Background, reason for and objective of the Corporate Sustainability Reporting Directive (CSRD)

By January 3, 2023 No Comments
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The Directive (EU) 2022/2464 – Corporate Sustainability Reporting Directive (“CSRD”) and its regulations on sustainability reporting have revised and replaced the previously applicable obligations of the Accounting Directive and the Non-financial Reporting Directive which amended the Accounting Directive. The CSRD is part of the EU Green Deal. Through sustainability reporting, the CSRD intends to support the redirection of capital flows to sustainable investments in order to achieve sustainable and inclusive growth.

Obligations under the CSRD and additional value of reporting

The obligations under the CSRD include the publication of information on various aspects of sustainability, such as reporting on the company’s strategy towards sustainability risks, reporting on how (including financial and investment plans) the company intends to ensure that its business model and strategy are compatible with the transition to a sustainable economy and limiting of global warming to 1.5°C, or a description of the time-bound sustainability targets the company has set for itself.

Preparing sustainability reports is mandatory for the companies affected. The option to merely state that sustainability aspects are not taken into account within a company is not an acceptable approach under the CSRD (no comply-or-explain mechanism). Thus, promoting transparency and long-termism in the European financial and economic activity.

Subsequently, other market participants such as investment funds can and should access data provided by companies in order to fulfil their disclosure obligations and ultimately enable targeted investments in sustainable companies and technologies. The CSRD therefore aims to create incentives to steer capital flows towards sustainable investments in order to achieve sustainable and inclusive growth (so-called Nudging). It is also intended to enable other suppliers in supply chains, for example, to calculate their (indirect) impact on the environment on the basis of the available data and/or to fulfil their disclosure/reporting obligations.

Significant extension of the companies affected

The extended scope of the CSRD significantly expands the number of companies that also have to prepare non-financial statements (including the preparation of sustainability reports).

Previously, non-financial statements had to be included in the management report of approximately 12,000 companies in the EU. The CSRD significantly expands the scope of companies required to report. According to estimates by the European Commission, approximately 50,000 companies in the EU will fall within the scope of the CSRD. Of these, approximately 15,000 companies are located in Germany.

The extension of the personal scope of application, inter alia, applies to subsidiaries or branches of third-country parent companies that generated a net turnover of more than EUR 150 million in the Union at its group level, or, if not applicable, the individual level, for each of the last two consecutive financial years. As a consequence, in the future, affected subsidiaries will have to prepare sustainability reports at group level under the (third-country) parent. This is particularly noteworthy, as the CSRD obliges to prepare sustainability reports for companies that are located outside the EU, as long as only one subsidiary is located in Europe and the other requirements have been met. With this extension, the CSRD aims to establish accountability of such parent companies and to create a level playing field for companies operating in the Union.

Additional reporting obligations

The extension of the personal scope of application is not the only significant change resulting from the CSRD. In addition, both the scope of reporting and the reporting obligations have increased. One of several new additional reporting obligations is the obligation to report on so-called forward-looking information, i.e. on key performance indicators, including targets and progress with regard to these. Inter alia, information must be disclosed on how the reporting company ensures that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement, and how it supports the goal of achieving climate neutrality by 2050.

No reporting standards have been established yet (December 2022). Binding EU reporting standards, the so-called European Sustainability Reporting Standards (“ESRS“), are currently being developed by the European Financial Reporting Advisory Group. The ESRS will contain reporting guidelines to improve the comparability and transparency of corporate sustainability reports. The ESRS are currently only available in draft form. From experience with other EU legal acts under the EU Green Deal, implementation of such Level-2 measures is regularly delayed. Thus, it remains to be seen whether the comprehensive drafts will be adopted as legal acts in a timely manner.


The CSRD, published in the Official Journal of the EU in December 2022, will enter into force on January 5, 2023. Member states are then required to transpose the directive into national law by July 6, 2024 at the latest. Reporting obligations apply for the first time as of the fiscal year 2024. The fiscal year as of which the reporting obligation apply depends on the size of the company and other factors.


The CSRD creates new and comprehensive reporting obligations. Affected companies should prepare promptly for the implementation of the new requirements and familiarize themselves with the new, comprehensive obligations of the CSRD and the ESRS. We will be happy to provide you with our expertise on any questions you may have in connection with the CSRD.

Kindly supported by Christopher Schmieder (LL.M. Boston University) (research assistant), Bird & Bird Frankfurt am Main – Finance & Financial Regulation