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The transformation of ESG reporting has accelerated over the last several years as regions, countries and other jurisdictions have enacted sweeping disclosure regulations. Many companies have begun the work needed to determine which regulations are in scope and what needs to be disclosed. But deadlines for compliance that at one time may have seemed far off are now quickly approaching.
The regulation that probably requires the most immediate attention is the European Union’s Corporate Sustainability Reporting Directive (CSRD). Many EU member states have transposed the CSRD into national law and 2025 marks the initial year of reporting for the first companies in scope of the regulation (on fiscal year 2024 information). The directive is aimed at driving change in the business behavior of companies that operate in the EU, which includes US companies with EU subsidiaries that meet certain criteria. Given the complexity of the directive, your company should act now to avoid scrambling to comply.
What will your company need to disclose for CSRD requirements?
The CSRD requires comprehensive and granular disclosures covering the entire spectrum of sustainability topics. These disclosure requirements are detailed in 12 European Sustainability Reporting Standards (ESRS) that were issued by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission in 2023. The standards span environmental, social, and governance topics and are intended to provide insight into a company’s sustainability impacts, risks and opportunities, including its sustainability strategy, targets and progress, products and services, business relationships, and incentive programs.
The information reported may not be limited to a company’s own operations, but would extend to direct and indirect business relationships across the value chain. These disclosures are expected to be some of the most challenging areas of reporting, given the scope and the reliance on information from parties not controlled by the company.
The CSRD also embraces “double materiality,” which requires that companies report information necessary to understand how sustainability matters affect their business development and performance and the impact they have on a range of sustainability matters. In addition, the directive introduces a mandatory assurance obligation for all reported sustainability information. (That stands in contrast to the assurance requirement outlined in the US Securities and Exchange Commission’s recently adopted climate disclosure rules.) While the CFO, the ESG controller and the CSO will play leading roles in sustainability reporting, given CSRD’s complexity we recommend companies also include their legal counsel in their reporting process.
Who needs to comply with CSRD?
Your company will need to consider applicability at multiple levels within its organization to ensure all reporting obligations are identified. The directive will generally apply to three types of companies:
All companies with securities listed on an EU-regulated market: This includes both EU and non-EU entities with listed debt or equity securities (with limited exceptions).
“Large” EU companies that are not listed: Large is defined as companies that exceed certain asset, revenue and workforce size thresholds in two consecutive years. An EU subsidiary of a US company would be required to report if it exceeds those thresholds.
EU companies that are part of a “large group” and not listed: Reporting is required for an EU entity (including an EU subsidiary of a US company) if it is the parent of a group that exceeds certain asset, revenue and workforce size thresholds in two consecutive years.
In addition to reporting based on the above criteria, consolidated sustainability reporting will be required for non-EU headquartered companies at a global level if a company generates a certain amount of revenue in the EU and has at least one EU subsidiary or branch that meets certain criteria. The directive outlines exemptions that depend on how your company consolidates its sustainability reporting.
CSRD demystified: Practical actions to take now
Hear from PwC and Workiva covering practical and strategic ways to understand and help prepare for compliance with the EU’s CSRD.
How will CSRD requirements impact your sustainability reporting strategy?
EU Member States have begun incorporating the CSRD’s provisions into national law. Member States cannot reduce the requirements, but they can add additional provisions. It will be critical that companies operating across Europe be aware of developments in the jurisdictions in which they operate.
Evaluating scope, the applicable effective dates, alternatives for reporting at different levels within the organization (if any) and what compliance with the disclosure requirements will entail (including which sustainability matters are material and consideration of the EU taxonomy) will set the stage for successful implementation.
Obtaining an understanding now of the wide-ranging disclosure requirements as well as the expected effort to obtain information and develop and implement reporting systems is an important first step in creating an implementation plan. In addition, this understanding may provide insights that support decisions about the level at which to prepare this reporting when multiple entities within the organization are impacted.
Download: Worldwide impact of CSRD - are you ready?
Learn more about how the CSRD may impact your company
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