What are Scopes 1, 2 and 3 Emissions?
1 min
Level
In this article, we define what Scope 1, 2, and 3 emissions are and their significance in managing a company's carbon footprint.
The voice of impact
ESG / CSR
Industries
MEASURE
ACT
COMFORM
What is the Corporate Sustainability Reporting Directive (CSRD)?
Level
Introduced by the European Commission in 2021, the Corporate Sustainability Reporting Directive (CSRD) aims to standardise and enhance the quality of non-financial reporting, requiring companies to disclose their environmental, social, and governance (ESG) performance in a more detailed and structured way. The directive officially came into effect on January 1, 2024, bringing a broader range of companies into its scope and introducing more stringent reporting obligations.
However, in February 2025, the European Commission proposed changes through the Omnibus package, aiming to simplify sustainability reporting requirements and reduce administrative burdens - particularly for smaller companies. If approved, these changes could delay reporting deadlines for some businesses and revise the criteria for which companies are required to comply.
What exactly is the CSRD? Who does it concern? What changes can be expected? And what impact does the Omnibus proposal have?
In this article, we’ll explain:
- Why EU companies must report sustainability information
- How the CSRD differs from the Non-Financial Reporting Directive (NFRD)
- How non-EU companies are subject to CSRD requirements
- How sustainability matters affect large public interest companies and their financial risks
What is the Corporate Sustainability Reporting Directive (CSRD)?
The Corporate Sustainability Reporting Directive (CSRD) was introduced by the European Commission in April 2021 and formally adopted on December 16, 2022. It came into effect on January 1, 2024, replacing the Non-Financial Reporting Directive (NFRD), which was considered too limited in scope and ambition.
“ The CSRD requires large companies to publish sustainability reports aligned with European Sustainability Reporting Standards (ESRS), providing detailed disclosures on risks, opportunities, and material impacts related to environmental, social, and governance (ESG) issues. ”
The directive is a key pillar of the European Green Deal, which aims for carbon neutrality by 2050, and it aligns with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy to promote transparency and accountability in sustainable finance."
As financial markets place increasing pressure on companies for reliable ESG data, sustainability reporting is becoming a critical part of corporate decision-making. Investors and financial institutions are now subject to their own reporting obligations, further driving the demand for clear, consistent, and comparable non-financial disclosures.
Unlike financial reporting, the CSRD requires companies to assess and disclose their sustainability performance across three key areas:
- How their activities impact climate and the environment
- The climate-related risks and opportunities affecting their business
- How they manage these sustainability challenges
With the CSRD now in effect, companies across Europe and beyond are adjusting to the new requirements, while proposed Omnibus amendments could further reshape reporting obligations in the coming year
Close
What is the purpose of the CSRD?
“ The Corporate Sustainability Reporting Directive (CSRD) was introduced to create a standardised framework for corporate sustainability disclosures, aligning financial and non-financial reporting across the European Union. Its primary goal is to improve the quality, consistency, and accessibility of sustainability information, ensuring that companies provide transparent and comparable data on their environmental and social impacts. ”
Creating a common sustainability reporting standard
One of the biggest challenges in corporate sustainability reporting has been the lack of a unified framework. Until now, companies followed different reporting methods, making it difficult to compare sustainability performance across industries and countries. The CSRD changes this by establishing a clear, harmonised standard for ESG disclosures.
This directive doesn’t exist in isolation. It works alongside the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), forming part of a broader push to align financial markets with Europe’s climate goals. By improving transparency, the CSRD helps direct investment toward businesses that are actively working to reduce their environmental and social impact.
Making sustainability data more useful and comparable
At the heart of the CSRD is the principle of double materiality. This means companies must report not only on how sustainability issues affect their business but also on how their operations impact the environment and society. It’s not just about risk management, it’s about accountability.
To make sustainability data more accessible, the European Commission has set up the European Single Access Point (ESAP), a centralised platform where corporate financial and sustainability reports will be publicly available. This will make it easier for investors and other stakeholders to assess corporate sustainability performance without sifting through scattered reports or vague ESG claims.
Cracking down on greenwashing
With sustainability becoming a key factor in investment and consumer choices, companies have faced growing pressure to present themselves as environmentally and socially responsible. The problem? Many have made broad claims about their ESG efforts without backing them up with concrete data - otherwise known as greenwashing.
The CSRD introduces stricter requirements and third-party assurance to ensure that sustainability reports are accurate, verifiable, and free from misleading claims. By holding companies accountable for what they report, the directive aims to rebuild trust in corporate sustainability commitments.
“ The European Union has long been at the forefront of environmental and social regulations, and the CSRD reinforces its commitment to promoting sustainable business practices across all sectors. ”
Who is affected by the CSRD directive?
The Corporate Sustainability Reporting Directive (CSRD) significantly expands the number of companies required to report on sustainability, increasing from around 11,000 under the Non-Financial Reporting Directive (NFRD) to nearly 50,000 under the CSRD.
Large companies – including those based outside the EU
Under the current CSRD framework, companies must comply if they meet at least two of the following three conditions:
| Criteria | Threshold |
|---|---|
| Net turnover | €50+ million |
| Total assets | €25+ million |
| Employees | 250+ |
Additionally, non-EU companies generating more than €150 million in turnover within the EU are also required to comply with CSRD reporting obligations.
Note that if the parent company prepares consolidated sustainability reports, subsidiaries may be exempt from individual reporting. However, certain information must still be disclosed by the exempted entity. Large listed companies cannot benefit from this exemption.
Small and medium-sized enterprises (SMEs)
The CSRD also applies to small and medium-sized enterprises (SMEs) that are listed on European regulated markets, provided they meet at least two of the following three conditions:
| Criteria | Threshold |
|---|---|
| Net turnover | €8+ million |
| Total assets | €4+ million |
| Employees | 50+ |
SMEs are not required to report until 2027 and can opt out until 2028, allowing additional time to prepare.
Non-listed SMEs
Non-listed SMEs are not directly covered by the CSRD but may still face requests for sustainability data from larger companies within their value chain. To address this, the European Financial Reporting Advisory Group (EFRAG) has introduced the Voluntary Sustainability Reporting Standard (VSME), which provides a simplified framework for SMEs to disclose sustainability information. This voluntary standard helps SMEs respond to investor and business partner expectations while avoiding excessive reporting burdens.
Potential changes under the Omnibus proposal
In February 2025, the European Commission introduced the Omnibus proposal, which, if adopted, would significantly alter the scope of the CSRD. The proposal suggests raising reporting thresholds, making reporting voluntary for smaller companies, and delaying reporting deadlines for certain businesses. These changes are still subject to approval, meaning companies must continue to comply with the current CSRD framework until a final decision is made.
What is the timeline for the implementation of the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) was presented to the European Commission and the European Parliament on April 21, 2021 and was formally published in the Official Journal of the EU on December 16, 2022. It was then incorporated into the national legislation of each EU member state by the end of that same year.
The application of this directive will occur in four phases:
| Date | Applicability |
|---|---|
| January 1, 2025 (for the 2024 fiscal year) | Applies to European and non-European companies already subject to NFRD reporting. |
| January 1, 2026 (for the 2025 fiscal year) | Applies to large European companies and non-European companies listed on a European-regulated market that were not previously subject to NFRD. |
| January 1, 2027 (for the 2026 fiscal year) | Applies to listed European and non-European SMEs. These SMEs will have the option to defer reporting obligations for two additional years with justification. |
| January 1, 2028 (for the 2027 fiscal year) | Applies to non-European companies generating more than €150 million in revenue within the EU through a subsidiary or branch. |
Possible timeline changes under the Omnibus proposal:
The Omnibus proposal may introduce changes to CSRD implementation timelines, including potential delays for certain businesses. These proposed changes are still under discussion, and companies should continue preparing based on the current reporting schedule.
What is the difference between NFRD and CSRD?
The Corporate Sustainability Reporting Directive (CSRD) replaces and significantly expands upon the Non-Financial Reporting Directive (NFRD), which was adopted in 2014 to establish a common framework for non-financial disclosures. While the NFRD was an initial step toward harmonised sustainability reporting, it was widely considered insufficient due to its limited scope and lack of standardised reporting requirements.
Key differences between CSRD and NFRD:
- The CSRD requires companies to publish their reports in a mandatory digital format using the European Single Electronic Format (xHTML), ensuring accessibility and comparability.
- The scope of the directive has been significantly expanded, increasing the number of companies subject to reporting from 11,600 under the NFRD to nearly 50,000 under the CSRD.
- Sustainability reports must now be audited or independently verified, adding credibility and helping to prevent greenwashing.
- The CSRD introduces the principle of double materiality, meaning companies must report on both how sustainability factors impact their business and how their operations affect people and the environment.
- Sustainability disclosures must be included in a newly dedicated section of the company’s management report rather than being presented separately. This means that financial and sustainability information are published at the same time.
Under the NFRD, only public interest entities such as banks and insurance companies with more than 500 employees were required to report. The CSRD expands reporting obligations to a much broader range of companies, ensuring greater transparency and accountability in corporate sustainability efforts.
What are the key requirements of the CSRD?
Compliance with European Sustainability Reporting Standards (ESRS)
The CSRD requires companies to report in accordance with the European Sustainability Reporting Standards (ESRS), which aim to standardise and enhance the quality of corporate sustainability disclosures. These standards define how companies must report on their environmental, social, and governance (ESG) impacts, ensuring consistency and comparability across industries.
The first set of ESRS standards was developed by the European Financial Reporting Advisory Group (EFRAG) and formally adopted by the European Commission on July 31, 2023. These standards apply to all companies subject to the CSRD and establish a framework for disclosing sustainability-related risks, opportunities, and impacts.
Structure of the ESRS:
The ESRS is structured into two general standards covering overarching reporting principles and eleven thematic standards across environmental, social, and governance criteria:
| Category | ESRS Standard | Overview |
|---|---|---|
| General Principles | ESRS 1: General Requirements | Defines key principles for sustainability reporting, including governance, materiality, and strategic alignment. |
| ESRS 2: General Disclosures | Outlines key disclosures such as governance roles, due diligence, and performance metrics. | |
| Environmental Standards | ESRS E1: Climate Change | Requires reporting on climate mitigation efforts, adaptation strategies, and Scope 1, 2, and 3 emissions, with alignment to frameworks such as TCFD. |
| ESRS E2: Pollution | Covers pollution control measures, reduction strategies, and impacts of pollutants on air, water, soil, and noise. | |
| ESRS E3: Water and Marine Resources | Addresses water management, including withdrawal, consumption, recycling, wastewater treatment, and marine ecosystem conservation. | |
| ESRS E4: Biodiversity and Ecosystems | Requires reporting on biodiversity conservation, habitat restoration, and ecosystem impact management. | |
| ESRS E5: Resource Use and Circular Economy | Focuses on sustainable resource management, waste reduction, life-cycle assessment, and circular economy initiatives. | |
| Social Standards | ESRS S1: Own Workforce | Covers employee-related policies, including diversity, inclusion, health and safety, and working conditions. |
| ESRS S2: Workers in the Value Chain | Addresses fair wages, labour rights, and supply chain working conditions, ensuring alignment with international labour standards. | |
| ESRS S3: Affected Communities | Requires companies to assess their impact on communities, including cultural heritage, relocation, and socio-economic effects. | |
| ESRS S4: Consumers and End-Users | Focuses on consumer protection, product safety, data privacy, and ethical considerations in product and service delivery. | |
| Governance Standards | ESRS G1: Business Conduct | Covers corporate governance, anti-corruption measures, lobbying activities, and supplier risk management. |
Double Materiality
A core principle of the CSRD is double materiality, which requires companies to report on both financial materiality (how sustainability factors impact a company’s financial performance) and impact materiality (how a company’s operations affect people and the environment).
Financial materiality considers how climate risks, regulatory changes, and market shifts influence a company’s revenue, costs, and valuation. For example, a company exposed to extreme weather events may face increased insurance costs, while firms in high-emission industries may encounter stricter regulations impacting profitability.
Impact materiality assesses how a company's business activities contribute to environmental and social issues. This includes measuring carbon emissions, water consumption, human rights practices in supply chains, and biodiversity impacts.
By requiring companies to disclose not only the risks they face from climate change, but also their own impacts, double materiality ensures that sustainability encapsulates a company’s broader responsibility toward society and the environment. This principle aligns with the EU’s commitment to corporate accountability and sustainable finance.
Penalties for non-compliance with the CSRD
Companies that fail to comply with the CSRD will face penalties, which are determined at the national level by each EU member state. While enforcement mechanisms may vary, the directive sets out minimum sanctions that authorities can impose on non-compliant businesses.
According to Article 1 of the CSRD, penalties may include:
- A public statement disclosing the nature of the violation and the company responsible.
- An official order requiring the company to correct the infringement.
- Financial penalties, which must be proportionate to both the profits gained from the violation and the company’s financial standing.
These measures are designed to ensure that sustainability reporting is taken as seriously as financial disclosures, reinforcing accountability and preventing companies from avoiding their reporting obligations.
How the EU Omnibus Proposal could impact the CSRD
“ In February 2025, the European Commission introduced the Omnibus proposal, a legislative package aimed at simplifying and reducing sustainability reporting requirements under the EU Green Deal. If approved, these changes would significantly alter the CSRD’s scope, technical requirements, and reporting timelines. ”
Changes to the scope of the CSRD
One of the most significant proposals is the narrowing of the CSRD’s scope by raising the reporting thresholds.
- The CSRD would apply only to companies with more than 1,000 employees and either a net turnover above €50 million or a balance sheet total above €25 million.
- Smaller EU companies currently set to report in 2026 (Wave 2) would be exempt, reducing the total number of companies required to comply by 80%.
- The threshold for non-EU companies would also increase, limiting reporting requirements to those with EU-generated turnover of at least €450 million and a large EU subsidiary or branch.
These changes would remove many medium-sized businesses from the CSRD’s reporting obligations, raising concerns that corporate transparency on sustainability could decline just as regulatory frameworks begin to take effect.
Delays to CSRD reporting timelines
The Omnibus proposal introduces a two-year reporting delay for reporting entities in Wave 2 and beyond.
- Companies currently set to report in 2026 will now report in 2028 on their 2027 financial year.
- Wave 4 companies (non-EU entities with substantial EU business operations) would see their reporting start date pushed beyond 2029.
While these changes give businesses more time to prepare, they also introduce uncertainty for investors and stakeholders who rely on sustainability data for decision-making.
Simplification of the European Sustainability Reporting Standards (ESRS)
The European Commission has also proposed reducing the complexity of ESRS reporting by:
- Focusing on quantitative disclosures rather than narrative reporting.
- Removing less critical data points while maintaining alignment with other global frameworks, such as the ISSB standards.
- Eliminating sector-specific reporting standards, which were previously planned for development.
While these measures aim to ease administrative burdens, they also risk weakening the level of detail and sector-specific insights that sustainability disclosures provide.
Concerns over regulatory uncertainty and greenwashing risks
Although the Omnibus proposal seeks to streamline EU sustainability reporting standards, critics warn that scaling back requirements could undermine corporate accountability and create regulatory confusion.
- Companies that have already invested in preparing for CSRD compliance may face uncertainty about whether to proceed with full implementation or wait for further regulatory changes.
- Reducing reporting obligations could make it harder for investors, regulators, and consumers to assess corporate sustainability performance, potentially increasing the risk of greenwashing.
“ The Omnibus proposal is still under negotiation and requires approval from the European Parliament and the Council. Until a final decision is reached, companies must continue preparing based on the current CSRD framework. Businesses should monitor regulatory developments closely to assess how potential changes may impact their reporting obligations. ”
Close
Key actions for companies in 2025
With the first wave of CSRD reporting underway, companies in Wave 2 and beyond must continue preparing as if the current CSRD framework remains unchanged. While the Omnibus proposal may introduce delays and exemptions, nothing has been finalised, and companies should not rely on potential changes.
1. Prepare based on the existing CSRD Framework
Until the Omnibus proposal is officially adopted, companies should assume current CSRD requirements still apply. Delays or exemptions may not materialise as proposed.
What to do now:
- Stay informed about regulatory developments but continue preparing for reporting as scheduled.
- Ensure your company meets CSRD thresholds and requirements under the current rules.
2. Prioritise key ESG data and assurance
Regardless of potential regulatory changes, investors, stakeholders, and financial institutions still expect sustainability disclosures.
What to do now:
- Strengthen data collection for climate and ESG reporting, especially emissions and supply chain data.
- Ensure sustainability reports meet assurance requirements, as independent verification remains mandatory.
3. Maintain momentum and internal readiness
Even if reporting timelines shift, companies that act now will have a competitive advantage.
What to do now:
- Align finance, compliance, and sustainability teams to embed ESG into corporate strategy.
- Continue preparing as planned to avoid last-minute compliance issues if the Omnibus proposal is not adopted.
“ With regulatory uncertainty, companies should move forward based on the current CSRD framework. Waiting for potential changes could leave businesses unprepared if the directive remains unchanged. ”
How will the CSRD impact the UK?
Although the CSRD is an EU directive, some UK companies will still be required to comply based on their financial ties to the EU. UK-based businesses operating in the EU - whether through subsidiaries, branches, or significant revenue generation - may fall within its scope.
When does the CSRD apply to UK companies?
- UK companies with an EU subsidiary or branch generating more than €40 million in revenue (€150 million at the group level over two consecutive years) must report under the CSRD.
- From 2029, UK parent companies meeting the CSRD’s global turnover threshold must comply.
If required to report, UK companies must disclose sustainability data across their entire operations - not just their EU activities.
Next steps for UK companies:
- Assess your company’s EU presence and revenue thresholds to determine if CSRD reporting applies.
- Prepare sustainability data collection and reporting processes ahead of potential compliance obligations.
- Monitor the evolving relationship between UK reporting standards and the CSRD for further clarity.
UK companies with a strong EU presence should act now to ensure compliance, even if their first reporting deadline is years away.
Close
Greenly’s CSRD offering: Simplifying compliance and driving sustainability
As companies navigate the complexities of the Corporate Sustainability Reporting Directive (CSRD), Greenly provides a comprehensive, AI-powered platform to streamline compliance, automate reporting, and turn sustainability data into a strategic advantage.
Automated compliance and AI-powered data collection
- EFRAG-compliant materiality assessments with industry-specific scoring
- AI-driven ESRS data collection to streamline reporting workflows
- Integrated GHG tracking to measure Scope 1, 2, and 3 emissions
Effortless CSRD reporting with xHTML & XBRL
- Automated xHTML reporting formatted for EU compliance
- Seamless integration with ESG frameworks, including CDP, ISSB, SEC, and SFDR
- Direct EU Taxonomy inclusion within sustainability reports
Expert guidance and real-time audit support
- Access to CSRD and climate experts for ongoing training and compliance support
- AI-powered internal audits verified by human reviewers to ensure data accuracy
- Direct collaboration with certified third-party auditors for assurance and verification
CSRD day with Greenly
On June 21, 2024, Greenly hosted a dedicated CSRD event, bringing together sustainability leaders, CSR managers, and industry experts to tackle the challenges of CSRD compliance. The event provided attendees with:
- Deep insights into the new CSRD reporting requirements and double materiality assessments
- Practical solutions and innovative tools to simplify sustainability reporting
- Opportunities to connect with peers and industry experts, fostering collaboration and best practices
By condensing months of CSRD knowledge into one afternoon, Greenly’s CSRD Day empowered decision-makers to proactively prepare for the new regulatory landscape.
Learn more about Greenly's CSRD solution here.
Sources:
- European Commission, Corporate Sustainability Reporting, https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
- Greenly, What is ESG Reporting and Should You Be Doing It?, https://greenly.earth/en-us/blog/company-guide/what-is-esg-reporting-and-should-you-be-doing-it
- Greenly, What is the Non-Financial Reporting Directive (NFRD)?, https://greenly.earth/en-us/blog/company-guide/what-is-the-non-financial-reporting-directive-nfrd
- European Commission, Commission Adopts European Sustainability Reporting Standards, https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en
- European Commission, The European Green Deal, https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en
- Greenly, Why Can’t Your Company Be Carbon Neutral?, https://greenly.earth/en-us/blog/company-guide/why-cant-your-company-be-carbon-neutral
- Greenly, What is the Sustainable Finance Disclosure Regulation (SFDR)?, https://greenly.earth/en-us/blog/company-guide/what-is-the-sustainable-finance-disclosure-regulation-sfdr
- Greenly, What is ESG Data and How to Use It?, https://greenly.earth/en-us/blog/company-guide/what-is-esg-data-and-how-to-use-it
- Greenly, What is the EU Taxonomy?, https://greenly.earth/en-us/blog/company-guide/what-is-the-eu-taxonomy
- Greenly, Our Guide to the CSRD’s Double Materiality Assessment, https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-csrds-double-materiality-assessment
- European Financial Data Space, European Single Access Point (ESAP), https://www.european-financial-data-space.com/European_Single_Access_Point_(ESAP).html
- Greenly, What is Greenwashing? All You Need to Know in 2022, https://greenly.earth/en-us/blog/company-guide/what-is-greenwashing-all-you-need-to-know-in-2022
- Greenly, Our Guide to the VSME Standard (EFRAG), https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-vsme-standard-efrag
- Greenly, Our Guide to the EU Omnibus Regulation, https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-eu-omnibus-regulation
- Greenly, What is a Materiality Assessment?, https://greenly.earth/en-us/blog/company-guide/what-is-a-materiality-assessment
- European Commission, Omnibus I, https://commission.europa.eu/publications/omnibus-i_en
Green Central Banking, EU Omnibus Regulation is a Massive Step Backwards, Says Sustainability Expert, https://greencentralbanking.com/2025/03/07/eu-omnibus-regulation-is-a-massive-step-backwards-says-sustainability-expert/
More articles
View all
10 Reasons to Track a Corporate Carbon Footprint
1 min
Level
In this article, we’ll explain what a corporate carbon footprint is, why it’s important, how it is measured, and reasons why your company should track it too.
What is sustainability reporting and why is it important?
1 min
Level
In this article, we'll explore what sustainability reporting is, the benefits it brings, and why it's essential for your company.
Decarbonisation: what it is and why it matters
1 min
Level
In this article, we break down what decarbonisation means, explore why it's urgently needed, and outline practical steps companies can take to support the global push toward net zero.