CSRD: cornerstone of EU’s sustainable finance strategy for quality investor ESG data


CSRD: cornerstone of EU’s sustainable finance strategy for quality investor ESG data


To the point

  • The proposed CSRD, adopted in April 2021, is the cornerstone of the EU’s sustainable finance strategy towards global leadership.
  • The CSRD aims to extend the scope of companies concerned, standardize the disclosure requirements and make them mandatory, impose an external assurance on non-financial information, and digitalize the information reported.
  • Next steps: Member States are expected to transpose the CSRD by the end of 2022, for an application date in early 2023.

The European Union (EU) affirms its leadership ambitions with the proposed Corporate Sustainability Reporting Directive (CSRD), part of the European Commission’s (EC) formidable initiative to direct capital flows towards sustainable activities. The largest bottleneck in achieving this aim is the lack of reliable and comparable data, which this proposed Directive tackles.

On 21 April 2021, the EC adopted a sustainable finance package including the proposed CSRD, the EU Taxonomy Delegated Acts, and amendments to other MiFID- and UCITS-related Directives. The proposed CSRD revises and strengthens the Non-Financial Reporting Directive’s (NFRD) disclosure requirements, increasing the scope of concerned companies from 11,600 to almost 50,000 companies in the EU.

In Europe, companies’ non-financial reporting requirements have considerably evolved in recent years, whether through formal regulations like the NFRD or through adopting voluntary international frameworks. Many large companies have adopted reporting standards, including:

  • The Global Reporting Initiative (GRI);
  • The International Integrated Reporting Council (IRRC);
  • The Task Force on Climate-Related Financial Disclosures (TCFD);
  • The Sustainability Accounting Standards Board (SASB);
  • The Climate Disclosure Standards Board (CDSB);
  • The Carbon Disclosure Project (CDP); and
  • Various international pledges, such as the United Nations Global Compact and OECD Guidelines for multinational enterprises.

However, the absence of binding European guidelines on the content of extra-financial reports has left Member States with a significant margin of maneuver when transposing laws. This creates reporting disparities between European countries, particularly regarding the definition and consistency of published environmental, social and governance (ESG) indicators and external assurance.

The conclusion is inescapable: the information published by companies does not meet investors' needs, mainly due to a lack of consistency, reliability or comparability.

This article will describe how ESG reporting is set to evolve, especially in light of the upcoming CSRD. Firstly, we will introduce the CSRD’s key requirements, the scope of concerned companies, and its major milestones. Then, we will analyze how CSRD addresses the current shortcomings of the EU’s sustainable finance strategy. Finally, we will reflect on how companies can manage these new ESG reporting requirements and what they will mean, especially in terms of benefits, for firms as a whole.


CSRD key requirements, scope of companies and timeline

With the CSRD, the EU proposes to:

  • Extend the scope of companies under the NFRD;
  • Standardize the disclosure requirements and make them mandatory;
  • Impose an external assurance on non-financial information; and
  • Digitalize the reported information.
In a nutshell, the CSRD is the EC’s effort to strengthen and standardize European companies’ communication on sustainability-related disclosures, putting financial and non-financial information on a level playing field.

A major feature of the CSRD is that concerned companies must integrate non-financial disclosure into the management report. This new reporting structure allows ESG data to be integrated into investors’ decision-making frameworks. And, the shift from voluntary to mandatory disclosure, which was previously left up to each Member State under the NFRD, will significantly boost the coverage of sustainability indicators across Europe.

The EC mandated the European Financial Reporting Advisory Group (EFRAG) to develop draft EU reporting standards in close collaboration with international initiatives such as GRI, TCFD, SASB, IIRC, CDSB and CDP. Central to the new reporting framework will be the concept of double materiality. This concept encourages entities to consider both the impact of sustainability topics on the company’s value, and the entity’s impact on the economy, the environment and people. Therefore, companies will need to identify and manage material sustainability topics accordingly.

To further bridge the ESG-data-availability gap, the CSRD also reinforces the scope of companies concerned. Companies that will need to follow the EU’s sustainability reporting standards include those with more than 250 employees, listed companies (except listed micro-companies), and companies meeting the CSRD’s turnover or balance sheet thresholds. For listed small- to medium-sized enterprises (SMEs) the application of standards will be delayed and proportionate, while unlisted SMEs can use them voluntarily.

The CSRD aims to effect another fundamental change: making it mandatory that non-financial information is verified by an external auditor. A progressive approach is proposed, starting by requiring a “limited” assurance, with the possibility that a “reasonable” assurance is made mandatory once the EU reporting standards are introduced.

Finally, companies will need to publish management reports in XHTML format and “tag” reported sustainability information following a digital classification. This is to support the EU’s ambition to create an open-access European ESG database with the European Single Access Point (ESAP) model.

Following the EC’s proposed CSRD, the ball is now in the European Parliament and Council’s court. Negotiations on the final legislative text are expected to come to fruition in mid-2022. In parallel, the European Financial Reporting Advisory Group (EFRAG) is expected to deliver on the sustainability reporting standards shortly after the final legislative text is agreed upon.

If this timeline is respected, the EC will be able to adopt the first set of EU reporting standards by the end of 2022. Consequently, the CSRD disclosure requirements would apply by January 2023. This means that companies would have to publish their first integrated management reports by January 2024, covering the financial year 2023.


CSRD aims to bridge the ESG data gap

Data availability, quality and comparability are essential to ESG investment success. In 2020, an HSBC global study concluded that available data is not yet comparable enough.1 While third-party ESG data providers help gather information about companies’ ESG practices, their diverging methodologies limit the relevance of ESG scores. This lack of standardization is compounded by proprietary methodologies, and a lack of transparency around data acquisition, materiality, aggregation and metric weighting.

Despite this, the OECD insists—rightly—on the responsibility of financial market actors to ensure “consistency, comparability and quality of core metrics in reporting frameworks for ESG disclosure”.2

These obstacles in investors’ and fund managers’ journeys towards data accuracy are exacerbated by the lack of ESG data. As financial market stakeholders struggle to find actionable ESG data for their portfolios, companies are still busy wrestling with climate risk analysis to accurately integrate sustainability factors into their climate transition plans and disclosures.

At Deloitte, we believe that uniform standards, like those of the CSRD, can provide a consistent and comparable baseline that enables comparability of corporate disclosures across jurisdictions.

Unsurprisingly, public consultations have shown strong support for aligning non-financial reporting requirements with relevant European legislation, in particular, the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation. By giving Member States room to move when transposing the current NFRD into local laws, the EU did not go far enough to tackle the issue of data comparability, reliability and relevance. On the other hand, the CSRD proposal would allow companies to better align their reporting strategies with these new reporting requirements.

For example, the CSRD will integrate the EU Taxonomy Regulations’ disclosure requirements, requiring companies to disclose alignments with its screening criteria, do-no-significant-harm thresholds and the six objectives3.

On the corporate side, the CSRD’s sustainability reporting standards will complete the data puzzle to “create a consistent and coherent flow of sustainability information throughout the financial value chain”.4 It should enable companies to effectively report their climate transition plans towards a net-zero economy and set key metrics for risk, impact and performance assessments; or, simply put, to create or improve the tools required for their climate change transition.


Characteristics, sustainability indicators, and main developments compared with NFRD

  • Characteristics
    • Mandatory standards developed by EFRAG
    • Dual materiality
    • Generic and sectoral reporting
    • Connectivity with financial reporting
  • Themes and indicators
    • Environment: alignment with the six EU Taxonomy Regulation objectives.
    • Social:
      • Equal opportunities including gender equality, equal pay/work, training, employability and inclusion of people with disabilities;
      • Working environment, wages, social dialogue, collective agreements, employee engagement, life balance, health, safety and adaptation of the working environment; and
      • Respect for human rights, fundamental freedoms, democratic principles and international standards.
    • Governance: composition and role of governance bodies (including sustainability issues), business ethics, corporate culture, anti-corruption policies, political engagement including lobbying, business relations including payment deadlines, internal control and risk management systems including reporting processes.
  • Main developments compared with NFRD
    • Extended scope
    • Standards for SMEs
    • Digitalization
    • Publication in the annual report
    • Mandatory external audit for all Member States


How companies will need to manage CSRD compliance

With the CSRD likely applying as from January 2023, this leaves firms only 18 months to prepare. The Directive will place ESG reporting under the same quality, control and audit obligations of financial reports, so we encourage business leaders to start preparing for the CSRD now.

Beyond reporting requirements, the CSRD will bring up fundamental questions that firms may have already started asking themselves, such as:

  • Is the organization’s governance enabling oversight, assessment and management of ESG risks and opportunities?
  • Is the organization aligning its business, strategy and financial planning to ESG risks and opportunities?
  • What is the organization’s exposure to climate risk?

The sustainability reporting journey of companies starts by identifying material ESG topics at the country, industry and company level, so that organizations can select the appropriate reporting standard to comply with the upcoming CSRD. However, this is not enough—business leaders must also engage in integrated thinking and put sustainability at the heart of their business model. Not only because it is ethical to do so, but because it is sound business practice.

Since the SFDR and the EU Taxonomy Regulation will apply before the CSRD, financial players will already be putting pressure on their investees to collect non-financial information. Retail investors and customers are demonstrating a deep and sustained interest in ESG products, showing that sustainability is more than just a fad5. Overall, sustainability-related information will increasingly be embedded in investment decision-making. So, we urge companies to start their sustainability transformation journeys now.

Our experience shows that integrating ESG into organizations requires collaboration across the firm. Alongside the Chief Sustainability Officer (CSO), the Chief Financial Officer’s (CFO) unique skill set can also play a key role in facilitating and managing this transition. CFOs’ experience in measuring and tracking financial information, engaging in risk management, internal controls, and third-party assurance makes them coveted members of sustainability transformation teams. Close collaboration between CSOs and CFOs will enable companies to better manage the risks and opportunities of ESG topics and drive a successful sustainability transformation.


1 HSBC, “Sustainable Financing and Investment Survey 2020,” 13 October 2020.

2 Boffo, R., and R. Patalano (2020), “ESG Investing: Practices, Progress and Challenges”, OECD Paris, 2020.

3 Climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems.

4 Proposal for a Directive if the European Parliament and the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting. EUR-Lex - 52021PC0189 - EN - EUR-Lex (europa.eu).

5 Cornell, Bradford, “ESG Preferences, Risk and Return,” European Financial Management, 2020.


As per the EC’s aim, the proposed CSRD will play an essential role in transforming the corporate reporting ecosystem to enhance the quality and consistency of sustainability information. It will provide the information required for financial players to meet their own transparency obligations under the EU Taxonomy Regulation and the SFDR.

While the CSRD’s transposition into national law could happen by the end of 2022 and apply in 2023, the CSRD is introducing several revolutionary elements regarding ESG and sustainability. Therefore, companies should start preparing to report on sustainability topics today, or risk falling behind.


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