What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a European Union (EU) regulation that significantly expands sustainability reporting requirements for companies operating in or linked to the EU.
It replaces the Non-Financial Reporting Directive (NFRD) and applies to a much larger number of companies, including non-European companies with significant EU activities.
CSRD requires detailed, auditable disclosures on environmental, social, and governance (ESG) matters, aligned with European Sustainability Reporting Standards (ESRS). It aims to ensure transparency for investors, regulators, and stakeholders about companies’ sustainability risks, opportunities, and impacts.
What is ESRS?
The European Sustainability Reporting Standards (ESRS) are the detailed technical standards under CSRD that specify what companies must disclose and how they should report ESG information.
Developed by EFRAG (European Financial Reporting Advisory Group), the ESRS cover:
- General disclosures (e.g., governance, strategy, business model)
- Environmental topics (e.g., climate change, biodiversity, pollution)
- Social topics (e.g., workers, communities, human rights)
- Governance topics (e.g., business conduct)
These standards are designed to ensure consistent, comparable, and verifiable sustainability information across companies and sectors in line with EU policy goals.
What is Double Materiality?
Double materiality is a key reporting concept under CSRD and ESRS, combining two perspectives:
- Impact Materiality (Inside-Out)
Assesses how the company’s activities impact the environment, people, and society — for example, GHG emissions, water use, human rights, or community effects. Focuses on the company’s outward footprint and sustainability consequences. - Financial Materiality (Outside-In)
Assesses how sustainability risks and opportunities affect the company’s financial position — for example, climate risks, regulatory changes, supply chain disruptions, or reputational risks. Focuses on what threatens or benefits the company’s value creation, cash flows, and resilience.
Double materiality means companies must report on both:
- Their impact on the world (impact materiality)
- The world’s impact on them (financial materiality)
This approach ensures that sustainability reporting addresses both corporate accountability and investor-relevant financial risks, supporting a holistic view of sustainability performance.
