December 14, 2022

Corporate Sustainability Reporting Directive: New EU ESG Disclosure Requirements for EU and Non-EU Companies


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The EU is promulgating new ESG disclosure requirements that will expand the number of companies that have to report ESG information; broaden the categories and types of ESG information that must be reported; mandate a “double materiality” analysis; and introduce new third party assurance obligations. These new ESG disclosure requirements will fall on non-EU as well as EU companies, and private as well as public companies. The first reporting period is 2025 for the fiscal year 2024. Companies should commence ascertaining whether they and/or their sister companies and subsidiaries are covered and, if they are, mobilize internal and external recourses to ensure they are positioned to comply with these expanded requirements.

On November 28, 2022, the European Council approved the Corporate Sustainability Reporting Directive (the CSRD),[1] which was first proposed by the European Commission in April 2021.[2] The CSRD will enter into force 20 days after its publication in the Official Journal of the European Union and must then be transposed by EU member states within 18 months. We anticipate the directive will be published in Q1 2023.

The CSRD materially broadens the scope of environmental, social and governance (ESG) matters that must be disclosed to stakeholders and substantially increases the number of entities required to make such disclosures. The CSRD implements these disclosure requirements by amending the reporting requirements under the existing Accounting Directive[3] (as amended by the Non-Financial Reporting Directive, the NFRD[4]) and the Transparency Directive.[5] The CSRD also introduces assurance requirements in relation to these sustainability disclosures by amending the Audit Directive and the Audit Regulation.[6]

The breadth of the CSRD will result in more non-EU companies and their EU subsidiaries having to make ESG disclosures. This includes the possibility of having to file multiple sustainability disclosures on a subsidiary-by-subsidiary basis and requiring the cross-company integration of sustainability information to mitigate the risk of divergent disclosures.

Applicability to EU and Non-EU Companies

A gating question companies will face is whether the CSRD applies to them.[7] There are a number of ways in which a company may fall in scope of the CSRD.

Applicability to EU Companies

The CSRD applies to EU companies (including EU subsidiaries of non-EU parent companies) that fall into one of the following three categories:

  • Largecompanies, whether or not listed. This category applies if the EU company exceeds, on its balance sheet date, at least two of the following three criteria:
    • 250 employees;
    • turnover[8] of €40 million; and
    • total assets of €20 million.
  • Parent of a “large group,” whether or not listed. This category applies if the EU company is a parent of a group that is otherwise consolidated for purposes of the Accounting Directive and, on a consolidated basis, exceeds at least two of the three “large” company criteria set out above on the balance sheet date of the parent company.
  • Listed SMEs. This category applies to small- or medium-sized companies (SMEs) with securities listed on one or more EU regulated markets (e.g. exchanges such as Euronext Dublin, Euronext Paris and the Boerse Berlin).

Applicability to Non-EU Companies

The CSRD also applies to non-EU companies that fall into one of the following two categories:

  • Non-EU companies with sufficient EU-generated turnover and an EU branch or subsidiary. This category applies to any non-EU company that, at its consolidated level (or, if there is no group, at its individual level) has generated a net turnover of more than €150 million in the EU for each of the last two consecutive years, and has:
    • an EU subsidiary that falls into the “large” company category or the listed SME category applicable to EU companies as set out above; or
    • an EU branch that generated a net turnover of more than €40 million in the preceding financial year.
  • Non-EU companies listed on an EU-regulated market. This category applies to any non-EU company (other than a micro-company[9] ) with securities listed on one or more EU regulated markets.


Companies covered by the CSRD must comply with the new requirements in accordance with the following schedule:

  • reporting in 2025 on the financial year 2024 for companies already subject to the NFRD;[10]
  • reporting in 2026 on the financial year 2025 for large companies that are not currently subject to the NFRD;
  • reporting in 2027 on the financial year 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings; and
  • reporting in 2029 on the financial year 2028 for non-EU companies that are covered based on the thresholds described above.

According to an estimate, four times as many companies (both EU and non-EU) will be required to disclose under the CSRD as were required to disclose under the NFRD.

New Disclosure Requirements

The CSRD uses the term “sustainability matters,” which covers various ESG topics including, among others, climate-related or environmental issues (e.g., greenhouse gas emissions), fundamental rights-related issues (e.g., child labor and employment matters), anti-corruption and bribery-related issues (e.g., Foreign Corrupt Practices Act and other anti-bribery acts compliance) and diversity-related issues (e.g., diversity in company board members).

Companies will be required to assess sustainability impacts from a “double materiality” perspective, capturing both the impacts to the company (i.e. how sustainability matters affect a company, including its financial performance) and the impacts of the company on the larger community and the environment.

Generally, these disclosures must be made in companies’ management reports, which are existing reports that must be prepared by many EU companies in accordance with the Accounting Directive and by EU and non-EU companies listed on EU regulated markets in accordance with the Transparency Directive.

To facilitate stakeholders’ access to sustainability information and the ability to compare such information across companies, the CSRD requires these reports to be produced in the single electronic reporting format and the new disclosure to be digitally tagged. The level of detail required will depend on the type and size of the company and the materiality determination. Large companies (or parents of large groups, at group level) will be required to produce the most detailed disclosures that include a description of:

  • Strategy. Business model and strategy, with a description of:
    • plans to ensure that these are compatible with the transition to a sustainable economy and the limiting of global warming, taking into account the interests of stakeholders and impacts on sustainability;
    • resilience in relation to risks relating to sustainability;
    • opportunities relating to sustainability;
    • their exposure to coal, oil and gas-related activities; and
    • how their strategy has been implemented with regard to sustainability matters.
  • Targets. (i) Time-bound targets related to sustainability set by the company, (ii) a description of progress made towards those, and (iii) a statement of whether environmental targets are based on conclusive scientific evidence.
  • Expertise. The role and access to expertise and skills of their administrative, management and supervisory bodies with regard to sustainability as well as information about any incentive schemes linked to sustainability offered to members of those bodies.
  • Policies. Their sustainability policies.
  • Due Diligence. (i) Their due diligence process with regard to sustainability, (ii) the main adverse impacts connected with their operations, value chain, business relationships and supply chain, (iii) actions taken to identify and monitor these and to prevent, mitigate, remediate or bring to an end these impacts and (iv) the results of those actions.
  • Risks. (i) The main risks relating to sustainability matters and (ii) how these are managed, including a description of their principal dependencies on those matters.
  • Key Indicators. Key indicators for the above matters.

SMEs and certain entities in the captive insurance business will be subject to less extensive disclosure requirements.

Responsibility for Reporting in relation to Non-EU Companies

In the case of non-EU companies subject to the CSRD as a result of sufficient EU-generated turnover and a significant EU subsidiary or branch, the relevant EU subsidiary or branch will be responsible for producing a “sustainability report” containing sustainability disclosures at the group level of the ultimate non-EU parent company (or, if there is no group, at the individual level). This must be done in accordance with the CSRD reporting standards or in a manner determined by the European Commission in an EU implementing act to be “equivalent” to those standards. It is not clear which, if any, non-EU countries will be deemed to have equivalent sustainability reporting standards. At this time, there is no reason to believe the U.S. would be deemed to have equivalent standards. Given that the proposed U.S. SEC climate change disclosure rule only covers climate change and not other ESG matters, any adoption of this rule[11] is unlikely to change that.

If the necessary information to produce the disclosures is not available, the EU subsidiary or branch must request that the non-EU company provide the relevant information. If not all of the necessary information is provided, the disclosures must contain all information in the possession of the subsidiary or branch and include a statement that the non-EU company did not make the necessary information available.

Member states may also require these EU subsidiaries or branches to send them information about the net turnover generated in the EU by their non-EU parent companies, in order to determine whether the CSRD applies to them.

Third Party Assurance

Companies will be required to obtain third-party assurance of the compliance of their sustainability disclosures with CSRD requirements, including compliance with reporting standards adopted under the CSRD; the process carried out by a company to identify the information disclosed pursuant to those standards; and compliance with the requirement to digitally tag the sustainability disclosures.

Third-party assurance may initially be carried out on a limited assurance basis. Limited assurance would usually involve an opinion given in a negative form of expression confirming that the disclosures are not misstated. The third-party assurance requirement will transition to a requirement for a reasonable assurance assessment by October 1, 2028. Reasonable assurance would involve an opinion given in a positive form of expression on the measurement of the sustainability disclosures against the criteria.

Specific Disclosure Standards Published by EFRAG

On November 16, 2022, the European Financial Reporting Advisory Group (the EFRAG)[12] approved the first set of European Sustainability Reporting Standards (the ESRS), which is expected to be adopted by the European Commission in June 2023. The second set, which will add sector-specific considerations, will follow in 2024.

The EFRAG standards set out the detail of CSRD reporting that will be required under each ESG category. Practically speaking, companies that determine that the CSRD applies to them, or to some or all of their group, will want to compare their existing disclosure with the EFRAG standards in order to identify disclosure gaps.

Consolidated Reporting

Subsidiary companies in the EU that would otherwise be in scope of CSRD will be exempt from the requirement to produce their own sustainability disclosures if they—and any of their own subsidiaries—are included in the consolidated management report of a parent company that complies with the sustainability reporting standards under CSRD (or, in the case of a non-EU parent company, with standards determined in an EU implementing act to be equivalent to CSRD standards). This exemption is subject to certain conditions relating to the content and form of the parent company’s report and the subsidiary company’s own management report.

Special thanks to Kazumasa Watanabe for his contribution to this publication.


[3]  Directive 2013/34/EU.
[4]  Directive 2014/95/EU.
[5]  Directive 2004/109/EC.
[6]  Directive 2006/43/EC and Regulation (EU) No 537/2014 respectively.
[7]  The CSRD generally refers to “undertakings”, rather than “companies”. Various specified types of “undertakings” are subject to the Accounting Directive (see Article 1 and the Annexes to the Accounting Directive for further details). We have used the term “companies” in this article for ease and clarity.
[8]  Turnover essentially means revenue for these purposes. It is defined on a net basis (sales rebates, value added tax and other taxes linked to turnover are deducted).
[9]  Micro-companies are very small companies which do not exceed the limits of at least two of the following three criteria: 10 employees; turnover of €700,000; total assets of €350,000.
[10]  The NFRD currently applies to large “public interest entities” with more than 500 employees.
[11]  SEC Release Nos. 33-11042 and 34-94478, March 24, 2021.
[12]  The EFRAG was established in 2001 by the European Union and the private sector to provide technical advice to the European Commission on accounting matters. The CSRD appointed the EFRAG as the technaical advisor to the European Commission responsible for developing the ESRS.


Authors and Contributors

Jason Pratt



+1 212 848 5449

+1 212 848 5449


Kristina Killick



+44 20 7655 5783

+44 20 7655 5783