Navigating CSRD: What you need to know and how to prepare

As of January 1, 2024, the European Union’s CSRD has introduced a new era of formalized sustainability reporting, requiring thousands of companies — including many based in the U.S. — to disclose their climate and sustainability impacts under the European Sustainability Reporting Standards (ESRS). With independent assurance now a key requirement, companies must adapt quickly to meet these robust demands.

In this comprehensive guide, we’ll break down what CSRD means, who it applies to, and how companies can turn compliance into an opportunity for growth and leadership in sustainability.

What is CSRD?

CSRD is a regulatory framework designed to standardize and strengthen sustainability reporting across the EU. Building on its predecessor, the Non-Financial Reporting Directive (NFRD), CSRD applies to more companies, introduces stricter disclosure requirements, and mandates independent assurance.

Key elements of CSRD include:

• Disclosure requirements: Covers environmental, social, and governance (ESG) topics under the ESRS framework.
  
  
• Double materiality: Companies must assess and disclose how sustainability topics impact their business (financial materiality) and how their business impacts people, the environment, and the economy (impact materiality).
  
  
• Value chain scope: Reporting extends beyond direct operations to upstream and downstream value chains.
  
  
• Assurance: Independent assurance of sustainability disclosures, starting with limited assurance and progressing to reasonable assurance by 2028.
  
  
• Climate mitigation goals: Companies must outline strategies for achieving climate neutrality by 2050, including science-based targets and progress tracking.

Read more: How to get CSRD ready today

Does CSRD apply to your company?

The CSRD’s scope is far-reaching. It affects not only EU-based companies but also non-EU organizations that meet certain criteria. At least 10,000 companies outside the EU, including approximately 3,000 U.S.-based companies, are expected to fall under its requirements.

You may need to comply with CSRD if your company:

• Has EU subsidiaries meeting specific thresholds (e.g., ≥250 employees, >€20M balance sheet, >€40M turnover).
• Generates more than €150M in EU turnover and has at least one EU subsidiary or branch meeting certain criteria.
• Is listed on an EU-regulated market.

To determine applicability, consult with your legal team to assess your company’s status and the relevant implementation phase.

‍Reporting Timelines

CSRD requirements will roll out in phases:

Year and Applicable Entities

2025 (FY 2024): EU companies already subject to NFRD.

2026 (FY 2025): Large EU companies and subsidiaries meeting size criteria.

2027 (FY 2026): Small and medium-sized enterprises (SMEs) and EU-listed entities.

2028 (FY 2027):Non-EU companies meeting turnover and subsidiary thresholds.

What are ESRS, and how do they relate to CSRD?

The European Sustainability Reporting Standards (ESRS) form the backbone of CSRD reporting. These standards are categorized under three pillars: Environment, Social, and Governance.

Key disclosures under ESRS

• Environment: Covers climate change (e.g., Scope 1, 2, and 3 emissions), resource use, biodiversity, and circular economy practices.
  
  
• Social: Includes workforce metrics (e.g., employee turnover, health and safety) and community impacts.
  
  
• Governance: Focuses on ethical business conduct, anti-corruption, and governance structures.

For companies already using frameworks like GRI, SASB, or TCFD, ESRS aligns closely, making it easier to adapt existing reporting practices.

How does double materiality shape reporting?

Double materiality is a cornerstone of CSRD, requiring companies to assess sustainability topics from two perspectives:

1. Impact on business: Financial risks and opportunities arising from ESG issues.
   
   
2. Impact of business: The organization’s effect on stakeholders, the environment, and the economy.

This dual lens ensures a holistic approach to sustainability, benefiting both internal strategy and external stakeholder engagement.

‍Read more: Your top questions about double-materiality, answered 

Preparing for CSRD compliance

The shift to CSRD reporting demands significant organizational effort, but it also presents an opportunity to enhance transparency, build trust, and position your company as a sustainability leader.

Steps to get started

1. Engage leadership: Secure buy-in from executives and key stakeholders.
   
   
2. Conduct a double materiality assessment: Identify and prioritize sustainability topics based on financial and impact materiality.
   
   
3. Develop a reporting strategy: Align with frameworks like TCFD and GRI to streamline reporting processes.
   
   
4. Invest in data management: Ensure data is accurate, traceable, and reliable, particularly for climate disclosures.
   
   
5. Collaborate across functions: Build a cross-functional team to integrate reporting into broader business strategies.

Climate risks and opportunities

While CSRD covers a wide range of ESG topics, climate change is a critical focus area. Companies must disclose their climate risks and opportunities, transition plans, and emissions data across all scopes. Reliable, assured data will be crucial for meeting these requirements.

Key actions for climate reporting

• Calculate Scope 1, 2, and 3 emissions.
  
  
• Develop science-based targets and transition plans.
  
  
• Establish internal carbon pricing mechanisms.

Why U.S.-based companies should prepare now

Even if your company isn’t directly subject to CSRD, the ripple effects will likely impact you. EU-based customers may require emissions data or sustainability information as part of their own reporting obligations. Being proactive now can help you stay ahead of customer demands and future regulations.

Benefits of early preparation

• Competitive advantage: Meet customer and investor expectations with robust ESG strategies.
  
  
• Operational efficiency: Streamline data collection and reporting processes before they become mandatory.
  
  
• Reputation management: Demonstrate leadership in sustainability, fostering trust and loyalty.

Beyond compliance: turning CSRD into an opportunity

CSRD is more than a compliance exercise — it’s a chance to showcase your company’s commitment to sustainability. By aligning your strategy with the directive, you can drive meaningful change and unlock new opportunities.

‍How thinkPARALLAX Can Help

At thinkPARALLAX, we specialize in integrating sustainability strategy, reporting, and communications. Our team can help you:

• Conduct double materiality assessments.
  
  
• Align with frameworks like TCFD and GRI.
  
  
• Build robust data management systems.
  
  
• Develop compelling sustainability narratives.

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The Corporate Sustainability Reporting Directive marks a new chapter in corporate accountability. By acting now, companies can not only meet regulatory requirements but also lead the way in building a more sustainable future. Whether you’re just beginning your CSRD journey or looking to refine your approach, thinkPARALLAX is here to guide you every step of the way.

‍Ready to get started? Contact us to learn how we can help your company navigate CSRD compliance and amplify your sustainability impact.

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