CSRD explained: what UK and EU businesses need to know

The Corporate Sustainability Reporting Directive (CSRD) is the most significant sustainability reporting requirement ever imposed on European businesses. It applies to more than 50,000 companies — including many UK firms — and requires detailed, independently audited disclosure on environmental and social matters. Here is what you need to know.

What is CSRD?

CSRD is an EU directive that replaces the Non-Financial Reporting Directive (NFRD) and dramatically expands the scope and detail of mandatory sustainability reporting. Companies in scope must report using European Sustainability Reporting Standards (ESRS) — a detailed set of topic-specific standards covering climate change, pollution, water, biodiversity, workers' rights, and governance.

Reports must be included in the management report (annual report) and independently audited at "limited assurance" level — with reasonable assurance planned for the future.

Who is in scope?

Does CSRD apply to UK companies?

Yes — to some. UK companies with significant EU operations are in scope under the third-country provisions. Specifically, a non-EU company is in scope if it has: net turnover above €150 million generated in the EU, and either a subsidiary in the EU meeting the large company thresholds, or an EU branch generating over €40 million in net turnover.

The UK government has separately announced plans for UK Sustainability Reporting Standards (UK SRS) based on the ISSB standards (IFRS S1 and S2), which are expected to apply to large UK-listed companies. However, CSRD remains binding for UK companies with qualifying EU exposure.

What must be reported?

CSRD requires reporting across three pillars using ESRS:

Environmental (ESRS E1–E5): Climate change (emissions, transition plans, climate risks), pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy.

Social (ESRS S1–S4): Own workforce (pay, conditions, diversity), workers in the value chain, affected communities, consumers and end-users.

Governance (ESRS G1): Business conduct, anti-corruption, political engagement, payment practices.

Not every company must report on every topic. ESRS requires a materiality assessment — companies must identify which sustainability topics are material to their business (both financially material and material by impact) and report in detail on those.

What does "double materiality" mean?

CSRD introduces a "double materiality" concept that differs from traditional financial materiality. Companies must assess:

Impact materiality: What impact does your business have on people and the environment? Even if this does not currently affect your financial performance, it may be material for disclosure under CSRD.

Financial materiality: What sustainability risks and opportunities could affect your financial performance? This is the traditional ESG investor lens.

Both perspectives must be assessed and disclosed where material. This is a significant expansion of the traditional "materiality" concept familiar from financial reporting.

What UK companies should do now

Even UK companies that are not directly in scope should pay attention. A UK supplier selling into large EU groups may be asked for emissions data, workforce data, human rights policies, supplier due diligence evidence and climate risk information because its customers need that information for their own CSRD reporting.

The first step is to map EU exposure. Companies should identify EU subsidiaries, EU branches, EU turnover and major EU customers. The second step is to identify which customers are likely to request sustainability data. The third step is to create an evidence file before requests arrive.

CSRD preparation timeline

A sensible CSRD programme starts with scoping and governance. Decide who owns the reporting process, which entities are in scope, what standards apply, and which advisers or assurance providers may be needed.

The next phase is the double materiality assessment. This normally includes stakeholder mapping, issue identification, impact assessment, financial risk assessment and validation by management. The result should determine which ESRS topics require detailed disclosure.

After that comes the data gap assessment. Companies should compare required disclosures with available data. Most gaps appear in Scope 3 emissions, supplier due diligence, workforce metrics, biodiversity exposure, climate scenario analysis and internal controls.

The final phase is reporting readiness: collecting evidence, setting controls, drafting disclosures, testing assurance processes and integrating the sustainability report into the annual reporting timetable.

Supplier impact

CSRD pressure often reaches smaller companies through procurement. If a large customer asks for emissions, labour, governance or supply chain data, the commercial risk is not just regulatory. It can become a tender, renewal or preferred-supplier issue.

Independent assurance

CSRD requires that sustainability reports be subject to limited assurance by a statutory auditor or third-party assurance provider from the outset. This is a major change from the NFRD, where sustainability reporting was largely unaudited. Companies will need to ensure their data collection processes and internal controls are audit-ready.

Key takeaway

CSRD applies to large EU companies from 2026 and to non-EU companies with significant EU operations from 2029. It requires detailed, audited disclosure across environmental, social, and governance topics using ESRS, assessed through a double materiality lens. If you are a UK company with EU turnover above €150m and an EU subsidiary, you are likely in scope. Start your materiality assessment and data collection processes now.