Update Compliance 26/2022

European Parliament adopts Corporate Sustainability Reporting Directive (CSRD)

On November 10, 2022, the European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD), which leads to substantial changes to the previous Corporate Sustainability Reporting Directive (CSR Directive).

The CSRD will expand and standardize the contents of previously required reporting on sustainability matters. It will also affect an expanded group of businesses. According to an estimate by the EU Commission, some 50,000 companies will have to provide sustainability information in the future, whereas only about 11,700 companies are subject to this obligation now.

The Directive as regards disclosure of non-financial and diversity information by certain large undertakings and groups (Directive 2014/95/EU), referred to as the CSR Directive, introduced the obligation to include a non-financial statement in the management report relating to at least environmental matters, social and employee-related matters, respect for human rights, anti-corruption and bribery matters.

The EU Commission had presented a proposal to revise the CSR Directive in April 2021, which was modified by the European Council in February 2022. In June 2022, the Council and Parliament had reached a political agreement, which forms the basis for the version of the CSRD that has now been adopted. The adopted amendments to the CSR Directive widely expand reporting requirements. The most important changes relate to the following aspects:

Extending the scope of reporting requirements to additional companies

Currently, large capital market-oriented companies with an average of more than 500 employees are required to submit a non-financial statement. In the future, all large companies and all capital market-oriented companies (i.e., also SMEs, excluding micro-enterprises) will need to disclose their sustainability information.

For the first time now, companies from third countries will also fall within the scope of the future sustainability reporting requirements, provided that they maintain a subsidiary in a member state that meets the size requirements that are applicable to domestic companies. The same applies to branches with annual net sales exceeding EUR 40 million. It is required, however, that any such third-country company (at least at group level) has generated net sales in excess of EUR 150 million in the Union in each of the last two financial years. In such cases, the respective subsidiary or branch will remain subject to the reporting obligation, but the information must then relate to the group level of the ultimate third-country parent company or to the third-country company’s individual level.

Extended scope of reporting

The scope of reporting is also being expanded. In the future, all information required for understanding the impact of the company’s activities on sustainability aspects (inside-out perspective) and for understanding the impact of sustainability aspects on the company’s business performance, business results, and situation (outside-in perspective) will need to be included. According to the new version of the CSRD, information is required particularly on the following aspects:

  • a company’s business model and strategy (e.g., information on resilience to risks related to sustainability matters; negative impacts of business operations and value chain, and measures to identify and monitor these impacts; how business operations will be aligned with the goal of limiting global warming to 1.5°C),
  • the time-bound targets (already implemented) related to sustainability matters set by the company and a description of the progress the company has made towards achieving those targets, and a statement of whether the company’s targets related to environmental factors are based on conclusive scientific evidence,
  • a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters, and of their expertise and skills as well as information about the existence of incentive schemes linked to sustainability matters, which are offered to members of the administrative, management and supervisory bodies,
  • corporate policies in relation to sustainability matters,
  • other descriptions connected with supply chains or value chains (specifically with regard to the disclosures under the Corporate Sustainability Obligations Directive),
  • the principal risks to the company related to sustainability matters (including its principal dependencies and a description of how the company manages those risks).

There are, however, also opportunities for SMEs to use a limited scope of reporting.

Binding Union-wide standards for sustainability reporting

The specific form of the individual reporting obligations under the CSRD is governed by binding common standards for reporting – the European Sustainability Reporting Standards (ESRS). The ESRS further specify the disclosure requirements, which are only outlined in abstract terms in the Directive. At the same time, the ESRS are intended to promote comparability (including cross-border comparability), completeness, and quality of reporting. This also removes the freedom of choice that existed under the previous statutory provisions as to whether and which framework is to be used for reporting (such as choosing Global Reporting Initiative standards, which have been widely used to date).

The contents of the standards are intended to provide guidance on three topics: (1) environmental factors, (2) social and human rights factors, and (3) governance factors (each broken down further). The European Financial Reporting Advisory Group (EFRAG), which is responsible for developing the standards, submitted the first twelve draft standards with disclosure requirements plus various annexes, to the EU Commission on November 23, 2022:


  • General requirements (ESRS 1),
  • General disclosures (ESRS 2),


  • Climate change (ESRS E1),
  • Pollution (ESRS E2),
  • Water and marine resources (ESRS E3),
  • Biodiversity and ecosystems (ESRS E4),
  • Resource use and circular economy (ESRS E5),


  • Own workforce (ESRS S1),
  • Workers in the value chain (ESRS S2),
  • Affected communities (ESRS S3),
  • Consumers end users (ESRS S4),


  • Business conduct (ESRS G1).

The ESRS will then need to be adopted by the EU Commission as delegated acts (staggered according to disclosure requirements) by June 30, 2023 or June 30, 2024 at the latest.

Additional standards in accordance with the provisions of the CSRD are to be developed for SMEs and third-country companies and are to be established as delegated acts by June 30, 2024.

Format and audit requirements

In the future, sustainability information will need to be presented in the management report in a clearly identified section and will have to be audited by an auditor (or a similarly qualified person).

Entry into force and implementation deadlines

The CSRD adopted by the European Parliament still has to pass the Council of the European Union, which is scheduled for November 28, 2022. The member states must transpose the CSRD within 18 months of its entry into force. According to the EU Parliament’s published communication, the Directive should enter in force by the beginning of next year.

The initial application of the new provisions will then be staggered by company as follows:

  • from January 1, 2024 for companies already subject to the CSR Directive (i.e., reporting in 2025 on 2024 data);
  • from January 1, 2025 for large companies not currently subject to the CSR Directive (i.e., reporting in 2026);
  • from January 1, 2026 for listed SMEs and small and non-complex credit institutions and captive insurance companies (i.e., reporting in 2027).

For SMEs, however, the CSRD generally provides for the possibility of waiving the inclusion of the new information in their management report for fiscal years commencing prior to January 1, 2028.

Notes for use in practice

The European Parliament adopted the most recently drafted compromise text as expected, thus adding another building block to the EU’s intensive legislative activity relating to corporate sustainability. In view of the expected approval by the Council of the European Union and the tight deadlines for transposition, there is acute need for companies to take action to establish and/or adapt the necessary structures for the new reporting obligations that will apply successively from 2024.

In addition to the codified extension of the scope of application to numerous companies that have not been subject to reporting requirements to date, it is expected that the new reporting requirements will also have an indirect effect on companies that are not (yet) subject to reporting requirements by law, in cases where such companies are integrated into the supply chains of companies that are subject to the reporting requirements. Such companies are therefore also well advised to identify any steps that may need to be taken and to prepare accordingly.

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