The Corporate Sustainability Reporting Directive is the most significant change to European corporate disclosure requirements in a generation. It replaces a patchwork of voluntary and limited mandatory reporting with a comprehensive framework that applies to a substantial share of European economic activity. If your company operates in Europe or sells to European companies, it affects you — directly or indirectly.
What CSRD Actually Is
CSRD is an EU directive that came into force in January 2023, replacing the earlier Non-Financial Reporting Directive (NFRD). It dramatically expands the scope of mandatory sustainability disclosure requirements and raises the bar for what that disclosure must contain.
Under CSRD, companies must report according to the European Sustainability Reporting Standards (ESRS) — a detailed set of standards developed by EFRAG. These standards cover environmental topics including climate, biodiversity, water, and pollution; social topics including workforce, community, and supply chain; and governance topics including business conduct and anti-corruption.
"CSRD requires companies to apply a 'double materiality' lens — disclosing not only how sustainability issues affect the company financially, but also how the company's activities affect people and the planet."
Who Is Covered — and When
The rollout of CSRD has proceeded in waves, with the largest companies subject to requirements first and smaller companies being phased in over time.
Following the Omnibus I simplification package, the thresholds have been adjusted significantly. CSRD now applies primarily to companies with more than 1,000 employees — a change that reduces the number of covered companies by approximately 80% compared to the original scope. Revenue and balance sheet thresholds have also been raised.
For listed SMEs, first reporting has been delayed to 2028 (covering financial year 2027). The VSME voluntary standard — designed for smaller companies that want to report but aren't required to — has also been updated and simplified, with publication now expected in 2027.
What ESRS Reporting Actually Requires
For companies in scope, ESRS reporting is substantive. It includes mandatory disclosure of governance structures for sustainability, strategy and business model analysis, double materiality assessment, policies and targets, and performance data across a wide range of environmental and social indicators.
The double materiality assessment (DMA) is often the most challenging starting point. It requires companies to systematically analyze which sustainability topics are material from both an impact and a financial perspective. The methodology has been simplified in the Omnibus I package, but it remains a substantive exercise.
CSRD also requires that sustainability disclosures be included in the management report (not as a standalone document), and that they be subject to limited assurance by an external auditor.
The Value Chain Effect
One of the most far-reaching aspects of CSRD is its value chain reporting requirement. Companies subject to CSRD must disclose information about their value chains — which means gathering ESG data from suppliers and other value chain partners.
This has a direct practical implication for SMEs that are not themselves covered by CSRD: their large-company customers may ask them to provide ESG data anyway, as part of the customer's own compliance obligations. Being an SME does not insulate a company from CSRD-driven data requests if it sells to large European companies.
Preparing Now: A Practical Approach
For companies that will be subject to CSRD reporting in the near term, the most important near-term actions involve establishing data governance: identifying who in the organization owns each category of ESG data, what systems currently capture it, where the gaps are, and how to close them.
The double materiality assessment should be initiated early, since its conclusions determine which disclosures are mandatory. This is not a compliance checkbox — done well, it generates genuine strategic insight about where a company's most significant sustainability risks and impacts lie.
For SMEs that are not directly covered but anticipate value chain data requests, the most practical step is to align internal ESG tracking with the VSME standard. This creates a defensible, recognized baseline that can be shared with customers and partners without requiring a full ESRS reporting exercise.
Key Takeaways
- CSRD now applies to companies with 1,000+ employees (post-Omnibus I) — approximately 80% fewer than originally planned.
- Double materiality is mandatory: you must assess both financial impact on your business AND your impact on people and the planet.
- Value chain provisions mean SMEs supplying large European companies will face ESG data requests regardless of their own CSRD status.
- The VSME voluntary standard is the most practical starting point for SMEs not directly in scope.
- Starting data governance now — not at the compliance deadline — is the single most impactful step a company can take.
Source
This article draws on the European Commission's official CSRD factsheet and policy documentation, including information on the Omnibus I simplification package adopted in late 2025.
