The future of sustainability reporting: CSRD and EU taxonomy in focus
Sustainable action is increasingly coming to the fore and presents companies with new reporting challenges. Two terms that play a central role in this are the Corporate Sustainability Reporting Directive (CSRD) and the EU taxonomy. What is behind these concepts and how are they connected?
CSRD: A new standard for sustainability reports
In the area of corporate reporting, the European Commission came to the conclusion that non-financial statements need to be improved. A major objective of reporting is to provide the respective stakeholders with a sufficient information basis for possible decisions on the capital market. This requires a certain degree of comparability and reliability in non-financial reporting. The EU has created a key element to ensure uniform reporting: The Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023. It is an important part of the European strategy to create a sustainable economic and financial system and primarily concerns disclosure obligations in the area of sustainability. The adoption of the CSRD heralded a huge upheaval in corporate reporting. Whereas the focus had previously been primarily on the presentation of the net assets, financial position and results of operations, the presentation of non-financial factors now occupies a new (mandatory) position. The directive therefore significantly exceeds the previous requirements for sustainability reporting in terms of complexity and scope. In addition to the capital market-oriented companies - with more than 500 employees - that were previously required to report, further companies will be obliged to do so over a staggered period.
2025: Update through the omnibus initiative
In February 2025, the EU Commission presented a series of proposals to simplify and reduce the burden of sustainability reporting with the Omnibus Initiative. The focus is on three objectives: reducing bureaucratic hurdles, giving companies planning security and promoting sustainable investments. Central requirements of the CSRD are also to be simplified as a result - for example by postponing deadlines, adjusting threshold values and dispensing with sector-specific reporting standards. Companies should therefore definitely rethink their existing reporting strategies on the basis of the new framework conditions, but should by no means let their efforts rest.
Which companies are affected by the CSRD reporting obligation and when?
From 2024 (reporting in the 2025 annual report): Companies that are already subject to the directive on the disclosure of non-financial information, i.e. the Non-Financial Reporting Directive (NFRD). These are capital market-oriented companies with more than 500 employees as well as banks, insurance companies and investment companies, so-called large public interest entities.
Omnibus update: With the Omnibus initiative, the EU Commission has adjusted the thresholds and timetables for the reporting obligation. In future, only large companies with more than 1,000 employees and a balance sheet total of more than 25 million euros or a turnover of more than 50 million euros will be subject to the CSRD. Capital market-oriented SMEs are completely exempt from the reporting obligation.
The staggering of the reporting obligation will be postponed by up to two years. The new start dates are - subject to the final adoption of the omnibus measures:
- Financial year 2025 (2026 report): Large companies that were already subject to the NFRD
- 2027 financial year (2028 report): All other large companies with 1,000 employees or more
- Financial year 2028 (report 2029): Third-country companies with >EUR 450 million turnover in the EU and relevant presence
Capital market-oriented small and medium-sized enterprises (SMEs), which were originally due to report from 2026, are completely exempt from the reporting obligation under the omnibus proposals. The EU justifies this radical step - after all, this group makes up around 80 percent of the companies originally affected - with the aim of not placing an excessive burden on SMEs and maintaining their competitiveness. Although this means relief for many SMEs, indirect pressure may still arise - for example from larger business partners, banks or investors who request sustainability information.
A voluntary reporting framework is currently being developed for these cases: the VSME standard (Voluntary Sustainability Reporting Standard). This allows non-reporting SMEs to provide relevant sustainability information in a reduced and practicable form - for example in response to inquiries along the supply chain.
"Certain non-listed SMEs that are not subject to any sustainability-related reporting obligations under the Accounting Directive may nevertheless be asked for sustainability information by customers, banks, investors or other stakeholders."(www.commission.europa.eu)
This is what lies behind the EU taxonomy
The EU taxonomy is a key component of the European Green Deal and is used to classify sustainable economic activities. The aim is to promote investment in environmentally friendly innovations and support the green transition in the EU. It helps to achieve climate neutrality by 2050 and the reduction of greenhouse gas emissions by 2030. An economic activity is considered sustainable if it contributes to at least one of the six environmental goals and none of the other environmental goals are significantly violated. The graphic below shows the six environmental goals:
The reporting obligation under the EU taxonomy applies to all companies subject to CSRD reporting requirements and must be published in the management report or separately and disclose the following:
- Share of turnover from taxonomy-enabled economic activities in total turnover
- Share of taxonomy-eligible capital expenditure (CapEx)
- Share of taxonomy-eligible operating expenses (OpEx)
Link between CSRD and EU taxonomy
The CSRD and the EU Taxonomy are therefore two central regulations of the European Union that aim to promote the sustainability of companies and create transparency and go hand in hand. While the CSRD ensures that companies report transparently on their sustainable economic activities, the EU Taxonomy is a classification system that defines clear criteria for which economic activities are considered environmentally sustainable. It serves as a reference framework for investors, companies and political decision-makers to identify and promote sustainable investments.
The link between CSRD and the EU taxonomy lies in reporting: companies covered by CSRD must also indicate in their reports the extent to which their activities are in line with the EU taxonomy. This means that they must provide detailed information on how their economic activities contribute to the EU's environmental objectives. This link ensures that companies' sustainability reports are not only comprehensive, but also comparable and standardized, which also minimizes the risk of greenwashing.
What must be reported under the CSRD Directive?
The binding European Sustainability Reporting Standards (ESRS) stipulate the mandatory content that a company must report on in its sustainability report in future. All ESG areas are covered. Thanks to the overarching and technical reporting requirements, the ESRS ensure uniform and comparable reporting. The European Financial Reporting Advisory Group (EFRAG) has thus created an international framework for sustainability-oriented reporting. The first set contains two cross-cutting standards - ESRS 1 and ESRS 2 - as well as 10 topic-specific standards. ESRS 1 contains general requirements for the preparation and presentation of sustainability reports and stipulates that the individual topic-specific standards are subject to a double materiality analysis . ESRS 2 sets out general disclosures that must be reported for all companies regardless of their materiality analysis.
External audit is mandatory
Companies that fall under the CSRD (see above) must have their sustainability report reviewed by an independent external auditor. External assurance of the sustainability report remains mandatory under the Omnibus Initiative - but without escalation in the depth of assurance. An audit with limited assurance is sufficient. However, the originally planned extension to a reasonable assurance, which corresponds to the depth of assurance of current financial reporting, will no longer apply. Instead, the EU wants to develop specific audit recommendations in the form of so-called targeted assurance guidelines. The aim is to limit the workload for companies and at the same time ensure the reliability of reporting. This also places new demands on the audit firms that are additionally entrusted with this task.
Outlook: The future of sustainability reporting
The CSRD and the EU taxonomy are important steps towards a more sustainable economy. They offer companies the opportunity to make their sustainability performance transparent and position themselves as responsible players. For investors and other stakeholders, they create a solid basis for well-founded decisions regarding sustainability and long-term corporate success. Sustainability is thus transformed from a peripheral issue into a central aspect of corporate management and communication. While specific examples of CSRD reports are rare due to the upcoming mandatory introduction, companies can use existing sustainability reports as a guide and adapt them to the respective requirements.
Summary: The CSRD brings with it important innovations
- Double materiality: Companies must report both on the impact of their corporate activities on people and the environment and on the impact of sustainability aspects on the company.
- External audit: Sustainability reporting must be audited externally, in the same way as financial reporting.
- Integration into the management report: Sustainability information will become a mandatory part of the management report, which underlines its importance
- Standardized electronic reporting format: The reports must be disclosed in the European Single Electronic Format (ESEF), which is equally readable for humans and machines.
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