Author

Dr. Rebekka Krause

Salary Partner

Munich

CSRD-ABC

Briefing

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that requires companies to report comprehensively and transparently on their sustainability performance in accordance with national legislation. It replaces the previous Non-Financial Reporting Directive (NFRD) and significantly expands its scope. More and more companies are required to disclose their environmental, social, and governance (ESG) aspects according to uniform standards. The aim of the CSRD is to provide reliable and comparable information in order to promote investment in sustainable business models and drive the transformation to a climate-neutral economy. This makes sustainability reporting a central component of corporate strategy and competitiveness.

We would like to provide you with this CSRD ABC a supporting tool to help you find answers to any questions that may arise. The ABC will be updated regularly and adapted to the latest political developments (such as expected changes resulting from the trilogue negotiations between the European Parliament, the European Commission, and the Council of the European Union).

A - Area of Application (Scope)

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Detailed explanation

Area of Application (Scope)

Affected companies subject to reporting requirements

The sustainability reporting obligation (regulated by the Corporate Sustainability Reporting Directive (CSRD)) is being introduced gradually, with the scope of application already having been restricted or postponed by the first Omnibus Directive. Recently, the second Omnibus Directive (proposed Directive COM (2025)81) was also adopted by the EU Parliament after lengthy trilogue negotiations (for further information pls refer to letter “O”). The directive will therefore come into force shortly. Based on these two Omnibus Directives, the scope of application of the CSRD shall be as follows (the regulations have only been partly reflected in the German federal government's draft):

From 2025 for 2024:

Public-interest companies with more than 500 employees and total assets of more than EUR 25 million or revenues of more than EUR 50 million, whereby the reporting obligation for companies that will fall out of scope as of 2027 financial year is suspended for the 2025 and 2026 financial years (see below).

From 2028 for 2027:

EU companies that exceed turnover of EUR 450,000 and employees of 1000

From 2029 for 2028:

Non-EU parent companies with EU revenues exceeding EUR 450 million and either an EU subsidiary that itself exceeds the CSRD thresholds or an EU branch with revenues exceeding EUR 200 million.

B - Business model adaption

Keyword	Brief description	Detailed explanation
Business model adaption	Adaption of the business model to identified risks and opportunities	Companies must explain how their business model is evolving to integrate sustainability. Under ESRS 2, disclosures should describe changes to the core strategy, value proposition, and operations, and explain how sustainability issues (e.g., climate, human rights) influence and reshape performance, risks, and opportunities.

C - CO₂-accounting

Keyword	Brief description	Detailed explanation
CO₂-accounting	Accounting of Greenhouse gas emissions	The original version of ESRS E1 provides for the disclosure of Scope 1, 2, and 3 emissions. Companies with fewer than 750 employees are not required to report Scope 3 emissions in the first reporting year. (The Omnibus Directive (under negotiation) provides for further simplifications with regard to Scope 3 emissions.)

D - Double materiality analysis

Keyword	Brief description	Detailed explanation
Double materiality analysis	Combination of financial and impact materiality	Companies must conduct a materiality analysis to determine which topics are material to them and therefore subject to reporting requirements. A sustainability topic can be material from two different perspectives (double materiality). It can have a financial impact on a company (e.g., through risks or opportunities), or the company itself can have a significant impact on the environment or society.

E - ESRS

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Detailed explanation

ESRS

European Sustainability Reporting Standards

The European Commission has tasked the European Financial Reporting Advisory Group (EFRAG) with developing standards to specify the reporting requirements under the CSRD, the EU Sustainability Reporting Standards (ESRS). An initial set of ESRS has already been published but is currently being revised as part of the Omnibus Initiative in order to limit the scope of reporting requirements. This initial set contains 12 standards: 2 general standards, 5 environmental standards, 4 social standards, and 1 governance standard.

The first sentence of the ESRS was amended by Delegated Regulation (EU) 2025/1416 for so-called Wave 1 companies in order to introduce relief for these companies.

F - Financial materiality

Keyword	Brief description	Detailed explanation
Financial materiality	Part of double materiality	Description of whether a sustainability issue could have a material financial impact on the company – for example, through risks, opportunities, costs, or changes in value. This involves examining whether environmental, social, or governance aspects influence the company's financial position, performance, or position.

G - Governance

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Governance

Corporate management in the context of sustainability

The area of governance is specified in ESRS G1 “Business Conduct.” According to this, comprehensive information on corporate governance and business ethics must be provided. This includes in particular:

Role and composition of management bodies: Information on the structure, diversity, and responsibilities of administrative, supervisory, and management bodies, including their role in monitoring sustainability issues.
Corporate culture and ethics: Disclosure of policies and measures to promote an ethical corporate culture, including whistleblower protection and, where applicable, animal welfare.
Corruption and bribery prevention: Description of systems for preventing and detecting corruption and bribery, including training measures and documented incidents.
Political influence and lobbying: Transparent presentation of the company's political activities, financial contributions, and lobbying activities.
Supplier relationships and payment practices: Information on the fair treatment of suppliers, especially SMEs, with a focus on payment behaviour and contract terms

H - Human Rights

Keyword	Brief description	Detailed explanation
Human Rights	Human rights in the supply chain and within the company as part of the Social reporting requirements	Human rights are an important part of the reporting requirements under ESRS S 3: Companies must explain how they identify, assess, and address human rights risks along the value chain.

I - Impact materiality

Keyword	Brief description	Detailed explanation
Impact materiality	Part of double materiality	Description of whether a sustainability issue has a significant impact on the environment and society, regardless of whether it has financial consequences for the company. Companies must analyse how their activities, products, or business relationships affect external stakeholders.

J - Just Transition

Keyword	Brief description	Detailed explanation
Just Transition	Socially just transformation	Description of the principle that environmental measures should be designed in a socially acceptable manner. Companies must describe how they deal with the impact of their climate strategy on their stakeholders and what measures they are taking.

K - Key Performance Indicators (KPIs)

Keyword	Brief description	Detailed explanation
Key Performance Indicators (KPIs)	Measurable values	KPIs are measurable values that indicate how effectively a company is achieving its sustainability objectives. They help track progress on environmental, social, and governance (ESG) goals.

L - Legal consequences of missing or incorrect reporting

Keyword	Brief description	Detailed explanation
Legal consequences of missing or incorrect reporting	Sustainability-related risks and opportunities	The legal consequences of failing to report or reporting incorrectly are regulated in national implementation laws. The German government's draft bill provides for fines or even criminal liability for management and supervisory boards, e.g., in the event of incorrect accounting or misrepresentation.

M - Merging the reporting for supply chain legislation

Keyword	Brief description	Detailed explanation
Merging the reporting for supply chain legislation	Interplay between CSRD and LkSG or, in future, CSDDD	Originally, there was an obligation to prepare both a sustainability report in accordance with the CSRD and a report in accordance with the German LkSG. This separate LkSG report is to be abolished if a company prepares a CSRD report. Even under the CSDDD, no separate report is required.

N - Non Financial Reporting Directive (NFRD)

Keyword	Brief description	Detailed explanation
Non Financial Reporting Directive (NFRD)	Former name for the sustainability report	Prior to the introduction of the CSRD, companies of public interest were already required to disclose sustainability-related information. This was based on the Non-Financial Reporting Directive, which was implemented in German law in the German Commercial Code (HGB).

O - Omnibus guidelines

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Omnibus guidelines

EU directives to simplify CSRD, including threshold adjustments and transitional arrangements.

The CSRD regulations are to be simplified by means of two directives:

Omnibus Directive, which provides for a postponement of reporting obligations. This directive is already in force and must be transposed into national law by the end of 2025. The German government draft already contains the relevant provisions. (Directive (EU) 2025/794 of the European Parliament and of the Council)
A Second Omnibus Directive (proposed Directive COM (2025)81), has now been adopted by the EU Parliament. According to this the sustainability reporting obligations are limited to a large extend:
- Scope Restriction: CSRD will apply only to companies with more than 1,000 employees and annual revenue exceeding €450 million.
- Exclusion of Listed SMEs: Capital market-oriented SMEs will be excluded from CSRD obligations.
- Transitional Exemption: Companies from the first reporting wave (starting in FY 2024) that no longer meet the new criteria will be exempt under transitional rules.
- Non-EU Companies: Revenue threshold for non-EU companies raised to €450 million within the EU to fall under CSRD.
- Sector-Specific Standards Removed: No publication of sector-specific ESRS requirements.
- Value Chain Cap: Reporting companies may only collect information from value chain entities with fewer than 1,000 employees as required by voluntary standards, which will be based on VSME standards.
In the further legislative process, the new requirements must be published in the EU Official Journal and transposed into national law by the EU member states. The German government draft does not contain the relevant provisions.

P - Principles of Sustainability

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Principles of Sustainability

The sustainability report shall reflect the principles of sustainability of a company.

The sustainability report must contain the sustainability principles of each company. It covers three key dimensions:

Environmental – Protecting natural resources and ecosystems by reducing pollution, conserving biodiversity, and promoting renewable energy.
Social – Ensuring fairness, equity, and well-being for all stakeholders, including communities and employees.
Economic – Maintaining long-term economic viability while aligning business practices with responsible resource use.

Q - Quality Management

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Brief description

Detailed explanation

Quick Fix Regulation:

Delegated Regulation (EU) 2025/1416 amending the first set of the European Sustainability Reporting Standards (ESRS)

Relief for so-called “Wave 1” companies for the years 2025 and 2026:

The new rules apply to financial years beginning on or after 1January, 2025.
Postponement of the reporting obligation for disclosures that was initially planned for 2025 and 2026.
Certain reporting obligations are completely suspended for the 2025 and 2026 financial years, even if the topics have been identified as material.
Summary information must be provided when making use of the new relief.

R - Reporting obligation

Keyword	Brief description	Detailed explanation
Reporting obligation	Obligation to disclose sustainability information	The CSRD requires companies to provide comprehensive and standardized reporting on environmental, social, and governance issues.

S - Stakeholder

Keyword	Brief description	Detailed explanation
Stakeholder	Involvement of stakeholders in materiality analysis and reporting	The CSRD attaches great importance to the involvement and consideration of stakeholders, i.e., all groups that are directly or indirectly affected by the company – including employees, suppliers, customers, investors, and society. Companies must explain how they interact with stakeholders, take their interests into account, and how these are incorporated into the materiality analysis.

T - Taxonomy Regulation

Keyword	Brief description	Detailed explanation
Taxonomy Regulation	Connection to the EU taxonomy	The CSRD is closely linked to the EU taxonomy. Companies must disclose the extent to which their activities are environmentally sustainable, although there are exceptions and exemptions that must be examined on a case-by-case basis.

U - Underpinning future viability

Keyword	Brief description	Detailed explanation
Underpinning future viability	Long-term orientation of the company	The CSRD is a driver for transformation and a touchstone for competitiveness. It forces companies to integrate sustainability into their strategy, processes, and reporting. And it creates transparency. Implementation is a challenge, but at the same time an opportunity to position oneself for the future.

V - VSME

Keyword	Brief description	Detailed explanation
VSME	Standardization of reporting	The VSME Standard (Voluntary Sustainability Reporting Standard for SMEs) is a voluntary reporting framework developed specifically for small and medium-sized enterprises (SMEs) that are not subject to CSRD reporting requirements. It was designed by EFRAG on behalf of the European Commission to provide small and medium-sized enterprises (SMEs) with a structured, resource-efficient, and practical option for sustainability reporting. As part of the Omnibus debate, EFRAG has been tasked with developing a revised VSME standard based on this framework for all companies that are not themselves subject to reporting requirements but are required to report by companies that are subject to reporting requirements within the value chain. In future, reporting entities will not be allowed to impose higher requirements on non-reporting entities than those provided for in the revised VSME standard.

W - Whole Value Chain

Keyword	Brief description	Detailed explanation
Whole Value Chain	Reporting obligation across the whole value chain	The reporting obligation covers a company's whole value chain, i.e., all upstream and downstream activities of a company – from raw material extraction, production, and distribution to the use and disposal of products. However, certain companies (fewer than 750 employees) and certain periods (first three reporting years) are subject to exemptions from the reporting obligation, which must be examined on a case-by-case basis.

X - XBRL (eXtensible Business Reporting Language)

Keyword	Brief description	Detailed explanation
XBRL (eXtensible Business Reporting Language)	Technical format for the digital submission of sustainability reports.	The CSRD requires companies to submit their sustainability reports in this format.

Y - Yearly Reporting

Keyword	Brief description	Detailed explanation
Yearly Reporting	Annual reporting obligation	The sustainability information must be published annually in the management report and is therefore part of the annual financial statements.

Z - Zero Emissions

Keyword	Brief description	Detailed explanation
Zero Emissions	Eliminating greenhouse gas emissions	A goal aimed at eliminating greenhouse gas emissions from operations and value chains, often aligned with climate neutrality and net-zero commitments under international sustainability frameworks.