What is CSRD? Corporate Sustainability Reporting Directive Explained

The Corporate Sustainability Reporting Directive — CSRD — is EU legislation that replaced the older Non-Financial Reporting Directive (NFRD) and dramatically expanded both who must report and how much detail they must provide. If you run a mid-to-large company operating in Europe, or you supply into European value chains, CSRD is already affecting your roadmap whether or not you've started planning for it.

This isn't another voluntary framework like GRI or CDP. CSRD carries legal obligations, statutory audit requirements, and civil liability for directors who sign off on materially incorrect disclosures. The stakes are different.

Who Is In Scope?

CSRD rolls out in phases:

Wave 1 (FY2024, reporting in 2025): Large public-interest entities already under NFRD — roughly 11,700 companies.
Wave 2 (FY2025, reporting in 2026): All other large EU companies — defined as meeting two of three thresholds: 250+ employees, €40M+ turnover, €20M+ balance sheet.
Wave 3 (FY2026, reporting in 2027): Listed SMEs on EU regulated markets (with an opt-out until 2028).
Wave 4 (FY2028, reporting in 2029): Non-EU companies with €150M+ EU net turnover and at least one EU subsidiary or branch.

That last wave is the one that surprises US, UK, and APAC companies most. You don't need to be headquartered in Europe to be caught by CSRD.

What Must You Actually Report?

CSRD disclosures are structured around the European Sustainability Reporting Standards (ESRS), published by EFRAG. There are two cross-cutting standards and ten topical ones covering environment, social, and governance areas:

Environment (ESRS E1–E5):

Climate change (Scope 1, 2, 3 emissions, transition plans)
Pollution
Water and marine resources
Biodiversity and ecosystems
Resource use and circular economy

Social (ESRS S1–S4):

Own workforce
Workers in the value chain
Affected communities
Consumers and end-users

Governance (ESRS G1):

Business conduct (anti-corruption, lobbying, payment practices)

Each disclosure point requires you to first run a double materiality assessment to determine which topics are material — either because they create financial risk/opportunity for the company (financial materiality) or because the company's activities impact people and planet (impact materiality). Only material topics require full disclosure, but the assessment itself must be documented and audited.

The Audit Requirement

This is the part that separates CSRD from every previous ESG framework. Sustainability disclosures must be audited by an accredited third party. Initially, limited assurance is required; the European Commission is expected to move toward reasonable assurance (the same standard as financial audits) by 2028.

That means your data collection, methodology, and internal controls must withstand external scrutiny. Spreadsheet-based processes held together with email threads will not survive an auditor asking to trace a Scope 3 figure back to its source data.

The Data Problem CSRD Creates

Most companies discover, about six months into their CSRD gap analysis, that they don't have a data problem — they have hundreds of data problems. Supplier emissions data lives in procurement systems. Employee data lives in HRIS platforms. Energy data lives in facility management tools. None of these systems were designed to talk to each other in ESRS-shaped outputs.

The companies moving fastest are building internal tools that:

Pull structured data from existing systems via API
Apply calculation methodologies (GHG Protocol, spend-based emission factors, etc.) with full audit trails
Generate ESRS-formatted disclosure drafts that humans review and sign off on
Version-control every data input so auditors can trace any number to its source

This is exactly the kind of workflow an AI-augmented internal tool can handle well — not replacing your sustainability team's judgment, but eliminating the copy-paste misery between systems.

Timeline Pressure Is Real

If you're in Wave 2 (reporting FY2025), your first CSRD report drops in 2026. That sounds distant. It isn't. The double materiality assessment alone typically takes three to four months for a company without a mature ESG function. Gap analysis, data collection, and system integration add more. By the time you factor in audit preparation, you need to be building infrastructure now.

The companies that are calm about their 2026 deadline started building in 2024. The companies that are panicking in late 2025 will be the ones that treated CSRD as a compliance exercise rather than a data systems challenge.

How 100x AI Can Help

We build the internal tools your sustainability team actually uses — data pipelines from ERP, HRIS, and supplier portals into ESRS-structured outputs, audit-trail dashboards, and materiality assessment workflows. A typical engagement runs two to four weeks in a sprint format, delivering a working tool rather than a slide deck.

If you're staring at a CSRD deadline and wondering how to turn your data mess into auditable disclosures, see how our sprints work →

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Whether you need a quick prototype or a production-ready platform, our team ships in 3-week fixed-price sprints. Book a 15-min scope call to discuss your project.

What is CSRD? EU Sustainability Reporting Explained