The background of the Corporate Sustainability Reporting Directive (CSRD) and why it was introduced

The Corporate Sustainability Reporting Directive (CSRD) – a core component of the EU Green Deal – was introduced by the European Commission and came into force in 2023 to strengthen corporate transparency around sustainability. It builds on the earlier Non-Financial Reporting Directive (NFRD), which required large companies to disclose environmental and social information. However, the NFRD was widely seen as inadequate, with vague requirements and inconsistent application across EU member states.

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In contrast, the CSRD introduces clearer, more comprehensive obligations – placing climate risk, governance, and due diligence in the spotlight. Together with new laws and regulations such as the EU Taxonomy, Corporate Sustainability Due Diligence Directive (CSDDD), Carbon Border Adjustment Mechanism, and Green Claims Directive, it is reshaping corporate governance and disclosure expectations across Europe.

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The CSRD aims to strengthen and broaden the NFRD by:

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✔ Standardising sustainability reporting across Europe

✔ Improving the quality and reliability of environmental, social, and governance (ESG) data

✔ Helping investors and stakeholders assess corporate sustainability efforts

✔ Driving greater accountability, by requiring transparency on impacts, risks and opportunities

✔ Support the European Green Deal and align with the EU Taxonomy, which classifies sustainable economic activities

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CSRD reporting timelines and key updates, including the Omnibus package

The Corporate Sustainability Reporting Directive (CSRD) is being phased in gradually, ensuring businesses have time to prepare. However, compliance deadlines depend on company size, location, and whether they were previously required to report under the Non-Financial Reporting Directive (NFRD).

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Who needs to report under CSRD?

The CSRD expands sustainability reporting requirements from 11,000 companies under the previous NFRD to over 50,000 companies across the EU. Businesses required to report include:

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1. Large EU companies (from 2025, reporting on 2024 data)

A company is considered large if it meets at least two of the following criteria:

✔ More than 250 employees
✔ Net turnover of €50 million or more
✔ Total assets of €25 million or more

This category includes both public and private companies, meaning many businesses that previously did not have sustainability reporting obligations will now be required to comply.

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2. EU-listed small and medium-sized enterprises (SMEs) (from 2026, reporting on 2025 data)

Small and medium-sized enterprises (SMEs) listed on EU-regulated markets will be required to report sustainability information under the CSRD – but the requirements, timelines, and thresholds vary significantly depending on company size and status.

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Who qualifies as an SME under CSRD?

CSRD defines SMEs as companies that meet at least two out of three of the following thresholds:

What SMEs need to know👇🏼

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3. Non-EU companies with significant EU operations (from 2028, reporting on 2027 data)

Even if a business is headquartered outside the EU, it must comply with CSRD if it meets the following criteria:

✔ Generates €150 million or more in turnover (in the last 2 consecutive financial years)
✔ Has at least one EU subsidiary or branch that generates €40 million turnover

This requirement ensures multinational corporations operating in Europe are held to the same sustainability reporting standards as EU-based companies.

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CSRD reporting timeline: When does each group need to comply?

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Omnibus update: what the EU’s proposed changes mean for CSRD reporting

In February 2025, the European Commission introduced a new legislative package known as the Omnibus—a wide-ranging proposal aimed at simplifying and recalibrating the EU’s sustainability reporting rules. This includes key updates to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy, with the goal of reducing unnecessary administrative burden and enhancing competitiveness without weakening the EU’s sustainability goals.

These proposals represent a significant shift in tone—acknowledging the growing concerns from businesses, especially SMEs, that the current pace and complexity of ESG regulations were becoming unmanageable.

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Why is the EU proposing these changes?

The Omnibus package follows the recommendations of the Draghi report and the recently published Competitiveness Compass, both of which highlight the need to strike a better balance between sustainability and economic competitiveness.

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In short:

The EU wants to support its Green Deal ambitions.

But it also recognises the need to cut red tape, especially for SMEs.

✔ The goal is to reduce administrative burdens by 25%, and up to 35% for SMEs, across EU regulations before the end of the current Commission’s mandate.

✔ The Omnibus proposal reflects this effort to do sustainability smarter” – maintaining ambition while simplifying the process.

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President of the European Commission, Ursula von der Leyen said: "Simplification promised, simplification delivered! We are presenting our first proposal for far-reaching simplification. EU companies will benefit from streamlined rules on sustainable finance reporting, sustainability due diligence and taxonomy. This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonisation goals. And more simplification is on the way".

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Proposed changes to CSRD reporting under the Omnibus package

In early 2025, the European Commission proposed a series of targeted amendments to the CSRD as part of its broader Omnibus package. These proposed changes aim to ease the administrative burden on companies while maintaining the core objectives of the directive – namely, improving transparency, accountability, and the quality of sustainability-related disclosures across the EU.

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The amendments reflect growing feedback from industry stakeholders, calling for greater proportionality and a phased implementation timeline, particularly for smaller and less complex entities. While the foundational goals of the CSRD remain intact, the proposed revisions signal a shift toward more pragmatic, streamlined compliance pathways.

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1. Narrowing the scope of companies required to report

The CSRD will now only apply to large undertakings with more than 1,000 employees, and either €50 million+ in turnover or €25 million+ in total assets.

This is a major change—reducing the number of companies in scope by around 80%, focusing attention on the largest entities while shielding smaller firms from disproportionate obligations.

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2. Two-year delay for wave 2 and wave 3 companies

Companies that were originally scheduled to start CSRD reporting in 2026 or 2027 (e.g. many large private companies and listed SMEs) will now have two extra years to prepare.

This delay:

✔ Gives companies more time to organise internal processes.

✔ Allows the Commission to finalise proposed simplifications, including revisions to the European Sustainability Reporting Standards (ESRS).

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3. Voluntary sustainability reporting for companies out of scope

Companies under 1,000 employees will not be required to report under CSRD, but can voluntarily report using a simplified Voluntary Standard for SMEs (VSME), developed by EFRAG.

This acts as a safeguard, as:

✔ SMEs included in the value chain of larger companies, that fall in the scope of CSRD, will be protected from excessive sustainability requests that fall beyond the VSME.

✔ It helps prevent the “trickle-down effect”, where smaller suppliers are overwhelmed by ESG requests from larger partners.

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4. Revisions to the ESRS (European Sustainability Reporting Standards)

The Commission has committed to revising the ESRS to make them:

✔ Simpler

✔ More proportionate

✔ Better aligned with other regulations

One key example is ESRS E1 (Climate Change), which currently includes 142 disclosure requirements and 75 application requirements—with just a small portion (around 7%) directly addressing physical climate risk . The revision process is expected to trim down the number of data points, improve clarity, and reduce overlap.

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What this means for your business

If your company:

✔ Has fewer than 1,000 employees → You’re likely out of scope for mandatory CSRD reporting. You can choose to report voluntarily using the VSME standard.

✔ Was set to report under CSRD in 2026 or 2027 → You now have until 2028 or 2029 to comply.

✔ Remains in scope → Expect a simplified ESRS framework later this year, with a focus on clarity and cost-effectiveness.

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The relationship between CSRD and other reporting standards

The Corporate Sustainability Reporting Directive (CSRD) is not an isolated regulation – it aligns with and builds upon several global sustainability reporting standards and frameworks around the world. This helps create consistency in ESG reporting, making it easier for businesses to meet multiple disclosure requirements at once.

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Let’s explore examples:

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1. EU Taxonomy: Defining sustainable economic activities

The EU Taxonomy is a classification system that determines which economic activities are environmentally sustainable. It helps businesses, investors, and policymakers identify which projects contribute to the EU’s climate and environmental goals.

How it connects to CSRD:

✔ Companies under CSRD must disclose how much of their revenue, capital expenditure, and operational expenditure align with the EU Taxonomy.

✔ It ensures that businesses are not just claiming sustainability but actually operating in line with scientific and policy-based criteria.

For example, a real estate developer must assess whether their construction projects meet EU Taxonomy criteria for energy efficiency and emissions reduction.

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2. Task Force on Climate-related Financial Disclosures (TCFD): Climate risk reporting

The Task Force on Climate-related Financial Disclosures (TCFD) provides a framework for companies to report climate-related financial risks and opportunities. It is widely used by investors and financial institutions to assess how companies are managing climate risks.

How it connects to CSRD:

✔ CSRD’s climate risk disclosures (ESRS E1) are heavily influenced by TCFD, particularly its focus on:

✔ Physical risks (e.g., extreme weather damaging business operations)

✔ Transition risks (e.g., regulatory changes increasing costs for high-carbon industries)

✔ Scenario analysis (e.g., modelling how climate change could affect future financial performance)

✔ Businesses already reporting under TCFD will find it easier to comply with CSRD’s climate risk requirements.

For example, a real estate investment firm that follows TCFD may already assess the risk of rising sea levels affecting property values. Under CSRD, it must further integrate these insights into its financial disclosures.

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3. Global Reporting Initiative (GRI): Broad sustainability reporting

The Global Reporting Initiative (GRI) is one of the most widely used voluntary sustainability reporting frameworks, covering economic, environmental, and social factors. It is commonly used by companies to disclose non-financial impacts to stakeholders.

How it connects to CSRD:

✔ CSRD draws heavily from GRI, particularly in its approach to impact materiality (how a company’s actions affect people and the environment).

✔ Both CSRD and GRI require businesses to report on ESG impacts beyond financial risks, making social and environmental disclosures more comprehensive.

✔ Companies already using GRI will find it easier to transition to CSRD, as they are already familiar with many of the required ESG topics.

For example, an energy company under GRI might disclose its supply chain’s impact on water pollution and labour conditions. Under CSRD, these disclosures will become legally required rather than voluntary.

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4. Sustainability Accounting Standards Board (SASB): Industry-specific ESG disclosures

The Sustainability Accounting Standards Board (SASB) provides industry-specific guidelines for companies to disclose financially material sustainability information. It helps businesses identify which ESG factors are most relevant to their industry.

How it connects to CSRD:

✔ CSRD integrates a double materiality approach, requiring businesses to assess both financial risks (SASB’s focus) and broader ESG impacts (GRI’s focus).

✔ Companies that already use SASB for financial materiality reporting can expand their disclosures under CSRD to meet the additional impact materiality requirements.

✔ SASB’s industry-specific approach complements CSRD, which allows companies to focus on the most relevant ESG issues for their sector.

For example, energy management is considered a financially material topic for both real estate companies and solar technology & project developers, reflecting the shared importance of efficient energy use. However, product end-of-life Management is only material for solar developers, who are responsible for handling the disposal or recycling of solar panels – while it’s not applicable to most real estate firms.

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5. International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards: Setting the global baseline for financial sustainability reporting

The Task Force on Climate-related Financial Disclosures (TCFD) was officially disbanded in October 2023. Its legacy now lives on through full incorporation into the IFRS Sustainability Disclosure Standards developed by the International Sustainability Standards Board (ISSB).

The ISSB standards—specifically IFRS S1 (General Sustainability-related Disclosures) and IFRS S2 (Climate-related Disclosures)—fully integrate the TCFD recommendations, meaning that companies applying these standards are automatically meeting TCFD requirements. This transition significantly simplifies the sustainability reporting landscape by reducing the fragmentation once known as the "alphabet soup" of ESG frameworks.

The ISSB builds on the TCFD’s foundation to establish a global baseline for sustainability reporting, focused on financial materiality. For companies already familiar with TCFD, this makes the adoption of ISSB standards a logical next step—and an opportunity to streamline compliance across jurisdictions.

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How it connects to CSRD:

✔ CSRD goes beyond IFRS standards by incorporating impact materiality, requiring companies to disclose not just risks to their business, but also their broader sustainability impact.

✔ Businesses that operate globally will benefit from aligning their CSRD reports with IFRS Sustainability Disclosure Standards, ensuring consistency across markets.

✔ Importantly, the two standards have already made significant progress toward alignment. The European Commission, EFRAG, and ISSB have worked jointly to ensure a high level of interoperability, particularly on climate-related reporting. This has resulted in a shared vocabulary, aligned definitions of financial materiality, and overlapping climate disclosure requirements. The official interoperability guidance confirms that companies can comply with both CSRD and IFRS standards more easily than expected, with minimal duplication.

✔ However, the two standards are likely to become even more so aligned over time, helping create a more standardised global approach to ESG reporting.

✔ For example, a multinational renewable energy company reporting under both CSRD and IFRS can streamline its sustainability reporting by leveraging the interoperability guidance. By aligning metrics and definitions across both standards the company can avoid duplication, reduce reporting effort, and ensure consistency across EU and global markets.

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6. Corporate Sustainability Due Diligence Directive (CSDDD): Value chain risk management

The Corporate Sustainability Due Diligence Directive (CSDDD) requires large companies to identify, prevent, and mitigate actual or potential human rights and environmental harms across their own operations and entire value chains. This includes suppliers, contractors, and even downstream partners.

How it connects to CSRD:

CSRD acts as the reporting framework for how companies comply with CSDDD obligations. Both directives align on:

✔ Transition planning to support climate mitigation

✔ Stakeholder engagement in sustainability governance

✔ Supply chain transparency, particularly on social and environmental risks

The Omnibus package proposes aligning the scope of CSRD and CSDDD, helping reduce duplication for companies subject to both.

For example, a renewable energy company sourcing critical minerals for wind turbine production must identify potential risks of human rights abuses in its supply chain (e.g. mining operations in high-risk regions). Under CSRD, it would disclose how those risks are assessed and addressed under ESRS S2 (Workers in the Value Chain) and ESRS S3 (Affected Communities).

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7. Sustainable Finance Disclosure Regulation (SFDR): ESG transparency for financial market participants

The Sustainable Finance Disclosure Regulation (SFDR) applies to financial institutions, including those funding renewable energy projects. It requires them to disclose how they integrate sustainability risks and promote ESG characteristics in their investments.

How it connects to CSRD:

SFDR relies on company-level ESG data to assess and report on the sustainability of investment portfolios. CSRD provides:

✔ Verified data on emissions, biodiversity, social safeguards, and governance

✔ Insights into EU Taxonomy alignment, which directly feeds into SFDR product-level reporting

✔ Consistent metrics across climate, environmental, and social issues

For example, a green energy investment fund classified under SFDR’s Article 9 must demonstrate that it invests in genuinely sustainable projects. It relies on CSRD disclosures from solar and wind developers – such as greenhouse gas emissions, biodiversity impacts of land use, and community engagement strategies – to back up its claims.

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The 10 key reporting topics under CSRD

Under the European Sustainability Reporting Standards (ESRS), companies must disclose their sustainability performance across 10 key topical areas, covering a full range of environmental, social, and governance (ESG) issues. These topics help ensure transparency on how businesses affect—and are affected by—climate change, ecosystems, people, and society.

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In addition to these 10 topics, companies must also follow two cross-cutting standards – ESRS 1 (General Requirements) and ESRS 2 (General Disclosures) – which provide overarching principles and mandatory baseline information for all reports.

Some topics apply universally, while others depend on a company’s size, sector, and materiality assessment. Here's a breakdown of the 10 topical standards:

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1. Climate change (ESRS E1)

Climate change is a central focus of the CSRD and is widely recognised as one of the most commonly material topics for reporting. Companies must report on:

✔ Greenhouse gas (GHG) emissions, including Scope 1, 2, and 3

✔ Decarbonisation strategies and net zero targets

✔ Climate risks and opportunities, covering both physical risks (e.g., extreme weather, rising sea levels) and transition risks (e.g., regulatory changes, carbon taxes)

✔ Climate adaptation measures

Companies with significant climate risks—such as those in finance, real estate, and manufacturing—will first need to determine whether climate is a material topic through a double materiality assessment. If deemed material, they must then disclose detailed data on their emissions reduction targets, transition plans, and climate resilience strategies.

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2. Pollution (ESRS E2)

Companies must disclose their impact on air, water, and soil pollution, including:

✔ Emissions of hazardous substances (e.g., heavy metals, pesticides, industrial waste)

✔ Plastic waste and strategies for reduction

✔ Pollution mitigation measures

Sectors such as chemical manufacturing, agriculture, and transport will need robust pollution reduction plans.

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3. Water and marine resources (ESRS E3)

Water scarcity and ocean health are growing concerns. Companies must report on:

✔ Water consumption and efficiency measures

✔ Wastewater discharge and treatment

✔ Impact on marine ecosystems

Industries such as food production, textiles, and energy are particularly affected due to their heavy water use.

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‍4. Biodiversity and ecosystems (ESRS E4)

Biodiversity loss is a major global risk. Businesses need to disclose their impact on:

✔ Deforestation and land degradation

✔ Biodiversity conservation efforts

✔ Supply chain effects on natural habitats

For example, agriculture, forestry, and mining companies will need to assess and mitigate their biodiversity footprint.

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5. Resource use and circular economy (ESRS E5)

Companies must report on how they use raw materials and contribute to a circular economy, including:

✔ Recycling and waste reduction initiatives

✔ Sustainable sourcing of materials

✔ Product lifecycle impact assessments

Manufacturers and retailers will need to provide data on how they are moving toward closed-loop systems to reduce waste.

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Social reporting topics

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6. Own workforce (ESRS S1)

Companies must disclose data about their employees’ rights and working conditions, including:

✔ Diversity, equity, and inclusion (DEI) policies

✔ Health and safety measures

✔ Fair wages and employment contracts

Sectors with high labour demands, like construction, retail, and hospitality, will be closely monitored under this standard.

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7. Workers in the value chain (ESRS S2)

Beyond their own employees, businesses must assess the working conditions of those in their supply chains, covering:

✔ Child labour, forced labour, and fair pay

✔ Supplier audits and risk assessments

✔ Ethical sourcing policies

For instance, fashion brands and electronics manufacturers will need to improve supplier transparency.

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8. Affected communities (ESRS S3)

Companies must report on how their operations impact local communities, particularly regarding:

✔ Displacement and land use conflicts

✔ Community engagement programs

✔ Access to essential resources (e.g., water, education, healthcare)

Extractive industries like mining and energy will face higher scrutiny here.

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9. Consumers and end-users (ESRS S4)

This standard focuses on product responsibility and consumer rights, requiring disclosures on:

✔ Product safety and ethical marketing

✔ Data privacy and cybersecurity

✔ Sustainable product development

Tech companies, food producers, and pharmaceuticals will need to ensure transparency in customer safety and data protection.

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Governance reporting topics

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10. Governance, risk management, and internal control (ESRS G1)

Governance transparency is central to CSRD. Companies must disclose:

✔ Corporate structure and decision-making processes

✔ Board diversity and executive pay transparency

✔ Risk management frameworks

Financial institutions and large multinationals will need strong internal controls and board oversight.

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Understanding the role of double materiality

A key distinction of CSRD reporting is the concept of double materiality, which requires companies to assess sustainability from two perspectives:

✔ Financial materiality – How environmental, social, and governance (ESG) risks affect a company’s financial performance.

✔ Impact materiality – How a company’s operations impact people, the environment, and society at large.

Unlike traditional financial reporting, which only focuses on risks that affect business profitability, double materiality expands disclosures to include a company’s broader sustainability impact.

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So, why does it matter?

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Double materiality plays a critical role in determining which of the 10 ESRS sustainability topics a company must report against. Businesses are not required to disclose against every topic by default – instead, they must use the materiality assessment to identify which topics are relevant to their business model, value chain, and stakeholder interests.

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If a topic is not material, the company may omit related disclosures, so long as it can clearly explain and justify why. This approach ensures that reporting is streamlined and decision-useful, rather than unnecessarily burdensome.

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In short, double materiality helps companies:

✔ Focus their sustainability reporting on what truly matters

✔ Avoid disclosing irrelevant or low-impact information

✔ Align their sustainability strategy with stakeholder priorities and financial risks

By integrating both impact and financial perspectives, double materiality provides a structured and strategic foundation for CSRD reporting.

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Example: Double materiality in real estate

The real estate sector offers a clear example of double materiality in action, as buildings both impact and are impacted by sustainability factors – but this principle applies across all industries, each with their own material sustainability considerations.

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Financial materiality in real estate

Real estate companies must report on how climate risks affect their financial performance. For example:

✔ Physical climate risks: Extreme weather occurrences, like floods and heatwaves and the rising sea levels pose climate risks that could harm structures and result in higher insurance expenses while also decreasing property worth.

✔ Regulatory risks: New energy efficiency regulations, such as the Energy Performance of Buildings Directive, in the EU could necessitate improvements to adhere to environmentally friendly building criteria.

✔ Market risks: The real estate market faces a challenge as tenants and investors now lean towards energy efficient buildings, over older properties that are losing their edge in competitiveness.

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Impact materiality in real estate

Real estate also has a significant environmental and social impact, which companies must disclose. Key areas include:

✔ Carbon footprint of buildings: Buildings contribute to around 40% of carbon dioxide emissions due to factors like the materials used in construction and energy consumption for maintaining temperature levels within the structures.

✔ Biodiversity impact: New developments may lead to deforestation and the destruction of habitats.

✔ Social impact: Large-scale projects can displace communities or affect local infrastructure.

By considering both financial and impact materiality, companies can:

✔ Identify and prioritise key ESG topics – Companies can focus on sustainability issues that genuinely impact their business and stakeholders rather than reporting on irrelevant ESG factors.

✔ Improve decision-making – Helps businesses integrate sustainability into corporate strategy, risk management, and long-term financial planning.

✔ Enhance transparency for investors and regulators – Provides a clearer picture of how ESG factors impact business resilience and long-term success.

✔ Meet regulatory and market expectations – Investors, customers, and regulators increasingly demand credible sustainability disclosures.

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The business value of identifying your impacts, risks, and opportunities

For businesses, understanding their impacts, risks, and opportunities can support better strategic decisions, reducing costs, and staying competitive in a rapidly changing world. Here’s why identifying sustainability-related impacts, risks, and opportunities is a business necessity, not just a reporting requirement.

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1. Strengthening risk management and business resilience

Sustainability risks are no longer distant concerns—they are immediate business threats. Climate change, social inequality, and resource scarcity can all impact business operations, profitability, and supply chains. Identifying these risks early not only helps protect the business today—it also allows companies to adapt and mitigate to avoid costly disruptions in the future.

✔ Physical climate risks – Flooding, heatwaves, and extreme weather events damaging assets and infrastructure, and disrupting value chains

✔ Regulatory risks – Stricter emissions laws, carbon pricing, and sustainability regulations affecting operations and finances through penalties, sanctions, and taxes.

✔ Market risks – Changing customer and investor expectations leading to reduced demand for unsustainable products or services.

Example: A manufacturing company that identifies water scarcity risks early can invest in water-efficient technologies, avoiding production disruptions and regulatory fines.

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2. Unlocking new revenue streams and competitive advantage

Businesses that understand their sustainability impacts can innovate and tap into new markets. Crucially, it allows businesses to adapt in ways that prevent future revenue loss, positioning themselves for growth even as regulations, technologies, and consumer preferences shift.  Identifying opportunities within ESG trends allows companies to:

✔ Develop sustainable products and services – Meeting the growing demand for environmentally friendly solutions.

✔ Enhance operational efficiency – Reducing energy and resource consumption to lower costs.

✔ Unlock new markets and customer segments – As sustainability becomes a key purchasing factor, both consumers and B2B clients are actively seeking new products and services that align with their environmental and social values.

Example: A real estate developer that integrates low-carbon materials and renewable energy solutions can market properties as green buildings, attracting sustainability-conscious tenants and investors.

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3. Gaining investor confidence and securing funding

Investors are increasingly factoring ESG risks and opportunities into their decision-making. Companies that can demonstrate strong sustainability performance will find it easier to:

✔ Attract investment – Institutional investors prefer businesses with robust ESG reporting and clear sustainability strategies.

✔ Access green finance – Sustainable loans, green bonds, and ESG-linked funding options often come with better interest rates and financial incentives.

✔ Reduce perceived risk – Transparent ESG reporting builds investor trust and reduces concerns about potential liabilities.

Example: A company with comprehensive CSRD reporting that clearly identifies its sustainability impacts, risks, and opportunities is more likely to secure funding from sustainability-focused investment funds, as it demonstrates a clear understanding of its long-term resilience and value creation strategy.

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4. Future-proofing operations against evolving regulations

Governments worldwide are tightening sustainability regulations, and businesses that don’t prepare risk falling behind. By identifying regulatory risks early, companies can:

✔ Avoid fines and non-compliance penalties

✔ Stay ahead of industry changes and prevent last-minute, costly adjustments

✔ Future-proof products, services, and supply chains for stricter sustainability laws

Example: A packaging company that identifies upcoming EU bans on single-use plastics can invest in alternative biodegradable materials before competitors, ensuring smooth regulatory compliance while maintaining market share.

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5. Building trust and strengthening brand reputation

Consumers, employees, and business partners are increasingly scrutinising corporate sustainability performance. Transparent ESG reporting helps businesses:

✔ Enhance brand loyalty – Customers are more likely to support brands that demonstrate real sustainability commitments.

✔ Attract top talent – Employees prefer to work for companies with ethical business practices and strong ESG commitments.

✔ Build long-term partnerships – Businesses that integrate ESG into their supply chains are more attractive to large corporations and government contracts.

Example: A retail company that identifies supply chain risks related to unethical labour practices can proactively source from certified sustainable suppliers, preventing reputational damage and strengthening consumer trust.

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Why ESG risk and impact assessment is a strategic necessity

Identifying sustainability-related impacts, risks, and opportunities is about making smarter business decisions:

✔ Companies that proactively manage ESG risks reduce financial exposure and improve long-term resilience.

✔ Sustainability-driven businesses attract investment, customers, and top talent.

✔ By integrating sustainability into corporate strategy, businesses can drive innovation, unlock new revenue streams, and future-proof operations.

CSRD provides a framework to assess and act on these factors—turning compliance into a strategic advantage rather than just a regulatory obligation. Businesses that embrace this shift will be the ones that thrive in the evolving economy where climate change is no longer a distant threat, but a defining force shaping markets, investment, and long-term resilience.

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European Sustainability Reporting Standards (ESRS) explained

Among all European Sustainability Reporting Standards (ESRS) topics, ESRS E1 (Climate Change) is one of the most important.

Why? Because climate change presents both a financial risk and a business opportunity. It can disrupt operations, increase costs, and reshape entire industries. At the same time, businesses that proactively manage climate risks can gain a competitive advantage, attract investors, and future-proof their operations.

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What does ESRS E1 require businesses to report?

Under ESRS E1, companies must assess and disclose:

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1. Physical climate risks: How climate change directly impacts business operations

Climate change is already affecting businesses through more frequent and extreme weather events. These risks include, for example:

✔ Flooding – Damage to properties, infrastructure, and supply chains

✔ Heatwaves – Increased cooling costs, workplace safety concerns, and equipment failures

✔ Storms and wildfires – Disruptions to logistics, power outages, and operational downtime

These risks are especially relevant for industries that are dependent on physical assets and their value chain:

Example: Real estate and physical climate risks

A commercial property owner with buildings in coastal cities must report on the impact of rising sea levels and flooding on asset values. Companies with older buildings in high-heat urban areas must assess whether they need better cooling systems to ensure tenant comfort and safety.

2. Transition risks: How shifting to a low-carbon economy impacts financial performance

As governments, investors, and consumers accelerate the move toward a net-zero economy, businesses face a range of transition risks – financial risks that arise from adapting (or failing to adapt) to a low-carbon future. These risks can affect revenue, asset values, market access, and even brand reputation.

Key types of transition risk include:

✔ Policy risks – Introduction of new laws or regulations, such as building efficiency standards, emissions caps, or energy performance certificates.

✔ Legal risks – Increased exposure to litigation related to environmental harm, greenwashing, or failure to meet climate-related commitments.

✔ Technology risks – Emerging low-carbon technologies may render existing systems obsolete or require costly upgrades.

✔ Market risks – Shifting demand as customers and investors prefer lower-carbon alternatives, affecting pricing, customer loyalty, and competitiveness.

✔ Reputational risks – Damage to brand credibility if companies are seen as lagging on climate action or failing to disclose their transition plans transparently.

Example: Transition risks in real estate

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A property developer continuing to build energy-inefficient buildings may face multiple transition risks:

✔ Policy risk if new energy regulations make those properties non-compliant

✔ Market risk as tenants seek greener alternatives to reduce operating costs

✔ Reputational risk from investors or lenders avoiding assets with high embodied or operational emissions

Over time, these assets may become stranded—losing value and appeal due to poor environmental performance.

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3. Climate mitigation: How businesses are reducing their carbon footprint

Companies must set targets and outline clear actions to reduce their contribution to climate change. This includes:

✔ Cutting greenhouse gas (GHG) emissions – Addressing Scope 1 (direct), Scope 2 (energy-related), and Scope 3 (value chain) emissions

✔ Using renewable energy – Transitioning to wind, solar, or other sustainable sources

✔ Improving energy efficiency – Upgrading operations and infrastructure to consume less energy

Example: Climate mitigation in real estate

A commercial landlord could install solar panels on office buildings to reduce emissions and energy costs. A construction firm could switch to sustainable materials like low-carbon concrete to lower its environmental impact.

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4. Climate adaptation: How businesses are preparing for future climate risks

While reducing emissions is essential, some climate change impacts are already unavoidable. Companies need to adapt their operations and assets to withstand future climate challenges. This involves:

✔ Strengthening infrastructure – Investing in flood defences, heat-resistant materials, and smart energy grids

✔ Rethinking supply chains – Sourcing materials from climate-resilient locations

✔ Updating business continuity plans – Ensuring operations can continue during extreme weather events

Example: Climate adaptation in real estate

A real estate company developing new housing projects must ensure they are designed to withstand rising temperatures and flooding risks. This could involve using cool roof technology to reflect heat and prevent overheating or implementing green spaces to absorb rainwater and reduce flood risks.

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A reporting checklist: how to tackle ESRS E1

With CSRD reporting deadlines approaching, businesses need to start preparing now. Gathering sustainability data, conducting risk assessments, and ensuring compliance can feel overwhelming—especially for companies new to ESG reporting.

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To make the process more manageable, here are some practical tips to help businesses streamline their approach, avoid last-minute stress, and leverage technology to ease the reporting burden.

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1. Start with a double materiality assessment

CSRD requires businesses to report on both:

✔ Financial materiality – How sustainability risks affect business performance

✔ Impact materiality – How business activities affect the environment and society

This means companies must identify which ESG factors are most relevant to their industry. Rather than trying to report on everything, businesses should focus on key sustainability risks and opportunities that truly matter.

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How to make it easier:

✔ Use structured standards like the ESRS to guide the materiality assessment.

✔ Involve key stakeholders (finance, operations, sustainability teams) to get a clear picture of risks and impacts.

✔ Document assumptions and methodologies clearly, as they’ll need to be disclosed in your final report

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2. Centralise ESG data collection early

Many businesses struggle with scattered ESG data across different departments, making reporting slow and inefficient. Start collecting sustainability data as early as possible to avoid compliance bottlenecks.

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How to make it easier:

✔ Set up a centralised ESG data management system to track sustainability metrics in one place.

✔ Ensure data is accurate, up-to-date, and aligns with ESRS reporting requirements.

✔ Map out data gaps and assign ownership for filling them

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3. Build internal expertise and assign responsibilities

CSRD compliance isn’t just a sustainability team’s job—it requires input from finance, risk management, operations, and legal teams. Without clear responsibilities, reporting can become disorganised.

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How to make it easier:

✔ Appoint a CSRD reporting lead to oversee data collection and disclosures.

✔ Train finance and operations teams on ESG reporting best practices.

✔ Consider hiring external sustainability consultants or using digital tools to fill knowledge gaps.

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4. Conduct a climate risk assessment

One of the most critical CSRD requirements (ESRS E1) is understanding climate risks—both physical (extreme weather, flooding) and transitional (regulations, carbon pricing). Many businesses lack the tools to assess these risks effectively.

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How to make it easier:

✔ Leverage climate risk analytics providers, like EarthScan, to streamline how you assess your physical risk exposure and associated financial impacts, as required by ESRS E1.

✔ Integrate climate risk assessments into financial planning to future-proof business decisions.

✔ Regularly update risk assessments as climate science evolves.

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5. Engage auditors early

Unlike previous ESG reporting frameworks, CSRD requires third-party assurance. This means companies will need external auditors to verify their sustainability reports, just like financial statements.

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How to make it easier:

✔ Engage auditors early to understand their expectations and requirements.

✔ Ensure data is well-documented and auditable to avoid compliance issues.

✔ Establish a CSRD reporting workflow to streamline future reporting cycles.

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CSRD compliance checklist: Is your business ready? 👇🏼

✅ Confirm if CSRD applies to your business
✅ Conduct a double materiality assessment (financial + impact risks)
✅ Centralise ESG data collection and ensure alignment with ESRS
✅ Assess climate risks using EarthScan Disclose for ESRS E1 compliance
✅ Train internal teams and assign CSRD reporting roles
✅ Engage auditors early and prepare for third-party assurance
✅ Develop a long-term ESG strategy to go beyond compliance

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1. Prioritise materiality: Focus on what matters most

Not all sustainability issues carry the same weight for every company. Identifying which ESG factors are most relevant to your business can help reduce reporting overload and focus efforts efficiently.

• Conduct a double materiality assessment to identify both:  

• Financial materiality – Sustainability risks that impact business performance.

• Impact materiality – How business activities affect the environment and society.

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For example, a real estate company should prioritise energy efficiency, climate risk exposure, and sustainable building materials, rather than spending unnecessary time on reporting topics that have little relevance to their operations.

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2. Integrate sustainability and financial reporting processes

Many companies treat sustainability reporting as separate from financial disclosures, but the two are increasingly interconnected.

• Align sustainability metrics with financial data to streamline reporting.

• Work with finance teams early to ensure ESG data is properly incorporated into corporate governance, risk management, and annual reports.

• Automate data collection where possible to reduce manual tracking and errors.

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For example, a manufacturing firm integrating carbon emissions data into financial reporting can assess the cost implications of emissions reduction strategies more effectively.

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3. Leverage technology to streamline ESG reporting

With multiple sustainability standards and frameworks – CSRD, IFRS, TCFD, GRI, SASB, and others – reporting can quickly become complex and time-consuming. The right technology can help businesses manage data more efficiently, reduce manual work, and stay aligned with evolving requirements.

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Climate risk assessment tools
Platforms like EarthScan Disclose help companies assess physical climate risks, such as flooding, heat stress, wind, and more – key components of ESRS E1 (Climate Change).

EarthScan’s science-based analytics support companies in not only understanding exposure but also in aligning disclosures with regulatory expectations under CSRD. With new tools specifically designed to map risks to reporting requirements, it helps transform climate data into assurance-ready insights.

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ESG data management software
These solutions allow companies to automate the collection, tracking, and consolidation of sustainability metrics – essential for teams managing data across departments and standards.

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AI-driven sustainability analytics
AI tools can accelerate data processing and trend analysis, helping companies uncover hotspots, benchmark performance, and prioritise ESG actions in real time.

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Example: A financial services firm using EarthScan can identify which of its portfolio assets are most exposed to physical climate risk and generate structured insights to align with standards and frameworks like CSRD and TCFD – saving time while enhancing regulatory confidence.

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4. Establish a cross-functional ESG reporting team

Sustainability reporting isn’t just the responsibility of one department—it requires input from finance, operations, legal, compliance, and risk management teams.

• Assign clear roles and responsibilities to ensure each team understands what ESG data they are responsible for.

• Create an internal ESG governance structure to align reporting efforts.

• Engage with third-party experts, such as sustainability consultants, to provide additional expertise where needed.

A logistics company that aligns sustainability and finance teams early in the reporting cycle avoids last-minute compliance challenges when preparing CSRD disclosures.

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5. Plan ahead for third-party assurance

Unlike previous ESG reporting frameworks, CSRD requires companies to obtain independent assurance on their sustainability reports.

• Engage auditors early to ensure they understand your ESG reporting structure.

• Ensure data is auditable, using transparent methodologies and documentation.

• Develop a long-term CSRD compliance roadmap to prevent rushed reporting.

• Scope in any new reporting topics at least a year before public assurance. This gives you time to build strong data governance and internal controls. You can also request a readiness assessment from your assurance provider to identify gaps early and minimise the risk of findings being raised in your management report.

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A retailer that sets up internal ESG controls early will have a much smoother assurance process compared to one that scrambles to validate sustainability data at the last minute.

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Key learnings and best practice examples from CSRD reports so far

1. Ørsted (Renewable Energy – Denmark)

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What stands out:
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Robust climate risk assessment aligned with ESRS E1, strong use of scenario modelling, and high transparency in methodology.
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Read their report: Ørsted Annual Report 2024
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Key learnings:

• Ørsted’s physical climate risk assessment evaluates asset-level resilience under worst-case climate scenarios (SSP5-8.5), considering both acute (e.g. storms, heat waves) and chronic (e.g. changing wind patterns) risks.

• Their scenario analysis includes time horizons (short, medium, long term) and incorporates climate projections aligned with TCFD.

• Transition risks – such as shifts in regulatory support in the US – are monitored and quantified within their business planning.

• The report integrates climate risks into enterprise risk management and aligns disclosures to ESRS E1 and the EU Taxonomy

2. Vestas (Wind Turbine Manufacturer – Denmark)

What stands out:
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Integrated risk governance and detailed double materiality alignment with their Enterprise Risk Management (ERM) framework.
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Read their report: Vestas Annual Report 2024 (PDF)
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Key learnings:

• Vestas embeds CSRD-aligned material sustainability risks into their ERM system, reviewed bi-annually by the board and risk committee.

• Risk prioritisation includes financial impact assessments, likelihood, and mitigation efficiency, ensuring climate-related and ESG risks are treated alongside strategic and financial risks.

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3. Telefónica (Telecommunications – Spain)

What stands out:
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Structured double materiality process, internal stakeholder engagement, and clear identification of impacts, risks, and opportunities.
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Read their report: Telefónica ESG Profile 2024
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Key learnings:

• Telefónica uses a multi-step digital double materiality tool to assess financial and impact materiality across its value chain.

• Their approach includes input from internal functions, value chain analysis, and thresholds for significance – leading to verified disclosure topics.

• ESG governance is deeply embedded, with oversight from board-level committees and sustainability KPIs linked to executive remuneration.

• Risk identification is clearly mapped to ESRS topics, enabling alignment with CSRD and investor expectations.

• Persistent material sustainability topics (e.g. climate mitigation, working conditions) are embedded into internal controls and connected to corporate strategy decisions.

• The report clearly documents how data from the double materiality assessment informs risk prioritisation across functions
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Is CSRD compliance worth the cost?

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For many businesses, the Corporate Sustainability Reporting Directive (CSRD) raises an important question: Is the effort and expense of compliance truly worth it?

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The reality is that CSRD compliance does come with costs—including data collection, reporting infrastructure, and external audits. But in the long run, the benefits far outweigh the initial investment. Companies that take sustainability reporting seriously can reduce risks, cut costs, attract investors, and future-proof their business.

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While these costs are real, the long-term benefits make CSRD compliance a smart business decision rather than just a regulatory burden.

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1. Avoiding regulatory fines and legal risks

• Non-compliance will result in penalties and could lead to legal challenges from regulators or investors.

• The EU’s increasing focus on corporate sustainability laws means businesses that delay action risk future non-compliance costs.

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2. Stronger investor confidence and access to funding

• Investors are actively shifting capital towards businesses with strong ESG performance.

• Companies with transparent CSRD-aligned reports will attract more investment from financial institutions and funds prioritising sustainability.

• Sustainable finance opportunities, like green bonds and ESG-linked loans, will become more accessible.

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3. Cost savings through energy efficiency and risk reduction

• Businesses that adopt energy-efficient practices and low-carbon operations can reduce energy costs, waste, and material expenses.

• Proactively managing climate risks helps avoid supply chain disruptions, property damage, and insurance hikes caused by extreme weather events.

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4. Competitive advantage and customer trust

• Consumers and B2B clients increasingly prefer sustainable businesses.

• Companies with credible CSRD-aligned reports can strengthen their brand reputation and gain a competitive edge over non-compliant peers.

• Large corporations will expect suppliers to comply with sustainability standards—meaning CSRD compliance could be key to winning new contracts.

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5. Future-proofing against evolving regulations

• The EU is continuously tightening sustainability laws—early adopters of CSRD will stay ahead of regulatory changes.

• Multinational corporations will need CSRD-aligned reports to operate in the EU, meaning non-compliant businesses may lose market access.

Yes, CSRD compliance requires upfront investment. But businesses that embrace it stand to gain far more in return—from better investor relations and cost savings to improved resilience and customer loyalty.

Rather than seeing CSRD as just another regulation, businesses should view it as an opportunity—to enhance sustainability performance, future-proof their business, and lead in an economy where transparency and responsibility are key to success.

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