The European corporate sustainability reporting landscape is undergoing a deep transformation. The Corporate Sustainability Reporting Directive (CSRD) represents more than a regulatory update—it's a critical moment that demands serious attention from big and small businesses alike across the EU.

What was once a nice-to-have in corporate responsibility has now become a necessity. The shift from the Non-Financial Reporting Directive (NFRD) to the CSRD highlights the major change needed in how organizations approach sustainability. As the rollout of CSRD continues, the scope and breadth of compliance will only expand. 

As the scope of reporting expands, so do the stakes. The CSRD is set to bring thousands of additional companies into its regulatory framework, creating both a compliance challenge and an opportunity for forward-thinking organizations. 

This article dives into the evolving scope of CSRD, its implications for companies, and the steps your business can take to prepare for compliance.

The history of CSRD: what’s happened so far?

To truly appreciate the size of this shift in scope, let’s first take a look back at CSRD's evolutionary journey.

The CSRD is the result of a progressive evolution of earlier sustainability reporting initiatives in the EU. It builds on the foundations laid by the NRFD of 2014, which initially required large public-interest companies to disclose information related to environmental care, social responsibility, and governance practices. 

However, the NFRD’s limited scope only captured around 11,000 companies, failing to address the broader corporate landscape.

In December 2019, the European Commission (EC) announced a review of the NFRD, leading to public consultations and extensive stakeholder engagement throughout 2020. By 2021, the EC proposed the CSRD to address its shortcomings, and by 2023, it officially entered into force, heralding a new era of mandatory sustainability reporting.

Timeline for CSRD implementation

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Phase 1 of CSRD (2024) 

Companies previously subjected to the NFRD will report in 2025 based on their fiscal performance in 2024. The NFRD applied to approximately 11,700 companies and groups across the EU, primarily targeting large businesses that met specific criteria—such as having more than 500 employees—as well as large public-interest entities like listed companies, banks, and insurance companies. 

Phase 2 of CSRD (2025) 

Large companies not covered by the NFRD will report in 2026 for their 2025 fiscal year. The new criteria includes companies that meet two of the following criteria:

• More than 250 employees;
• More than €50 million a year in net revenue;
• €25 million or more in total assets. 

Be aware that this was recently changed from €40 million and €20 million respectively, somewhat reducing the scope of this second phase of reporting. The number of employees remained unchanged at 250. The threshold changes reduce the number of companies subject to phase 2from 82,986 to 71,372—easing regulatory requirements for some smaller businesses. 

Phase 3 of CSRD (2026) 

In this next phase of CSRD, the thresholds for reporting will again be lowered to include listed SMEs who will have to report in 2027 based on their 2026 performance. Similarly to Phase 2, these organizations must meet two of the following criteria: 

• Between 50-249 employees;
• €10-50 million in net revenue;
• €5-25 million in assets. 

Phase 4 of CSRD (2028) 

The last phase of CSRD implementation will see non-EU companies with significant EU operations required to report in 2029 regarding their 2028 outcomes. This specifically applies to companies with €150 million turnover within the EU.

The scope of NFRD vs. the scope of CSRD (December 2024)

The CSRD presents a substantial evolution in the requirements for corporate sustainability reporting, particularly when compared to its predecessor, the NFRD. 

Below, we outline the key differences in reporting requirements between the two directives:

1. Scope of companies

• NFRD: The directive applied specifically to large public-interest entities that employed more than 500 individuals, impacting approximately 11,700 companies within the EU.
• CSRD: The CSRD has a much larger scope in terms of which companies must comply than the NFRD. Between 2024 and 2028, the CSRD will impact an additional 39,000 companies. As a result, for over 50,000 companies across the EU, sustainability reporting will become the new normal.

2. Scope of reporting standards

• NFRD: Under the NFRD, companies had the flexibility to select from a variety of international, European, or national frameworks for their reporting. This led to several inconsistencies and unreliable information, compounded by overlapping legislation, complex reporting, and a pressing need for more uniform, transparent, and digitalized disclosure frameworks.
• CSRD: This directive introduces the mandatory use of European Sustainability Reporting Standards (ESRS). The ESRS are designed to standardize reporting formats and ensure consistency, making it easier for stakeholders to compare sustainability data across companies and sectors. 

3. Depth of reporting

• NFRD: The directive required companies to disclose information across five core areas: environmental protection, social responsibility, employee treatment, human rights, board diversity, and anti-corruption.
• CSRD: The CSRD demands much deeper and more detailed disclosures. The initial set of ESRS contains 10 topical standards that focus on environmental, social, and governance (ESG) topics. some text
  • Environmental standards cover critical areas like climate change, pollution, water and marine resources, biodiversity, and circular economy practices. 
  • Social standards focus on workforce rights, value chain worker conditions, community impacts, and consumer protection. 
  • The governance standard emphasizes business conduct, corporate governance structures, and stakeholder engagement. 

4. Double materiality

• NFRD: While the NFRD introduced the concept of double materiality, it did not establish specific guidelines for its implementation, resulting in varied interpretations by companies on how to approach this concept.
• CSRD: The CSRD formalizes the double materiality concept, necessitating a more rigorous assessment of both financial materiality (how ESG issues affect a company’s financial performance) and impact materiality (how a company’s operations affect society and the environment).

5. Assurance requirements

• NFRD: The previous directive did not mandate third-party verification of the information that companies reported, which often led to questions about data reliability.
• CSRD: To enhance the credibility of reported sustainability data, the CSRD requires that companies obtain third-party assurance of their sustainability disclosures, ensuring that the information provided is accurate and trustworthy.

6. Digital reporting

• NFRD: There were no specified requirements for digital reporting under the NFRD, potentially making it difficult to ensure data accessibility.
• CSRD: The new sustainability reporting standards now mandate that companies present their sustainability statements in a machine-readable format using a digital taxonomy. This approach is designed to enhance data accessibility, streamline analysis and comparisons, and ultimately reduce costs for both those creating and using sustainability reports.

7. Integration with financial reporting

• NFRD: Sustainability information was often reported separately from financial data, creating a fragmented view of a company’s overall performance.
• CSRD: The CSRD requires that sustainability reporting be integrated with all required management reporting, presented in a single, digitally accessible format as mentioned above. This holistic approach provides stakeholders with a more comprehensive view of the company’s performance.

8. Value chain reporting

• NFRD: There was limited emphasis on assessing and reporting value chain impacts, hampering a complete understanding of a company’s sustainability footprint.
• CSRD: The directive expands this focus by requiring companies to report on sustainability issues across the entire value chain, including both upstream and downstream activities. This shift encourages companies to consider the broader implications of their operations and supply chains on sustainability.

By instituting these more stringent and comprehensive reporting requirements, the CSRD aims to elevate the transparency, comparability, and reliability of sustainability information disclosed by companies operating in the EU. This initiative will ultimately foster greater accountability and drive organizations towards more sustainable practices.

How to find out if your company is in scope for CSRD?

As the CSRD is being implemented across the next few years, it’s important to consider a few things about your business to determine whether and when you must comply. Below are a few things that you will have to take into account:

1. Assess your company’s metrics. What is your business’s employee count, annual turnover, and the value of your business’s assets on the balance sheet? If you have more than the threshold for a particular phase of CSRD implementation, you will have to comply.
2. Does your company have an EU presence? If your business has a significant presence in an EU member state, or subsidiaries that operate within the union, then you are likely to have to comply.
3. Check your listed status: If your business is listed, then there’s a strong probability that you will need to comply.

If you’re still unsure whether your business needs to comply with the CSRD, get in touch for a free one-on-on advisory meeting.

Are there any exemptions to the CSRD?

While the CSRD wants companies to be transparent, it’s not asking them to give away all their secrets. Companies must report extensively, but they can hold back information that could hurt their competitive edge. 

If sharing a piece of information might damage the company’s business interests, or reveal confidential intellectual property, they can keep it under wraps. Paragraph 7.7 of ESRS 1 specifically allows companies to withhold classified or sensitive information, even if it might be considered important. 

The goal is to strike a balance: Companies need to be open and accountable, but they don’t have to expose everything that could potentially harm their competitive position. 

If you want to find out more about what information is considered secret, or are considering withholding information from your CSRD reporting, we recommend that you read paragraph 7.7 for more information.

How the scope of CSRD impacts your business

The implications of CSRD will impact every layer of the European business landscape; and chances are your business is included. The only question is which threshold you meet and when you will have to begin reporting. 

The timeline for mid-market companies to become compliant with the CSRD is tight. Many organizations face a goal of readiness by 2026 to submit their first sustainability reports for the 2027 financial year. As such, early preparation, investment in compliance initiatives, and strategic planning are critical to avoid last-minute scrambles and fines for (partial) non-compliance.

Beyond the increasing number of companies that must now prepare for comprehensive sustainability disclosures as part of the CSRD, here are several key ways in which the evolving scope of CSRD impacts businesses, with a particular lens on mid-market businesses.

Will your business be ready in time? 

Enterprise-level organizations are generally further along in their readiness for the CSRD compared to mid-market companies. Current data indicates that while 60% of enterprise organisations are ‘almost ready’ for CSRD compliance, only 37% of mid-market businesses said the same. This readiness gap highlights the urgency for these companies to ramp up their compliance efforts and invest in necessary resources before the reporting deadlines.

Use your time, people, and tech budget wisely 

Unlike larger organizations that were already reporting under the NFRD, mid-market firms often possess fewer resources at their disposal, making compliance with CSRD requirements more challenging. As a result, businesses might face the following hurdles:

• Building or expanding sustainability teams: Mid-market businesses may need to create dedicated teams focused on sustainability compliance, which can strain existing personnel resources.
• Hiring professionals: There is a rising demand for sustainability professionals with the necessary expertise to navigate complex reporting requirements.
• Budget allocation: Significant financial investments in new technology and tools for sustainability tracking and reporting will likely be necessary to meet the CSRD standards.
• Adopting technology: 94% businesses are looking to adopt third-party software solutions for reporting purposes. Finding the right software for your organization is imperative.

The CSRD is both an opportunity and a risk

Failure to comply with the CSRD could have severe consequences for all companies. However, because each country is responsible for implementing its own national laws, there is no one-size-fits-all approach to enforcement. For example:

• In France, companies can be fined up to €18,750 for non-publication, up to €30,000 and up to two years in prison for non-audit, and up to €75,000 and 5 years in prison for obstructing an audit. They could also be blocked from winning public contracts. 
• In Germany, companies can face fines up to €10 million, 5% of total annual turnover, or twice the total profits made or losses avoided.

While some other countries are still finalizing their approach, the EU's message is clear: all member states must implement these rules by July 6, 2024, with penalties designed to make companies take sustainability reporting seriously. 

On the other hand, the CSRD brings opportunities for many mid-market companies. As shown in a recent PwC report, companies are seeing multiple business benefits from CSRD, including better environmental performance, improved engagement with stakeholders, and risk mitigation. 

The bottom line is that while you may face significant financial and legal risks for not reporting correctly, those that adapt swiftly may get ahead while creating opportunities for growth tomorrow.

Get started with the right CSRD compliance platform

The CSRD will undoubtedly mark a pivotal moment in many businesses' corporate sustainability journeys. 

The expansion in the scope of CSRD means that there are tens of thousands of businesses across the continent that find themselves in a new era of sustainability. As a result, it’s becoming increasingly important to start that journey on the right foot.

For mid-market companies, this is no small feat. But using the right software, like Coolset's CSRD compliance module, can make all the difference. 

Coolset simplifies CSRD compliance—from start to finish—by streamlining data collection, reporting, and auditing. This makes it easier to get ahead of the expanding scope of CSRD before it impacts your business.

Start simplifying your sustainability reporting strategy today by scheduling a strategic consultation with our sustainability team today or try our interactive demo below.

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