be disclosed, but also information that is only material under one aspect.

CSRD will lead to increased binding of sustainability reporting

Under the NFRD, there is no requirement to use the established international standards for reporting. Rather, companies are free to choose their reporting standards, such as the standards from the Global Reporting Initiative (GRI), the International Sustainability Standards Board (ISSB) or the German Sustainability Code (DNK).

The CSRD introduces binding uniform EU standards for sustainability reporting by means of delegated acts in order to achieve comparable reporting across Europe. These standards set out the contents of the CSRD and are developed by the European Financial Reporting Agency Group (EFRAG). The final drafts (editorial changes are still possible) of the European Sustainability Reporting Standards were recently published on EFRAG's website.

The introduction of uniform reporting standards is welcome: comparable and verifiable sustainability disclosure is the basis for companies and investors to efficiently deal with sustainability issues and risks and to comply with their transparency requirements under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. Linking sustainability aspects to financial reporting also promotes transparency and comparability as a basis for reliable investment decisions.

Furthermore, the introduction of an audit requirement to be carried out by an auditor or another auditing firm is intended to increase the reliability and credibility of the sustainability reporting.

In future, sustainability reporting will also be mandatorily located in the management report, meaning companies will no longer have the alternative of reporting in a separate sustainability report. The aim is to standardise publication deadlines, emphasise the relevance of sustainability information and increase the availability of financial information as well as sustainability information.

The CSRD has been published in the Official Journal of the EU on 16 December 2022: EUR-Lex - 32022L2464 - EN - EUR-Lex ( According to Article 7 sentence 1 CSRD, the “Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the EU”. The Member States then have 18 months, i.e. until 6 July 2024, to implement the domestic laws, regulations and administrative provisions necessary in order to comply with the CSRD (cf. Article 5 para. 1 sentence 1 CSRD).