CSRD Compliance Guide 2026
The Corporate Sustainability Reporting Directive (CSRD, Directive 2022/2464) transforms ESG reporting in the EU. It requires nearly 50,000 companies to report on sustainability using the European Sustainability Reporting Standards (ESRS). This guide covers scope, requirements, and timelines.
What is the CSRD?
The CSRD replaces the Non-Financial Reporting Directive (NFRD) and dramatically expands the scope of mandatory sustainability reporting in the EU. It requires companies to disclose detailed information on environmental, social, and governance (ESG) topics using standardized European Sustainability Reporting Standards (ESRS) developed by EFRAG.
A key innovation is the double materiality principle: companies must report both how sustainability issues affect their business (financial materiality) and how their operations impact people and the environment (impact materiality).
Who must comply?
Phase 1, FY 2024 (reporting in 2025)
Large public-interest entities already subject to NFRD (approx. 11,700 companies). Includes listed companies, banks, and insurance companies with 500+ employees.
Phase 2, FY 2025 (reporting in 2026)
All other large companies meeting 2 of 3 criteria: 250+ employees, €50M+ net turnover, €25M+ total assets. This brings approximately 38,000 additional companies into scope.
Phase 3, FY 2026 (reporting in 2027) — Postponed by 2 years
Listed SMEs, small and non-complex credit institutions, and captive insurance undertakings. Originally due for FY 2026, this phase has been delayed by two years to FY 2028 (reporting in 2029) to give smaller entities more preparation time. SMEs can opt for simplified ESRS standards (LSME).
Phase 4, FY 2028 (reporting in 2029)
Non-EU companies with €150M+ net turnover in the EU and at least one EU subsidiary or branch generating €40M+ turnover.
ESRS reporting standards
The first set of ESRS was adopted by the European Commission in July 2023. It includes 12 standards:
The hardest ESRS standards: E3, E4, and E5
While ESRS E1 (climate) gets the most attention, the environmental standards on water and marine resources (E3), biodiversity and ecosystems (E4), and resource use (E5) present the greatest data collection challenges for multinational companies. These standards require granular, site-level data that often does not exist in centralized systems.
For a company with products deployed worldwide, demonstrating sufficient effort on biodiversity or marine resource impact requires aggregating heterogeneous data from subsidiaries, suppliers, and operational sites across multiple jurisdictions — far beyond what Excel-based reporting can handle reliably.
Key challenge: Regulatory changes in biodiversity (E4) and water resources (E3) are evolving rapidly as the EU aligns with the Kunming-Montreal Global Biodiversity Framework. Companies must track not only ESRS requirements but also national transposition differences and sector-specific guidance updates.
Beyond Excel: the data collection challenge
CSRD compliance is not just a reporting exercise — it is fundamentally a data aggregation problem. Large groups with operations in dozens of countries must collect non-homogeneous sustainability data from subsidiaries, joint ventures, and supply chain partners, each using different formats, measurement standards, and reporting cadences.
- →Subsidiaries in different jurisdictions measure environmental impact with different methodologies
- →Suppliers in emerging markets may lack the infrastructure to provide ESRS-compliant data
- →Biodiversity and water data require site-level granularity that most ERP systems do not capture
- →Manual consolidation in spreadsheets creates audit risk and cannot scale across 50+ reporting entities
Key requirements
- →Double materiality assessment: identify topics that are material from both financial and impact perspectives
- →Value chain reporting: disclose sustainability information covering upstream and downstream value chain
- →Forward-looking information: include targets, transition plans, and progress toward climate goals
- →Digital tagging: reports must be machine-readable using XBRL/iXBRL taxonomy for ESRS
- →Limited assurance: independent third-party assurance required (moving to reasonable assurance by 2028)
- →Integration in management report: sustainability information must be part of the annual management report, not a separate document
The role of independent auditors (OTI)
CSRD requires sustainability reports to be verified by an independent third-party assurance provider (Organisme Tiers Indépendant, or OTI). Initially under a limited assurance standard, this will move to reasonable assurance by 2028 — the same level as financial auditing.
For auditors, the challenge is verifying that sustainability information from a multinational group is valid and complete across all entities and jurisdictions. How can an OTI confirm that a company with operations in 30 countries has correctly reported its biodiversity impact or water consumption at every site? The answer lies in cross-referencing regulatory requirements with reported data — a task that AI can accelerate dramatically.
Related regulations
The CSRD is part of the EU's broader sustainable finance ecosystem. It interconnects with the EU Taxonomy Regulation (classification of environmentally sustainable activities), the Sustainable Finance Disclosure Regulation (SFDR) (ESG disclosures for financial market participants), and the Corporate Sustainability Due Diligence Directive (CS3D/CSDDD) (value chain due diligence obligations).
In France, the CSRD also interacts with existing national obligations: Sapin II (anti-corruption and transparency), the Duty of Vigilance law (Devoir de vigilance, requiring large companies to identify and prevent human rights and environmental risks in their supply chains), and AGEC (circular economy obligations). In Germany, the LkSG (Supply Chain Due Diligence Act) adds another layer. Compliance teams must consider all these regulations together for a coherent sustainability strategy.
How Cleo helps with CSRD compliance
Cleo Labs monitors CSRD-related developments across EU institutions, EFRAG, national transposition laws, and sector-specific guidance. The platform identifies which ESRS standards apply to your business based on your industry and operations, tracks reporting deadlines, and alerts your team when new interpretive guidance or delegated acts are published.
Cleo also maps interconnections between CSRD, EU Taxonomy, SFDR, CS3D, Sapin II, and the Duty of Vigilance, giving sustainability teams and independent auditors (OTI) a unified view of ESG regulatory obligations across 60+ jurisdictions.
Learn more about our Sustainability & ESG compliance solution.
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