The CSRD explained: who it affects and what it requires

The Corporate Sustainability Reporting Directive, usually shortened to CSRD, is a European Union law that makes sustainability reporting a formal, audited part of company reporting. It requires companies in scope to disclose how sustainability issues affect them and how they affect the world, following a single set of standards called the European Sustainability Reporting Standards. This guide explains the directive’s purpose, the standards it uses and who it reaches, and is honest about the parts that are still changing.

What is the CSRD?

The CSRD is European Union legislation that strengthens and widens the rules on corporate sustainability reporting. It replaces an earlier and narrower regime, bringing more companies into scope and raising the quality and consistency of what they must disclose. Crucially, it moves sustainability reporting from something a company writes in its own words towards something measured against common standards and checked by an independent assurer.

The aim is straightforward. Investors, lenders and the public have long struggled to compare one company’s sustainability claims with another’s, because everyone reported differently and little of it was verified. The CSRD is designed to fix that by making the information comparable, reliable and assured, in the same spirit as financial reporting.

What are the European Sustainability Reporting Standards?

The European Sustainability Reporting Standards, or ESRS, are the detailed rulebook that tells companies exactly what to report under the CSRD. They were developed by EFRAG, the European Financial Reporting Advisory Group, and adopted by the European Commission. The first set is organised into cross-cutting standards and topic standards across the three ESG areas:

• Cross-cutting standards set out the general principles and the general disclosures that apply across all topics.
• Environmental standards cover climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use and the circular economy.
• Social standards cover the organisation’s own workforce, workers in the value chain, affected communities, and consumers and end users.
• Governance standards cover business conduct, including matters such as ethics and anti-corruption.

A company does not necessarily report every data point in every standard. It first carries out a materiality assessment to decide which topics genuinely matter to its business and stakeholders, and reports accordingly, explaining its choices.

What is double materiality?

Double materiality is the principle at the heart of the CSRD, and it is what makes the directive distinctive. It asks a company to report from two directions at once:

• Financial materiality: how sustainability issues affect the company, such as the financial risk that climate change or resource scarcity poses to the business.
• Impact materiality: how the company affects people and the environment, such as its emissions, its pollution or its treatment of workers.

Investor-focused frameworks often ask only the first question. The CSRD asks for both, which is why a CSRD report covers not just risks to the business but the business’s footprint on the world around it.

Who does the CSRD affect?

The CSRD is aimed primarily at larger companies, and its reach extends beyond the European Union itself in two important ways. First, large companies established in the European Union fall within scope based on their size. Second, the requirement to account for the value chain means that suppliers outside the formal scope, including those outside the European Union, are routinely asked for data so that their large customers can complete their own reports.

This is the practical heart of the matter for most businesses. You may never file a CSRD report yourself, yet still receive detailed sustainability questionnaires from European customers who must. The duty cascades down the supply chain through contracts and tenders, which is why even firms well outside the legal scope find themselves needing solid ESG data.

An important and honest caveat applies to the exact thresholds. The scope of the CSRD has been the subject of active simplification by the European Union, through a process known as the Omnibus package. The political agreement reached in December 2025 set out to reduce the number of companies in scope and ease the volume of required disclosure. The clear direction is fewer companies and lighter detail, but the precise thresholds and timelines have been moving, so any specific figure should be checked against the current legislation rather than assumed.

What does the CSRD require in practice?

For a company in scope, the CSRD brings several concrete obligations:

1. Report against the ESRS. Disclose the material sustainability information set out in the standards, covering environmental, social and governance matters.
2. Apply double materiality. Assess and report both how sustainability issues affect the company and how the company affects people and the environment.
3. Obtain assurance. Have the sustainability information independently checked, rather than simply self-declared.
4. Report in a structured, digital format. Present the information so it can be read by machines as well as people, supporting comparison across companies.
5. Include the value chain. Account for impacts and risks that arise beyond the company’s own operations, which is what drives data requests down the supply chain.

How to prepare, whatever your scope

The preparation that helps is the same whether you are directly in scope or simply being asked by a customer who is: capture the underlying data cleanly and continuously. The companies that find CSRD-style reporting painful are usually the ones assembling it from memory at year-end. The ones that find it routine record the facts as events, an environmental incident logged when it happens, an energy reading taken on schedule, with the evidence attached.

That habit, structured capture at the source, is the foundation of being able to answer any framework. It is the subject of our companion guide to environmental incident reporting, and it is what Logincident is built to support across both environmental and safety events, as shown in our ESG solution and through digital reporting.

For the wider context, including the other main frameworks and how they compare, see our pillar guide to ESG reporting, or start with the basics in what is ESG reporting.

By Shannon Hamming, Communications and Community