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The Corporate Sustainability Reporting Directive (CSRD): A Guide for Companies

Approximately 50,000 companies in the European Union (EU) and beyond will have to comply with Corporate Sustainability Reporting Directive (CSRD) reporting. Here’s what you need to know to prepare your business and ensure compliance.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is the European law establishing mandatory environmental, social, and governance (ESG) reporting to be used alongside financial reporting. Its goal is to ensure that investors and other key stakeholders have pertinent information regarding the company's impacts, risks, and opportunities associated with ESG-related issues, including climate change.

Approximately 50,000 companies in the European Union (EU) and beyond will have to comply with CSRD in the coming years. It’s a sweeping, mandatory requirement and ​​is being phased in from 2024 to 2029. Beginning in January 2024, it applies to EU-based companies and subsidiaries in scope. Then, over the next four years, the law will extend to more organizations in the EU, plus companies that do business in the EU — even if they are based elsewhere. 

Companies initially in scope for CSRD must start collecting data in 2024 to be prepared to report in 2025. And data collection will take time, particularly for companies currently not tracking or reporting on any ESG metrics. ​​By 2029, all organizations impacted by CSRD will need to be in compliance.

Companies Impacted by CSRD

CSRD will impact EU-based companies in 2024 and then expand to those that do business in the EU from 2025 onward. Non-EU-based companies with subsidiaries registered in EU countries will be impacted in Phases 1–3, depending on the characteristics of that subsidiary.

Phase One Phase Two Phase Three Phase Four
2024: Data collection
2025: Reporting
2025: Data collection
2026: Reporting
2026: Data collection
2027: Reporting
2028: Data collection
2029: Reporting
All companies and subsidiaries already in scope for NFRD (including those outside the EU)

- Total assets: €‎20 million
- Net turnover (or revenue): €‎40 million
- Average # of employees during fiscal year: 500
Other large EU-based subsidiaries of non-EU companies, and all companies listed on the EU-regulated market

- Total assets: €‎20 million
- Net turnover (rev): €‎40 million
- Average # of employees during fiscal year: 250
EU-based small and medium enterprises (SMEs) and SME subsidiaries of non-EU-based companies listed on the EU-regulated market

Listed SMEs and SME subsidiaries
Non-EU companies with >€150 million in revenue Subsidiaries (same requirement as Phase 2) Large non-EU-based companies (one criterion):

- Annual turnover exceeds €150 million
- have one large subsidiary listed on the EU-regulated market
Source Source Source Source

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CSRD Reporting Requirements

CSRD is a broad-based disclosure requirement that covers a full range of topics across ESG factors. The European Sustainability Reporting Standards (ESRS) Opens in a new windoware the technical requirements within CSRD. Organizations must use the ESRS to comply with CSRD.

European Sustainability Reporting Standards (ESRS)

European Sustainability Reporting Standards (ESRS) graphic

ESRS cross-cutting standards

ESRS 1 and 2 — These are fundamental, general disclosure requirements and principles that aim to standardize and increase transparency​​ of ESG reporting.

The cross-cutting disclosures and principles are required for all businesses impacted by CSRD. The issue-specific environmental, social, and governance disclosures are required only when the topic is deemed material for the company.

All businesses will be required to report against E1, the Climate Change standard. This standard is the only one not subject to double materiality, so even companies that say it isn’t material will have to explain how and why they came to that conclusion. E1 encompasses greenhouse gas (GHG) emissions — including scope 3. Under this standard, companies will also need to provide an evaluation of climate risks and any plans to mitigate and adapt to climate change.

Disclosure and Compliance Made Easy

With Net Zero Cloud, you can access framework-specific report builders for CSRD, SASB, GRI, and CDP reports, with more to come as needed.

Double Materiality Assessment (DMA)

The ESRS requires a double materiality assessment be conducted by organizations to comply with CSRD. Double materiality refers to the impact of ESG topics on people and the environment, as well as on a business’ financial success in terms of risks and opportunities presented to the business.

In a double materiality assessment, organizations have to ​​determine which ESG topics are most material to their business’ success and impact on society. They must understand and report on how their business is affected by sustainability issues (inward-facing impact) and how their business activities affect society and the environment (outward-facing impact).​​

Third-Party Assurance

To comply with CSRD, companies will also be required to have a third party assure their sustainability information and data.

Companies will first be mandated to secure limited assurance from a third-party auditor. CSRD then outlines a timeline for companies to move to reasonable assurance, in which a third party will carry out a comprehensive assessment of a company’s sustainability disclosures and related operations.

CSRD Versus the Non-Financial Reporting Directive (NFRD)

CSRD is an expansion of the EU’s previous ESG reporting requirements under the NFRD. Enacted in 2018, the NFRD focused on ​​financial reporting requirements and provided companies with guidelines to disclose their approach to managing environmental and social challenges in their annual reports, along with financial metrics. As CSRD rolls out, it will supersede NFRD.

CSRD Versus the Corporate Sustainability Due Diligence Directive (CSDDD)

The EU’s CSRD and CSDDD serve unique but interconnected purposes. While CSRD sets the standard for transparent ESG reporting and disclosures, the CSDDD is a legislative frameworkOpens in a new window that requires companies to set up due diligence processes to proactively identify, prevent, and mitigate human rights issues and environmental impacts stemming from their value chain​​.

In short, think of the CSDDD as a mechanism for companies to create systems that improve the sustainability performance of their organization. CSRD then covers the reporting requirements for companies impacted by the CSDDD and beyond.

CSRD Versus the SEC’s Climate Disclosure Rule

The SEC’s climate disclosure rule, unveiled in March 2024, is much more narrow in scope than CSRD. Unlike CSRD, the SEC’s climate disclosure rule extends only to publicly listed companies in the U.S. and is focused on GHG inventory reporting and climate risk disclosures. Notably, the SEC mandates reporting for only scope 1 and scope 2 (and not scope 3). Companies that fall in scope of both CSRD and the SEC’s climate disclosure rule will be required to comply with both.

Leading Through Change: Preparing for the SEC Climate Rules

Salesforce and Akin Gump convene experts in both policy and ESG to discuss what you can expect when the proposed SEC climate disclosure regulations come into effect and how to prepare to navigate them.

Why was CSRD introduced?

The European Commission created CSRD to ensure high-quality and reliable public reporting by companies to help create a culture of greater public accountability. For decades, ESG reporting has been voluntary, and voluntary frameworks have emerged to help companies report on their ESG metrics. But without laws to ensure all organizations reported or a single framework on which to base their reporting, stakeholders have a difficult time making a fair evaluation between the information disclosed by multiple companies or even the same company across multiple reporting periods. This has complicated decision-making for investors, customers, consumers, partners, and suppliers. Given CSRD’s broad reach — both within Europe and beyond — customers, investors, and other stakeholders might ask you for information in alignment with CSRD, even if the law doesn't apply to you directly.

How You Can Prepare for CSRD Now

Regardless of whether you are just getting started on tracking and measuring your ESG metrics or whether you’re just brushing up on the latest regulations, Net Zero Cloud can help. Check out our web page, demo, and datasheetOpens in a new window to learn more.

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