CSRD and NFRD? A gift from EU!
- EcoVision
- Dec 21, 2025
- 4 min read
1. What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a landmark piece of European Union legislation that fundamentally changes how companies report on sustainability.
It replaces the older Non-Financial Reporting Directive (NFRD), significantly expanding the scope, detail, and rigor of reporting requirements.
Its primary goal is to put sustainability reporting on par with financial reporting, ensuring investors and stakeholders have access to comparable, reliable, and high-quality data.
Key Pillars of CSRD:
Double Materiality: This is the heart of CSRD. Companies must report on two fronts:
Impact Materiality: How the company impacts people and the environment (Inside-Out).
Financial Materiality: How sustainability issues (e.g., climate change, resource scarcity) impact the company’s financial health (Outside-In).
ESRS (European Sustainability Reporting Standards): Companies cannot just create their own reports; they must follow specific standards developed by EFRAG (European Financial Reporting Advisory Group). These cover Environment (E1-E5), Social (S1-S4), and Governance (G1). *To pass the CESGA professional exam, candidates must understand the European regulatory framework. This specifically includes studying the CSRD and the ESRS.
Mandatory Assurance: Unlike previous voluntary reporting, CSRD reports must be audited (initially "limited assurance," moving toward "reasonable assurance" in the future).
Digital Tagging: Reports must be machine-readable (XHTML format) to feed into the European Single Access Point (ESAP) database.
2. Who Does it Apply To? (Scope)
The scope is massive, affecting approximately 50,000 companies (up from ~11,000 under NFRD).
Large EU Companies: Meeting 2 of 3 criteria: >250 employees, >€50M turnover, >€25M balance sheet total.
Listed SMEs: Small and medium enterprises listed on EU regulated markets (excluding micro-enterprises).
Non-EU Companies: Companies with significant business in the EU (net turnover of >€150M in the EU) and at least one subsidiary or branch in the EU.
3. Recent Developments (2023–2025)
The CSRD is currently in its implementation phase, and the landscape is evolving rapidly.
Adoption of Sector-Agnostic Standards (July 2023): The European Commission officially adopted the first set of ESRS (the "sector-agnostic" standards that apply to everyone).
Delay of Sector-Specific Standards (Feb 2024): Originally, specific standards for high-impact sectors (like Oil & Gas, Mining, Textiles) were due by June 2024. The EU Council and Parliament agreed to delay these by two years (to June 2026) to reduce the administrative burden on companies.
First Reporting Cycle (2025): The first wave of companies (those previously subject to NFRD) are collecting data now (FY 2024) to publish their first CSRD-compliant reports in early 2025.
Interoperability Guidance (May 2024): EFRAG and the IFRS Foundation (ISSB) published guidance on how the European standards align with global standards to prevent companies from having to do "double work." They confirmed a high degree of alignment, particularly on climate.
Threshold Adjustments (Late 2023): The EU adjusted the inflation-linked financial thresholds for defining "Large" companies (turnover and balance sheet), slightly reducing the number of companies caught in the immediate scope.
4. Impact on ESG and Sustainability Professionals
The CSRD is widely considered a "game changer" because it moves ESG from a marketing exercise to a compliance and strategy exercise.
A. Data Architecture Overhaul
Impact: Sustainability teams can no longer rely on spreadsheets and estimates.
Action: Companies are investing heavily in ERP (Enterprise Resource Planning) systems that integrate carbon and social data with financial data. The role of the "ESG Controller" is emerging to manage this data rigor.
B. The Rise of the C-Suite ESG
Impact: Because the report is signed off by the board and audited, CFOs and Audit Committees are now deeply involved.
Action: Sustainability professionals are moving from siloed departments to working directly with Finance, Legal, and Risk teams.
C. Supply Chain Transparency (Scope 3)
Impact: CSRD requires reporting on the value chain. Large companies are now sending detailed questionnaires to their smaller suppliers.
Action: Even if a small company isn't directly regulated by CSRD, they will feel the "trickle-down" effect as their large B2B clients demand data to fulfill their own CSRD obligations. (same will happen soon in other countries too...)
D. Strategic Transformation
Impact: Double materiality assessments often reveal risks that require a change in business model, not just reporting.
Action: Companies are identifying "stranded assets" or unsustainable product lines earlier. For example, a company might realize that its water usage in a drought-prone area is a financial risk, prompting a shift in manufacturing locations.
E. Global Standardization Catalyst
Impact: While CSRD is European, its "extraterritorial" reach (capturing US and Asian companies with large EU operations) is forcing it to become a de facto global standard.
Action: Multinational corporations are likely to adopt CSRD standards globally rather than maintaining separate reporting systems for different regions (the "Brussels Effect").
Summary Table: NFRD vs. CSRD
Feature | NFRD (Old) | CSRD (New) |
Scope | ~11,700 companies | ~50,000 companies |
Audience | Investors primarily | Investors, NGOs, Consumers, Employees |
Standard | Guidelines (flexible) | ESRS (Mandatory, rigid) |
Materiality | Vague | Double Materiality (Financial + Impact) |
Audit | Voluntary (mostly) | Mandatory Limited Assurance |
Format | PDF / Annual Report | Digital (XHTML) Tagged |
Conclusion
For a sustainability professional, CSRD is the single most significant regulatory development of the decade.
It transitions the profession from "advocacy and storytelling" to "accounting and compliance." Mastery of the ESRS standards and the Double Materiality assessment process is now a critical skill set.
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