CSRD Compliance in Practice: Insights from Corporate Preparations

Hanako Hirata | Consulting Intern

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The Corporate Sustainability Reporting Directive (CSRD), which mandates sustainability reporting for companies, requires applicable organizations to begin collecting data in 2024, with the first official disclosures expected in early 2025. The CSRD revises the existing Non-Financial Reporting Directive (NFRD 2014) and expands on the concept of double materiality by requiring companies to disclose both how sustainability factors financially affect the company (“financial materiality”) and how the company’s activities impact the environment and society (“impact materiality”). Under the CSRD, companies must report under the European Sustainability Reporting Standards (ESRS)—encompassing 12 items (ESRS 1–2, ESRS E1–5, ESRS S1–4, ESRS G1)—and the scope will extend to companies outside of Europe over time. As companies look ahead to the first disclosure requirements in early 2025, many in Europe are already making significant preparations. This article will explain the current efforts by these companies and highlight the key characteristics of the CSRD.

(Note: Codo has previously introduced an overview of the CSRD in a prior insight article. For details, see here: Is your company ready for the EU Corporate Sustainability Reporting Directive (CSRD)?)

Understanding the EU Policy Context

In December 2022, the European Union adopted Directive 2022/2464/EU, the CSRD. This directive widens the scope of businesses that must disclose their social and environmental risks and opportunities and their activities’ impacts on society and the environment. By amending the Non-Financial Reporting Directive, the CSRD aims to provide investors and stakeholders with consistent, relevant, comparable, verifiable, and reliable sustainability information.

The CSRD is part of the European Green Deal, a series of policy initiatives accelerating the green transition. Key goals include cutting greenhouse gas emissions by at least 55% by 2030 (compared to 1990) and achieving climate neutrality by 2050. Alongside the CSRD, other important legislation within this framework includes the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation.

Notably, the CSRD aligns closely with the EU Corporate Sustainability Due Diligence Directive (CS3D/CSDDD), which took effect on July 25, 2024. While CS3D obliges companies to conduct due diligence on human rights and environmental impacts—and to adopt a climate transition plan—the CSRD requires transparent reporting on these obligations. Although the scope of CS3D was narrowed during its legislative process, the CSRD still extends to a much broader range of companies.

CSRD Overview: Scope, Timeline and Core Requirements

The CSRD, which is expected to apply to around 50,000 companies (including approximately 10,000 companies outside Europe), differs from its predecessor, the NFRD, in three main aspects:

The expansion of applicable companies,
The introduction of the double materiality assessment basis, and
The requirement for third-party assurance.

The directive targets large enterprises and operators within the European Union as well as small and medium-sized enterprises (SMEs) and companies established outside the EU. This means that Japanese companies meeting certain European operating conditions will also be subject to the CSRD.

The directive employs a phased approach to compliance (2024–2029), starting with large EU companies and eventually extending to non-EU “third-country” undertakings by 2028 (with reports due in 2029).

Phase	Financial Year	Reporting Year	Companies
1	2024	2025	NFRD Applicable companies (Large-scale companies with 500 or more employees, or their parent companies with 500 or more employees on a consolidated basis as of the balance sheet date) Examples: Large listed companies, banks, insurance companies, and non-EU large-scale companies listed within the EU with 500 or more employees.
2	2025	2026	Large Undertakings Outside the Scope of NFRD Companies classified as large undertakings (other than those mentioned above) that meet at least two of the following criteria: Net turnover: €50 million Balance sheet total: €25 million Average number of employees during the financial year: 250 For non-EU companies: Companies with a net turnover of more than €150 million within the EU.
3	2026	2027	SMEs, excluding micro-undertakings, with transferable securities admitted to trading on an EU regulated market, or, captive insurance undertakings and captive reinsurance undertakings Medium-sized undertakings – Net turnover: €40million – Balance sheet total: €20million – Average number of employees during the financial year:250 Small undertakings – Net turnover: €8mllion – Balance sheet total: €4million – Average number of employees during the financial year: 50
4	2028	2029	Non-EU, third-country undertakings(Companies operating within the EU or with subsidiaries located within the EU): Companies with a net turnover of more than €150 million in the EU over the last two consecutive financial years, OR A branch in the EU that generates a net turnover of more than €40 million in the preceding financial year.

Table 1: Companies Subject to CSRD Obligations and Implementation Timeline

Double Materiality: The Core Concept

Under previous frameworks such as the ISSB/IFRS standards – companies primarily reported on financial impacts upon ESG factors on their operations. Although some frameworks (like GRI) already required assessing a company’s impact on society and the environment, the double materiality basis under the CSRD now mandates both perspectives for all in-scope companies:

Financial Materiality (“outside-in”): A matter is material from a financial perspective if it triggers or may trigger significant financial effects on the undertaking, i.e., it generates risks or opportunities that influence or are likely to influence the future cash flows and therefore the enterprise value of the undertaking in the short-, medium- or long- term, but it is not captured or not yet fully captured by financial reporting at the reporting date (ESRS 1)
Impact Materiality (“inside-out”): A sustainability matter is material from an impact perspective if the undertaking is connected to actual or potential significant impacts on people or the environment over the short, medium or long term. (ESRS 1)

This dual perspective ensures stakeholders gain a holistic view of a company’s sustainability performance. It also aligns with the EU’s goal of ensuring businesses not only manage climate and social risks but also actively contribute to sustainable development.

Reporting Standards under the CSRD (ESRS)

Looking into the details behind CSRD can feel a bit like alphabet soup. The CSRD explicitly specifies the entities subject to reporting requirements, while the actual disclosure content is regulated by the European Sustainability Reporting Standards (ESRS), as developed by the European Financial Reporting Advisory Group (EFRAG). The CSRD is composed of 12 topic-based standards and aims to enhance the disclosure of information related to Environmental, Social, and Governance (ESG) topics. Across these 12 categories, companies are required to disclose 82 Disclosure Requirements (DRs) and a total of 1,114 qualitative and quantitative Data Points (DPs). Within all these terms and numbers, the main takeaways are that:

CSRD is the overarching directive, with the ESRS detailing what companies must report.
The number of data points is extensive: Not every data point will be relevant for every company, but companies should be prepared to gather far more data than under previous, less stringent reports.

Additionally, many existing ESG frameworks share certain similarities (e.g., regarding greenhouse gas emissions or governance disclosures). Notably, EFRAG developed the ESRS in close collaboration with GRI, and consequently, many concepts and standards overlap—making the transition smoother for companies already using GRI.

The adoption of the European Single Electronic Format (ESEF) will require interoperable digital disclosure, and all information will need to be assured by a third party.

Cross-cutting Standards		ESRS1 General requirements				ESRS2 General disclosures
	Environment	ESRS E1 Climate Change	ESRS E2 Pollution		ESRS E3 Water and marine resources		ESRS E4 Biodiversity and ecosystem		ESRS E5 Resouce use and circular economy
	Social	ESRS S1 Own workforce		ESRS S2 Workers in the value chain		ESRS S3 Affected communities		ESRS E4 Consumers and end-users
	Governance	ESRS G1 Business conduct

Table 2: ESRS Disclosure Items

ESRS 1 outlines the principles and general requirements for preparing and disclosing reports under the CSRD. Under ESRS 2, companies are required to report ESG-related areas, including, governance, strategy, impact, risk, and opportunity management and metrics and targets. These general standards apply to all companies subject to the CSRD, regardless of industry.

From there, sector-specific standards add additional, tailored disclosures for companies operating in certain industries. If your sector falls under a specific industry (e.g., textile industry), companies must also report on those industry-relevant requirements. By addressing sector-specific standards, companies report information that are not sufficiently covered by the topical standards. Finally, small and medium-sized enterprises (SMEs, particularly those listed on EU-regulated markets) can use simplified reporting standards, designed to make compliance more feasible given their size and resource constraints. This approach ensures proportionality across different company types.

Preparation and Response for Non-European Companies Toward Disclosure

For Japanese companies preparing for CSRD compliance, the first step is to determine whether their European subsidiaries fall under the scope of CSRD reporting obligations. If the company is identified as a reporting entity, it is recommended to establish internal and external systems, conduct internal training on CSRD requirements, and ensure an understanding of current business operations. Additionally, companies should assess the compatibility and applicability of existing reporting standards and consider conducting a double materiality assessment.

As a concrete implementation method, the Ecovadis Blueprint provides a step-by-step guide that begins with understanding the current state of the company’s value chain. The corporate value chain is often the most difficult part of reporting to gain data on, so addressing it early in the CSRD reporting process can prove instrumental in gaining the data needed for robust, verifiable reports.

Step	Topic	Detail
1	Scan your value chain, business activities, geographies and stakeholders	Initiate the process by mapping your value chain and identifying key stakeholders for inclusion, to ensure a tailored and informed materiality assessment and due diligence approach.
2	Use due diligence results	The results of your sustainability due diligence efforts are linked to your company’s double materiality assessment. Consider engaging stakeholders to validate findings and provide perspective.
3a	Assess financial materiality	Shift the focus to the outside-in view, assessing the financial effects sustainability matters can have on your organization.
3b	Assess impact materiality	The inside-out view is informed by due diligence and stakeholder engagement. Refine your list of ESG topics, prioritizing them by their significance to stakeholders and their impact on your business.
4	Refine your IROs	Conduct a detailed analysis for prioritized ESG topics to identify specific impacts, risks and opportunities (IROs), analyzing internal data, industry benchmarks and conducting value chain assessments.
5	Integrate ESRS disclosures	Align your identified material topics and IROs with the corresponding ESRS metrics and disclosures. These should be tracked with smart software to ensure scalability and efficiency.

Table 3: Steps for Implementing CSRD

How Companies Are Preparing for CSRD Compliance

With the reporting obligations under the CSRD set to take effect for fiscal years beginning in 2024, European companies began preparing in 2023. Many companies are incorporating CSRD-related content into integrated reports, particularly by disclosing double materiality assessments in their annual reports and specifying how existing reporting frameworks like GRI align with CSRD reporting requirements. Notable early adopters include Denmark’s Arla and Ørsted, Belgium’s Bekaert, and the Netherlands’ Philips.

Arla has restructured its annual reports since 2023 to align with ESRS standards in preparation for its 2025 CSRD disclosures. Through a double materiality assessment, the company identified six ESRS topics and two sector-specific topics—namely food safety and animal welfare—as most relevant to its business operations and stakeholder interests. While these eight areas are Arla’s current focus, the assessment does not necessarily indicate that the company has excluded or concluded on the remaining ESRS topics; rather, it signals which areas Arla deems most material at this stage in its CSRD-readiness process.

Ørsted has included a list of disclosure requirements that stem directly from its double materiality assessment—covering seven topical standards—in the appendix of its 2023 annual report. This process ensures that only those requirements deemed materially significant through both impact materiality and financial materiality are included. In the appendix, Ørsted specifies where each disclosure can be found—whether in the annual report, management review, financial statements, or remuneration report—and highlights key topics like E1 (climate change), E5 (resource use and circular economy), and S3 (affected communities). This alignment illustrates that Ørsted’s disclosures go beyond baseline compliance, directly reflecting the company’s top sustainability priorities. Further, Ørsted’s CSRD reporting structure is enabled by close collaboration between its ESG finance and reporting team and the global sustainability team, led by the CFO, with a strong focus on double materiality assessments and ESG data validation to enhance transparency and accountability.

In 2023, Bekaert undertook a double materiality assessment aligned with CSRD guidelines and ESRS requirements, assisted by an external advisor. By engaging over 60 internal and external stakeholders (including board members, suppliers, customers, and financial institutions) and analyzing its entire value chain, Bekaert identified eight material sustainability topics that combine impact materiality (environmental and social effects of its operations) and financial materiality (risks and opportunities for the business). This comprehensive approach ensures that Bekaert’s reporting goes beyond established NFRD and GRI standards, laying the groundwork for CSRD compliance through robust data collection, integrated stakeholder feedback, and alignment with upcoming ESRS.

Philips disclosed its double materiality assessment in its 2023 annual report, identifying key topics under financial materiality (product responsibility and safety, geopolitical events, big data, AI, cybersecurity, business ethics, and general business principles) and impact materiality (climate change, energy efficiency, employee well-being, health and safety, access to affordable healthcare, big data, AI, cybersecurity, competition, and market access). In total, six key topics were identified across these materiality dimensions.

Additionally, in the Netherlands, where Philips is based, the Dutch CSRD Award was launched in 2024 by Van der Molen EIS and the Impact Economy Foundation, supported by a network of domestic auditors, investors, and environmental experts. In November of this year, the CSRD Award was held with 34 Dutch companies participating. Philips was recognized as an “Early Adopter,” setting a pioneering example of reporting before mandatory requirements were enforced. The reasons for this recognition include Philips’ long-standing commitment to a circular business model, the depth of sustainability-related information in its 2023 annual report, and the inclusion of assurance reports conducted by external audits. Starting next year, the award will focus on corporate reporting activities in alignment with the mandatory reporting requirements.

Recognizing that disclosure is only as good as the facts to be disclosed, there has been an increase in support initiatives to help companies take concrete, phased steps toward low-carbon transitions.

One such initiative is the ACT Step-by-Step Methodology (ACT-S), a framework provided by the ACT Initiative to support CSRD compliance. According to research conducted by ADEME, ACT-S shows a high degree of alignment with the disclosure points (DP) required under CSRD. In ADEME’s mapping of the correlation between ACT-S and ESRS E1 (the climate change standard under CSRD), they found that:

ESRS E1 contains more DPs than ACT specifically covers.
Seven priority Disclosure Requirements within ESRS E1 (e.g., E1-2, E1-3, E1-4, IRO-1, SBM-1, Gov-3) corresponded to subset of the total ESRS E1 DPs, amounting to about 38% of E1’s DPs.
Of those ESRS E1 DPs within these seven priority DRs, 83% are fully or partially addressed by ACT Step-by-Step.
The remaining 62% of ESRS E1 DPs are outside ACT’s current scope, largely because they require additional financial information or focus on prerequisite indicators (e.g., certain GHG inventory details, carbon sinks, carbon pricing) that ACT does not prioritize.

In France, over 400 companies have reportedly adopted ACT-S as part of their preparations for CSRD compliance, demonstrating its potential to enable integrated and efficient internal reporting readiness for disclosure.

Conclusion

The implementation of CSRD may be seen as a burden due to the increased reporting requirements for companies. However, when properly followed, CSRD reporting can offer substantial benefits such as improved transparency, strengthened trust with stakeholders, and identification of business growth opportunities through strategic business model transition, potentially leading to financial advantages. Codo, the first Japanese company certified as advisors under the ACT Initiative led by CDP and ADEME, supports companies to achieve CSRD compliance through materiality assessments, education and training, and decarbonization strategy development using the ACT Step-by-Step Methodology (ACT-S).