Quick Guide: Key Sustainability Disclosure Regimes: EU CSRD

The CSRD entered into force in 2023, and EU Member States had until 6 July 2024 to transpose it into national law. Certain EU Member States have to date still fallen short of this implementation requirement. Iceland, Liechtenstein and Norway are also obliged to transpose the CSRD into national law after it is formally incorporated into the European Economic Area (“EEA”) Agreement, although they may choose to do so earlier.

The CSRD introduced new requirements for companies established or operating in the EU to report on a wide range of sustainability matters, including environmental, social, human rights, and governance topics. 

It sought to amend the previous regime under the Non-Financial Reporting Directive 2014 (“NFRD”) to expand the scope to a broader range of companies and require increased sustainability disclosures.

The EU is in the process of making significant changes to the CSRD as part of its Omnibus I simplification package. The aim is to reduce the EU’s sustainability disclosure requirements to cut the regulatory burden for businesses operating in the EU and to increase EU competitiveness.

The Omnibus I simplification package contains two separate proposals from the European Commission:

• a proposal for a “Stop-the-Clock” Directive to delay by two years the application of the CSRD for in-scope companies that have not yet started reporting. This Directive came into force in April 2025 and is in the process of being transposed in the EU Member States; and
• a proposal making more substantial changes to the CSRD, including changes to the scoping rules (the so-called “Requirements Proposal”). Negotiations between the European Parliament and the Council of the EU (“trilogues”) on the Requirements Proposal are expected to begin in November 2025.

We are tracking the Omnibus changes closely. 

The CSRD currently applies to “first wave” companies which are EU and non-EU issuers (i.e., entities which have equity or debt listed on an EEA regulated market) which are:

• large undertakings exceeding the average number of 500 employees; or
• parent undertakings of a large group exceeding the average number of 500 employees on a consolidated basis. 

Large undertakings and large groups are defined as those meeting at least two of the following criteria on two consecutive balance sheet dates (either individually or on a consolidated basis): (i) more than 250 employees, (ii) a balance sheet total of more than €25 million and (iii) a net turnover of more than €50 million.

Following the adoption of the “Stop-the-Clock” Directive, some CSRD application dates were postponed and are now as follows:

• from 2028 (in respect of FY 2027), the CSRD will apply to “second wave” companies which are EU undertakings and non-EU issuers which are:
  1. large undertakings, other than those already within scope; or
  2. parent undertakings of a large group, other than those already within scope; and
• from 2029 (in respect of FY 2028), the CSRD will also apply to “third wave” companies which are: 
  1. SMEs which have equity or debt listed on an EEA regulated market and which are not micro-undertakings (“in-scope SMEs”); or
  2. small and non-complex credit institutions, as well as captive insurance and reinsurance undertakings provided in each case that they are large undertakings or in-scope SMEs.

In addition, from 2029 (in respect of FY 2028) reporting requirements apply to non-EU companies with over €150 million annual net turnover in the EU and either a large or in-scope SME subsidiary in the EU or a branch located in the EU with an annual net turnover of more than €40 million.

However, the Requirements Proposal is expected to make a number of changes to the scope of the CSRD: 

• the European Commission proposed increasing the employee threshold to 1,000 employees (with the existing balance sheet and net turnover tests to remain unchanged);
• the draft JURI report of the European Parliament suggested that the CSRD should apply to companies with at least 3,000 employees and a net turnover of €450 million; and
• the Council of the EU has supported the European Commission’s proposal to increase the employee threshold up to 1,000 employees but suggested adding a €450 million net turnover requirement. 

However, these positions may change as a result of the trilogues. 

The CSRD requires in-scope companies to report in accordance with mandatory European Sustainability Reporting Standards (“ESRS”). 

The ESRS for large undertakings and parent undertakings of large groups were already developed by the European Financial Reporting Advisory Group (“EFRAG”) and approved by the European Commission as a Delegated Act to the CSRD. 

As required by the CSRD, the ESRS require companies to use a “double materiality” perspective when making sustainability disclosures – i.e., they oblige entities to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the entity.

The ESRS contain:

• two cross-cutting standards: ESRS 1 (General Requirements) and ESRS 2 (General Disclosures); and
• topical (sector-agnostic) standards:
  1. five standards related to the environment (climate, pollution, water and marine resources, biodiversity and ecosystems and resource use and circular economy);
  2. four social standards (own workforce, workers in the value chain, affected communities and consumers and end-users); and
  3. one standard on governance (business conduct).

ESRS 1 sets general principles to be applied when reporting under all of the ESRS and does not itself set specific disclosure requirements. 

ESRS 2 specifies essential information to be disclosed irrespective of which sustainability matter is being considered. ESRS 2 is mandatory for all in-scope companies.

All the other standards and the individual disclosure requirements and datapoints they contain are subject to a materiality assessment. This means that the entity will need to report only relevant information and may omit information that is not relevant (“material”) for its business model and activity.

Impact of Omnibus on the existing ESRS

The European Commission plans to simplify the existing ESRS, including by substantially reducing the specific information that in-scope entities are required to disclose. It has tasked EFRAG to prepare a draft of the revised ESRS by 30 November 2025. EFRAG has published an exposure draft of the revised ESRS, which is open for public consultation until 29 September 2025. The European Commission plans to approve the revised ESRS within six months after the Requirements Proposal comes into force.

In the meantime, the European Commission has adopted a so-called “quick-fix” Delegated Act to postpone additional phased-in reporting requirements set out in the ESRS that would otherwise apply to “first wave” companies which have already started reporting under the CSRD.

Other ESRS standards and technical guidance

EFRAG was developing a set of sector-specific draft ESRS and tailored ESRS for certain non-EU companies operating in the EU (“N-ESRS Standards”) as well as for in-scope SMEs. These projects have been paused pending the outcome of the Omnibus I legislative process.

EFRAG has published non-binding technical Implementation Guidance on the application of the ESRS: on materiality assessment, value chain and detailed ESRS data points. However, given that the CSRD and ESRS are being significantly revised under the Omnibus I proposal, this guidance will likely need to be amended in due course.

The CSRD requires in-scope companies to disclose a transition plan for climate change mitigation, if they have one. 

Under the ESRS, this needs to include, by reference to the company’s GHG emission reduction targets, an explanation of how those targets are compatible with the limiting of global warming to 1.5°C in line with the Paris Agreement. 

If the company does not have a transition plan, it must disclose whether and, if so, when it will adopt one. 

The detailed requirements of what information must be disclosed on transition plans are set out in the ESRS. 

EFRAG was working on draft Implementation Guidance on Transition Plans, but this work was put on pause in February 2025 in light of the Omnibus I package.

Please note that the Corporate Sustainability Due Diligence Directive (“CSDDD”) (in its current form) also includes additional requirements in respect of transition plans for in-scope entities (noting that the scope of application of the CSRD and the CSDDD does not fully align). 

It is unclear at this stage what will happen to the transition plan requirements in the CSRD (and the CSDDD) as a result of the Omnibus I changes. 

Sustainability information under the CSRD must be published together with the “limited assurance” opinion of a statutory auditor or, if the Member State allows it, an independent assurance services provider. 

The CSRD foresees a future uplift to a “reasonable assurance” requirement under certain conditions. 

The CSRD also requires the European Commission to adopt standards for sustainability assurance by means of delegated acts by 1 October 2026.

The Omnibus I proposal would remove the provisions that contemplate an uplift in assurance requirements from limited assurance to reasonable assurance. Instead of requiring the European Commission to adopt assurance standards by 1 October 2026, the proposal would require the European Commission to issue targeted assurance guidelines by that date.

In May 2024, the ISSB, the European Commission and EFRAG published interoperability guidance to illustrate the alignment between the ISSB standards (IFRS S1 and IFRS S2) and the ESRS. 

In July 2024, the Global Reporting Initiative (“GRI”) published a Q&A on what the ESRS mean for users of the GRI standards, which stated that there is strong alignment between the two sets of standards.

The GRI focusses on the impacts of an entity on the economy, environment and people (impact materiality). The ISSB focuses on risks and opportunities for the business (financial materiality). While the ESRS combines both (double materiality).   

In June 2024, the Taskforce on Nature-related Financial Disclosures (“TNFD”) and EFRAG jointly published a correspondence mapping for the ESRS and the TNFD’s recommended disclosures, noting strong alignment between both sets of standards (both use double materiality), though TNFD is narrower in scope given its focus on nature.

Impact of Omnibus

During the preparation of the revised ESRS, EFRAG introduced several changes to promote compatibility with ISSB standards. These include emphasising that the ESRS is a “fair presentation” framework, aligning terminology for common provisions, and implementing certain ISSB reliefs, such as exemptions where reporting would result in undue cost or effort.

The GRI has published an updated Q&A addressing the Omnibus process. The GRI notes that, while the Omnibus changes eliminate sector standards, entities may use relevant GRI Sector Standards to help comply with the ESRS. 

Sanctions will depend on the implementing legislation of the relevant EU Member State. The CSRD requires Member States to provide for "effective, proportionate and dissuasive" penalties for infringements of national legislation adopted in accordance with the CSRD. 

• CSRD
• Delegated Act with ESRS
• Stop-the-Clock Directive
• Quick-fix Delegated Act and Annex
• European Commission's FAQs
• EFRAG implementation guidance and Q&A
• Interoperability Guidance with ISSB standards 
• GRI and Sustainability Reporting in the EU Q&A
• GRI Q&A on the EU Omnibus
• TNFD - ESRS Correspondence Mapping

• EU CSRD demystified materials
• EU CSRD Transposition Tracker
• EU Stop-the-Clock Directive Transposition Tracker 
• EU Omnibus Tracker