On 28 November, the Council and Parliament of the European Union (EU) approved the Corporate Sustainability Reporting Directive (CSRD), which

expands the scope of entities and subsidiaries required to comply with sustainability reporting requirements and introduces different reporting requirements for

non-EU parent entities and EU-based parents and subsidiaries. The CSRD requires different disclosure standards and staggered effective dates, depending upon the type of entity. Due to the layers of complexity, entities with revenue or operations in the EU are encouraged to evaluate the impact of the CSRD immediately.  

I. Applicability

The CSRD is expected to impact thousands of entities that are not currently required to report on environmental, social, and governance (ESG) activities under the EU’s Non-Financial Reporting Directive (NFRD).

The CSRD is complex and may create reporting obligations for US parent entities with operations in the EU at both a consolidated parent and EU-subsidiary level.

The CSRD applies to all EU entities, including subsidiaries of non-EU parents, that meet any one of the following conditions:

  • Undertakings with EU-listed securities (other than listed micro undertakings); or
  • Large undertakings’ that meet at least two of the following three criteria on two consecutive balance-sheet dates:
    • Total assets exceeding €20 million
    • Net turnover (revenue) exceeding €40 million
    • 250+ employees

The CSRD also applies to consolidated non-EU parent entities that meet the following condition:

  • Undertakings with net turnover (revenue) exceeding €150 million in the EU in each of the last two years with either:
    • A subsidiary that is considered a ‘large undertaking’ in the EU or that has EU-listed securities; or
    • A significant EU subsidiary/branch with net turnover (revenue) exceeding €40 million

II. Timing

As explained by the Council of the EU, the effective dates for reporting under CSRD will begin as outlined in the table on the next page.

III. Requirements

ESRSs overview

The CSRD calls for the development of European Sustainability Reporting Standards (ESRSs) by the European Financial Reporting Advisory Group

(EFRAG). The ESRSs aim to utilise leading existing international sustainability frameworks, such as those developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI), but they are expected to significantly expand the scope of reported ESG information.

In November 2022, EFRAG submitted certain draft ESRSs to the EU for approval, with adoption anticipated by 30 June 2023. The ESRSs are expected to be simplified, as necessary, for small and medium-sized undertakings.

Under the directive, non-EU parents required to report at a consolidated level are subject to disclosure

requirements included in a separate ESRS; the related exposure draft, which will be open to public comments, is expected by June 2023.

Additionally, the CSRD initially requires companies to obtain ‘limited’ assurance and will later shift to ‘reasonable’ assurance over information required to be reported under the CSRD.

1. General disclosure requirements

Entities required to follow the ESRSs are subject to ESRS 1, General requirements, and ESRS 2, General disclosures. These ‘cross-cutting’ standards apply to all in-scope entities and include topics like policies and targets, governance in relation to sustainability, and the entity’s assessment of material sustainability impacts, risks, and opportunities.

The ESRSs also include 10 topical standards related to an entity’s ESG impact that will apply based on an entity’s consideration of ‘double’ materiality. Under this ‘double’ materiality concept, entities are required to consider the following factors:

  • Impacts of the entity’s activities on the environment and society; and
  • How sustainability matters impact the entity’s business

Entities are also required to consider each materiality perspective individually, disclosing information material to both materiality perspectives and information that may be material from only one of the materiality perspectives.

2. Reporting accommodations

Accommodations are expected to allow (1) non-EU parent entities with EU subsidiary reporting obligations to produce a consolidated CSRD-compliant report, and

(2) non-EU parent entities with multiple in-scope EU subsidiaries to provide a consolidated CSRD-compliant report that includes all in-scope EU subsidiaries in initial reporting periods. In both cases, the reporting requirements applicable to EU-based entities, rather than the anticipated standard for non-EU parents, are expected to apply. Accordingly, US-based entities that may have consolidated or subsidiary reporting obligations are advised to consult the draft ESRSs to understand the nature and extent of future reporting requirements.

IV. Next steps

Once the Presidents of the European Parliament and the Council sign the CSRD, it will be published in

the EU Official Journal and take effect 20 days later. Member states then have 18 months to implement the new rules locally.

Due to the complexity and extent of the scoping and reporting requirements, entities are encouraged to determine the potential impact of the CSRD on the consolidated entity and/or any of its subsidiaries immediately.

Entity type

Financial year

Reporting in

Entities already subject to the NFRD, which includes entities with listed securities and more than 500 employees



Large undertakings, as described above, not currently subject to NFRD



Listed small and medium- sized undertakings (except micro undertakings), small and non-complex credit institutions, and captive insurance undertakings



Third-country undertakings with net turnover over €150 million in the EU