Understanding CSRD and How to Comply with ESRS Disclosure Requirements

The Corporate Sustainability Reporting Directive (CSRD) marks a transformative shift in how companies report on sustainability within the European Union (EU).

With stricter standards and a more rigorous regulatory framework, businesses now face greater challenges in navigating complex reporting requirements and heightened scrutiny. This change requires companies to adapt quickly to ensure compliance while integrating sustainability into their core strategies.

In this article, we break down the essentials of CSRD and outline the key steps companies must take to ensure compliance and avoid penalties.

What is CSRD?

Expanding on the groundwork established by the Non-Financial Reporting Directive (NFRD), the Corporate Sustainability Reporting Directive (CSRD) aims to enhance the consistency, comparability, and credibility of sustainability reports across the European Union (EU).

The CSRD introduces mandatory sustainability disclosures based on detailed reporting standards and requires independent verification of reported information. This underscores the EU's commitment to integrating sustainability into corporate governance frameworks, ensuring that sustainability efforts are both actionable and measurable.

Objectives and Key Features of the CSRD: Transparency, Accountability, and Standardisation

The primary goals of the CSRD are to:

• Enhance transparency: Provide stakeholders with detailed insights into companies' sustainability impacts and strategies.
• Standardise reporting: Establish uniform reporting standards to ensure consistency and comparability of sustainability data across the EU.
• Improve accountability: Hold companies accountable for their Environmental, Social and Governance (ESG) performance by mandating regular and verified disclosures.

Key Features of the CSRD

• Expanded scope: The CSRD extends reporting obligations to a broader range of companies, including large enterprises and listed small and medium-sized enterprises (SMEs).
• Detailed reporting requirements: Companies must disclose information on environmental protection, social responsibility, human rights and governance practices, providing a comprehensive view of their sustainability performance.
• Assurance and verification: The directive emphasises mandatory limited assurance (audit) of sustainability disclosures by independent third parties, enhancing reliability.
• Digital tagging: companies are required to digitally tag reported data in the European Single Electronic Format (ESEF), facilitating comparability and regulatory oversight.

Key Past Milestones:

• April 21, 2021: The European Commission proposed the Corporate Sustainability Reporting Directive (CSRD) to replace and strengthen the Non-Financial Reporting Directive (NFRD).
• December 14, 2022: The European Parliament and the Council of the EU adopted the CSRD, officially amending existing regulations to incorporate enhanced sustainability reporting standards.
• January 5, 2023: The CSRD entered into force, marking the beginning of its implementation phase.
• July 31, 2023: The European Commission adopted the first set of European Sustainability Reporting Standards (ESRS), providing the technical framework for companies to meet the CSRD's reporting obligations.
• January 1, 2024: The directive became applicable, requiring companies to align their reporting practices with the first set of European Sustainability Reporting Standards (ESRS).

CSRD Scope of Application: Who Must Comply?

Businesses now subject to the CSRD include:

• Large companies: Organisations that meet at least two of the following criteria:
  • More than 250 employees;
  • More than €40 million in revenue;
  • A balance sheet total exceeding €20 million.
• Publicly listed companies, including small- and medium-sized enterprises (SMEs) listed on regulated markets, except micro-enterprises.
• Non-EU companies (including US businesses for instance) with significant economic activities in the EU (e.g. gathering net turnover exceeding €150 million in the EU).

European Sustainability Reporting Standards (ESRS): The Foundation of CSRD Compliance

ESRS Categories: Cross-Cutting, Topical, and Sector-Specific Standards

The European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG), are the technical backbone of CSRD compliance.

EFRAG is an independent body tasked with creating technical standards for financial and sustainability reporting.

The ESRS integrate elements from globally recognised frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI), and the International Sustainability Standards Board (ISSB).

The ESRS framework comprises three categories of standards:

Cross-Cutting Standards

ESRS 1

ESRS 1 defines the structure, content, and principles (e.g., relevance, reliability, and double materiality) for sustainability disclosures.

Central to ESRS 1 is the materiality assessment, a key process requiring companies to evaluate and identify the sustainability issues that are most significant to report on. This assessment is grounded in the principle of double materiality, which calls for companies to consider both impact materiality—the effects of their operations on the environment and society—and financial materiality—how sustainability issues may impact their financial performance.

By combining these two perspectives, companies ensure that their disclosures meet the diverse needs of stakeholders while aligning with internationally recognised guidelines.

ESRS 2

ESRS 2 outlines required disclosures on governance, strategy, impacts, risks, and metrics. This standard establishes a unified format and structure for the subsequent ESRS topical standards, organised around four core disclosure categories: Governance, Strategy, Impact and Risk Management, and Metrics and Targets.

Topical Standards

These address specific ESG issues. The first set includes standards such as:

Environmental:

ESRS E1: Climate ChangeESRS E2: PollutionESRS E3: Water and Marine ResourcesESRS E4: Biodiversity and EcosystemsESRS E5: Resource Use and Circular Economy

Social:

ESRS S1: Own WorkforceESRS S2: Workers in the Value ChainESRS S3: Affected CommunitiesESRS S4: Consumers and End-Users

Governance:

ESRS G1: Business Conduct

Sector-Specific Standards

These are tailored to address sustainability issues pertinent to specific industries. As of now, sector-specific standards are under development and targeted for release post-2026.

How do CSRD Requirements Align with Other Global Reporting Standards?

TCFD (Task Force on Climate-related Financial Disclosures)

Developed by the Financial Stability Board (FSB) in 2015, TCFD provides guidelines for disclosing climate-related risks and opportunities across governance, strategy, risk management, and metrics. The framework emphasises transparency on financial impacts of climate risks to enhance investor decision-making.

The ESRS incorporate TCFD principles, ensuring consistent reporting on climate risks and opportunities. This alignment facilitates the integration of EU disclosures with this globally recognised framework.

GRI (Global Reporting Initiative)

GRI is a widely adopted framework for sustainability reporting, offering detailed guidelines for organizations to disclose their impacts on the economy, environment, and society. ESRS integrates GRI elements, particularly in social and environmental impact disclosures, enabling companies to align EU reporting requirements with global sustainability benchmarks.

This alignment helps businesses simplify global compliance and enhances their ability to meet stakeholder expectations across diverse markets.

ISSB (International Sustainability Standards Board)

Created by the IFRS Foundation to establish a global baseline for sustainability-related financial disclosures, ISSB standards focus on investor-relevant information for financial materiality assessments.

ESRS draws on ISSB standards to ensure that EU reporting covers financially material sustainability impacts, facilitating easier comparison of corporate sustainability performance across markets. This integration strengthens the global relevance of EU disclosures.

CSRD Compliance Timeline: Key Deadlines and Phases

• January 2024: Companies currently under the NFRD, primarily large publicly listed firms with over 500 employees, must begin reporting under the CSRD. This includes comprehensive disclosures on ESG impacts, as well as sustainability-related risks and opportunities.
• January 2025: The CSRD’s scope expands to include large companies meeting at least two of the following criteria: 250+ employees, €40 million+ in net turnover, or a €20 million+ balance sheet total. This extension will bring large private firms under the CSRD umbrella, ensuring enhanced transparency across diverse ownership structures .
• January 2026: Listed SMEs with 10–250 employees will be required to report under the CSRD, with an option for a three-year deferral and simplified reporting requirements to ease compliance for smaller businesses.
• By June 2026: The European Commission will issue sector-specific sustainability reporting standards for high-impact industries, including energy, transportation, and finance. These  tailored standards will address unique industry risks and opportunities.
• January 2028: EU-based subsidiaries of non-European companies with EU turnover exceeding €150 million must comply with CSRD requirements, ensuring uniform reporting standards for multinational corporations operating within the EU.
• Post-2028: Future adjustments to the CSRD may expand its scope, update requirements, or align further with evolving international standards, reflecting the EU’s commitment to driving global sustainability practices.

Preparing Your Business for CSRD Reporting

• Conduct a double materiality assessment: Analyse both financial materiality (risks and opportunities posed by sustainability factors on your company’s financial health) and impact materiality (your company’s influence on society and the environment). Key areas to evaluate areas include climate impact, resource use, and social contributions.
• Engage a third-party auditor for verification: Partner with third-party assurance providers early to align processes with their criteria, ensuring ESRS-compliant, accurate and verifiable reporting.
• Assess your company’s current readiness: Review existing data collection practices, reporting methods, and workforce capabilities. Identify key gaps in data tracking, reporting, and expertise, and invest in training or hiring to address these. .
• Prepare for data collection and reporting: Map out internal and external data sources, assign data owners for accountability, and centralise data management to enhance accountability and streamline reporting.
• Perform a CSRD gap analysis: Conduct regular gap analyses to monitor compliance progress, address missing data points, and ensure compliance with ESRS requirements. Automation tools can simplify this process by providing real-time tracking and updates.
• Draft a ready-for-audit report: Document each KPI and methodology for audit-readiness. Digitally tag your report using XBRL (eXtensible Business Reporting Language) to ensure consistent data processing by auditors and regulatory bodies. Prepare to adapt to evolving sector-specific standards as CSRD requirements expand.

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How Apiday Simplifies CSRD Compliance for Your Business

Crafting a CSRD report is demanding, but Apiday supports you through the entire process, significantly speeding up workflows and improving efficiency.

Here’s how Apiday assists you at every step:

• Automatic ESRS identification: Apiday identifies the applicable ESRS standards based on your materiality assessment and generates ESRS questionnaires for you to fill, simplifying reporting and ensuring full compliance.
• Gap analysis and data validation: Apiday pinpoints missing data points by comparing your disclosures against the ESRS requirements, providing an instant overview of gaps—without manual cross-checking.
• Narrative CSRD report generation: Apiday generates a full narrative CSRD report based on collected data. Reports can be customised and branded to tailor it to your company’s requirements.
• Transparent audit process: By linking each data point to its source and ensuring calculation transparency, Apiday streamlines the audit process and reduces the likelihood of delays or issues during verification.

Book a no-obligation demo with us today and take the first step towards CSRD compliance!