What is CSRD? How the Corporate Sustainability Reporting Directive Impacts Businesses Worldwide

The Corporate Sustainability Reporting Directive (CSRD) is a regulation introduced by the European Union (EU) that’s transforming corporate sustainability worldwide. While it mandates stringent reporting for EU-based companies, its ripple effects are felt globally, reshaping how businesses measure, manage, and disclose their sustainability impacts. As the EU sets new benchmarks for transparency and accountability, companies worldwide are being urged to rethink their operations – not just to comply with regulations, but to thrive in a rapidly changing market.

So, what is CSRD, and why should companies around the globe pay attention, even if they fall outside its immediate scope? Let’s dive into the details.

What is CSRD?

At its core, the Corporate Sustainability Reporting Directive is the EU’s response to growing demands for corporate transparency and accountability for sustainability issues. Replacing the Non-Financial Reporting Directive (NFRD), which applied to around 11,700 companies, the CSRD significantly broadens its scope to include nearly 50,000 companies globally – including 10,000 non-EU companies. This expansion reflects the EU’s commitment to achieving its Green Deal objectives and becoming climate-neutral by 2050.

Under the CSRD, companies must report on their environmental, social, and governance (ESG) impact using the European Sustainability Reporting Standards (ESRS). These standards are designed to provide consistent, comparable, and reliable ESG data that stakeholders – investors, regulators, and consumers – can trust. Compliance with ESRS is mandatory for in-scope companies. Think of CSRD as the financial audit of sustainability—where companies must transparently report their climate impact, ESG performance, and risk exposure, just as they would with financial statements.

The CSRD also requires companies to adhere to the double materiality reporting principle, which mandates the assessment and disclosure  of information from two perspectives: impact materiality and financial materiality. This means companies must evaluate how their activities impact external factors, such as the environment and society, and how external factors, such as climate-related financial risks, impact their business. This ensures that sustainability reporting provides a holistic view of a company’s role, its risks and opportunities, while also encouraging accountability.
The directive applies not only to large EU-based firms but also to non-EU companies with significant business activities in Europe. This global reach highlights the interconnected nature of the global economy and establishes sustainability reporting as a universal standard rather than a localised requirement.

Who will be affected by the CSRD?

The Corporate Sustainability Reporting Directive applies to a wide range of entities:
1. EU companies: Large companies meeting at least two of these three criteria are required to comply:

• More than 250 employees
• €50 million+ in net turnover
• €25 million + in total assets

2. SMEs: Listed SMEs on EU-regulated markets that meet at least two of the following three criteria must comply:

• Net turnover exceeding €8 million
• Total assets over €4 million
• Workforce of 50+ employees
  Listed SMEs must start collecting data in 2026 for reports due in 2027, with the option to defer reporting until 2028. Micro-enterprises are excluded from CSRD reporting, defined as companies meeting two of these three criteria: less than €700K turnover, less than €350K balance sheet total, and fewer than 10 employees.

3. Parent companies: If a parent company qualifies under the CSRD, its reporting obligations extend to all entities within the corporate group, including global operations.

4. Non-EU companies: Any company generating over €150 million in net turnover within the EU for two consecutive years and meet at least one of the following three criteria must comply:

• A large EU-based subsidiary (meeting the large company criteria outlined above)
• An EU branch with €40 million or more in net turnover
• Securities listed on EU-regulated markets
  This expanded scope ensures that businesses across industries – whether headquartered in Berlin, Boston or Beijing – are held accountable for their ESG impacts.

What is the timeline for CSRD reporting?

The rollout of the Corporate Sustainability Reporting Directive follows a phased timeline:

• From 1st of January 2024, large public-interest entities (already subjected to NFRD) start CSRD-aligned data collection.
• From 1st of January 2025, other large companies not previously under NFRD, begin collecting data for CSRD reporting.
• From 1st of January 2026, listed SMEs, as well as small and non-complex credit institutions and captive insurance companies, begin collecting data (with an opt-out option until 2028)
• From 1st of January 2028, non-EU companies meeting scope criteria start collecting data, with the first reports due in 2029.

This tiered implementation allows businesses time to adapt, but it also creates an urgency for those lagging behind. Many companies underprepared for these deadlines could face significant challenges in aligning their operations with the ESRS requirements.

Does the CSRD affect smaller companies?

Even if your company falls outside the direct scope of the CSRD today, its impact will likely affect you. The directive requires large companies to report on their entire value chain – including suppliers and contractors. The 2024 PwC Global Investor Survey found that 50% of investors emphasise the importance of companies changing their value creation processes in response to climate change. These findings suggest a growing expectation for companies, including smaller businesses, to provide comprehensive ESG data to meet investor and client demands.

For example, a Vietnamese coffee supplier working with an EU beverage brand may not fall under CSRD—but its client does. To maintain contracts, the supplier must provide detailed ESG data, including emissions from coffee farming, water usage, and labour conditions.

This “trickle-down effect” highlights why even small businesses should start preparing now. Adopting voluntary frameworks, or starting small with carbon tracking tools, can help align with larger clients’ expectations and improve readiness. This active participation in ESG reporting can help smaller businesses meet client demands, and position themselves as preferred partners in global value chains.

How will the CSRD impact organisations outside the EU?

The Corporate Sustainability Reporting Directive extends beyond Europe, requiring non-EU companies meeting specific criteria to provide detailed sustainability disclosures. This includes reporting on business models, sustainability strategies, alignment with the Paris Agreement, and risk management policies. Companies must disclose the environmental and social impact of their operations, products, services, and supply chains, while meeting assurance requirements—starting with limited assurance and eventually transitioning to reasonable assurance. To enhance transparency, reports must be digitally tagged in XHTML format for machine readability.

Compliance Considerations for Non-EU Businesses

Companies operating outside the EU must first assess whether they meet CSRD thresholds and, if so, implement systems to collect, monitor, and verify sustainability data across their entire value chain. Independent assurance will be essential, and as the European Sustainability Reporting Standards (ESRS) evolve, businesses must stay informed of regulatory changes to maintain compliance.

Implications for US Businesses ‍

For American companies, the CSRD introduces both challenges and strategic opportunities. While many US businesses already engage with voluntary ESG frameworks such as SASB, CSRD demands a higher level of rigour and standardisation. For example, a US-based multinational with significant operations in Europe will be required to report its global ESG performance under ESRS standards by 2028, not just the performance of its European subsidiaries. This will necessitate a fundamental shift in sustainability reporting, from data collection to governance structures.

Even small and mid-sized US businesses may feel the ripple effects. A software company supplying services to an EU client could face contractual obligations to disclose ESG metrics, increasing operational costs but also creating opportunities for competitive differentiation in sustainability-conscious markets.

Implications for Japanese and APAC Businesses

In Japan and the broader Asia-Pacific region, the CSRD presents both compliance challenges and market shifts. Japanese and APAC businesses with significant EU operations must prepare for mandatory reporting by 2029. Companies should assess whether their corporate structure, revenue streams, and EU exposure could bring them within scope in the future. Proactively implementing reporting systems now can prevent last-minute compliance hurdles.

Even if a business is not directly subject to the CSRD, it may still face indirect pressures through its role in global supply chains. Take a Japanese auto parts supplier working with a major EU car manufacturer. Historically focused on quality and efficiency, this supplier now faces strict ESG reporting requirements, including carbon emissions, resource use, and labour practices. Meeting these demands requires both robust data systems and a cultural shift—from prioritising financial performance to integrating sustainability into core business metrics.

How to prepare for the CSRD

As deadlines are approaching, preparation is not only sensible but essential. It’s not just about compliance; it’s about staying competitive in a market where sustainability is increasingly becoming a key differentiator. For businesses directly affected by the CSRD – or those indirectly impacted through supply chain pressures – there are several next steps:

• Scoping: Determining whether your company falls under direct or indirect CSRD requirements. For large multinational organisations headquartered outside Europe, this often involves complex analyses of financial thresholds and subsidiary structures.
• Gap analysis: Assessing current ESG practices against ESRS benchmarks. For many companies, this reveals areas requiring improvement – from emissions tracking methods to governance policies around diversity and inclusion initiatives.
• Data systems: Sustainability reporting under the CSRD isn’t a matter of rough estimates; it requires detailed, verifiable data across a company’s operations and supply chain. This often means investing in new technologies and processes to capture and analyse this data effectively.
• Stakeholder engagement: Building buy-in among employees ensures sustainability becomes embedded in company culture and day-to-day operations. Transparent communication with investors and other external stakeholders helps maintain trust and demonstrates accountability. Beyond employees and investors, it is equally important to engage with suppliers, customers, and regulators to ensure alignment across the entire value chain. This ensures smoother transitions towards compliance goals without alienating key partners.

The EU Corporate Sustainability Reporting Directive is challenging businesses to rethink not just how they report on sustainability, but how they do business together. It’s a challenge that presents significant risks, particularly for unprepared companies, but also immense opportunities for those ready to lead the transition towards more sustainable and transparent business practices.

How Zevero helps you navigate CSRD compliance

Achieving CSRD compliance can be complex—but it doesn’t have to be. At Zevero, we simplify the process, equipping your organisation with the tools, data, and expert guidance needed to meet regulatory requirements while driving real sustainability impact.

Why Choose Zevero?

✅ End-to-End Carbon Management: From measuring emissions to setting reduction targets, we help you integrate sustainability into your business strategy.

✅ Simplified CSRD Reporting: Streamline data collection, calculation, and reporting, aligned with ESRS and other global frameworks.

✅ Technology + Advisory Support: We combine an automated solution with a team of in-house sustainability consultants to save your team valuable time.

✅ Capacity-Building for Long-Term Success: We don’t just help you comply—we empower your team with the knowledge and systems needed to navigate future sustainability challenges with confidence.

Get in touch today to simplify CSRD compliance and take control of your sustainability journey.