The Corporate Sustainability Reporting Directive (CSRD) is now a legal requirement for large companies and listed SMEs operating in the EU, with reporting deadlines starting in 2025. This directive demands detailed sustainability disclosures, backed by reliable data and third-party assurance. Here's what you need to know:

• Who needs to comply? Large companies meeting at least two of these criteria: 250+ employees, €40m+ turnover, €20m+ total assets. Listed SMEs must comply by 2027 but can delay until 2030 with justification.

• Key requirements: Conduct a double materiality assessment (impact on society/environment and financial risks), align reporting with European Sustainability Reporting Standards (ESRS), and prepare for assurance audits.

• Challenges: Data collection is a major hurdle for 83% of companies. Scope 3 emissions reporting and maintaining audit trails are particularly complex.

• Technology solutions: Integrated platforms like neoeco streamline ESG data management by embedding sustainability metrics into financial transactions, ensuring precision and audit readiness.

Preparing early, setting up robust data systems, and working closely with auditors will help organisations meet CSRD standards and avoid compliance issues. Start now to stay ahead of the curve.

Learn the secrets of an CSRD auditor - with Giacomo Greci

Determining CSRD Requirements

Figuring out if your organisation falls under the Corporate Sustainability Reporting Directive (CSRD) involves evaluating specific criteria. This classification is essential for setting up ESG systems that can withstand audits. The CSRD covers a broader range of companies compared to its predecessor, the Non-Financial Reporting Directive, so understanding your obligations is critical.

Company Size and Financial Thresholds

The CSRD uses three main metrics to determine if a company is classified as "large" and therefore required to comply. A company qualifies as large if it meets at least two of the following criteria:

• Employee count: 250 or more employees, averaged over the financial year.

• Annual turnover: €40 million or more.

• Total assets: €20 million or more on the balance sheet.

These thresholds apply both to individual companies and to consolidated group figures for parent companies. If the parent company meets these criteria, its subsidiaries may also need to comply, even if they don’t individually meet the thresholds.

Different rules apply to listed small and medium-sized enterprises (SMEs). Listed SMEs with securities traded on EU-regulated markets must comply with CSRD starting in 2027, regardless of whether they meet the size thresholds for large companies. However, they can opt out until 2030, provided they clearly explain the delay.

EU Operations and Listing Status

Your organisation’s presence in the EU also plays a significant role in determining CSRD applicability. EU-incorporated companies that meet the size thresholds are required to comply, regardless of where they operate globally. This includes subsidiaries of non-EU parent companies, provided the subsidiary is incorporated in an EU member state.

Listed companies face additional obligations. Any organisation with securities traded on an EU-regulated market falls under the CSRD, even if it’s a smaller entity that wouldn’t otherwise qualify.

Non-EU companies aren’t entirely off the hook. Companies from outside the EU may still need to comply if they have significant EU operations. For example, if they own EU subsidiaries that meet the thresholds or are listed on EU markets, they may fall under the directive. Additionally, large non-EU companies with substantial turnover in the EU will face specific requirements, although these provisions follow separate timelines.

Branch and representative offices don’t automatically trigger CSRD compliance, but they do contribute to the overall assessment of EU operations. The key factor is whether an EU-incorporated entity meets the qualifying thresholds.

Getting Legal and Regulatory Advice

CSRD compliance can get complicated, especially for multinational organisations with diverse corporate structures. Legal advice is invaluable for companies with cross-border operations, holding companies, or recent acquisitions that may affect their classification.

If your organisation operates near the threshold limits - such as 240 employees, €38 million in turnover, or €18 million in assets - consulting experts is particularly important. Small changes in operations could push you into CSRD compliance. Professional advisers can also guide you on how ISSB reporting fits into a financially-integrated strategy and whether early, voluntary adoption of CSRD might benefit your organisation.

Regulatory specialists who understand EU sustainability laws can offer clarity on complex scenarios, such as the impact of mergers, whether joint ventures count towards thresholds, or how to manage subsidiaries in different EU member states. They can also help navigate the overlap between CSRD and other reporting requirements your organisation may already face.

For businesses operating across multiple jurisdictions, the challenges are even greater. Legal experts can determine which entities need to report, how to coordinate reporting across subsidiaries, and whether group-level consolidated reporting meets obligations for individual entities.

Understanding your CSRD obligations early is key to effective planning and implementation. With the directive’s staggered timelines, different companies face different deadlines, so knowing your specific requirements helps you prioritise and prepare for audits. Seeking legal advice ensures you’re on solid ground as you build your reporting framework.

CSRD Reporting Requirements

The CSRD brings in detailed reporting obligations that go well beyond traditional financial disclosures. These requirements focus on providing thorough sustainability information, adhering to specific standards, and undergoing professional assurance processes. Together, they establish the groundwork for audit readiness.

Double Materiality Assessment

At the heart of CSRD reporting is the concept of double materiality, which marks a departure from traditional ESG approaches. This requires organisations to evaluate sustainability issues from two angles:

• Impact materiality: How your organisation's activities affect people and the environment, both directly and indirectly, across the value chain. This includes short- and long-term effects, considering factors like severity, scope, and likelihood.

• Financial materiality: How sustainability issues pose risks or create opportunities that influence your company's financial performance, position, cash flows, or access to funding. This perspective also includes climate risks, social factors, and governance issues that may impact future financial outcomes.

These assessments aren't static. They need regular updates to reflect new scientific findings, stakeholder input, and changes in business or regulatory conditions. Keeping the process current ensures it remains relevant and thorough.

It's also vital to document your methodology, stakeholder engagement, and decision-making process clearly, as outlined in earlier audit protocols. Once materiality assessments are in place, companies can align their reporting with the ESRS standards, which provide the required disclosures to support audit readiness.

European Sustainability Reporting Standards (ESRS)

The CSRD relies on the 12 ESRS standards to guide reporting, with materiality determining what must be disclosed.

• ESRS 1 outlines general principles, such as double materiality, value chain considerations, and time horizons, applicable across all reporting areas.

• ESRS 2 focuses on general disclosures, including governance structures, strategies, and risk management practices.

The standards are divided into three main categories:

• Environmental standards (ESRS E1-E5): These cover climate change, pollution, water and marine resources, biodiversity, and the circular economy. For example, ESRS E1 requires detailed reporting on transition plans, climate risks, and greenhouse gas emissions across all scopes, along with measurable targets and timelines aligned with your business model.

• Social standards (ESRS S1-S4): These address issues related to your workforce, workers in the value chain, affected communities, and end-users. Disclosures include policies, due diligence measures, and metrics on working conditions, human rights, and social impacts.

• Governance standards (ESRS G1): These focus on business conduct, such as anti-corruption measures, political activities, and supplier relationships. Transparency and accountability in decision-making processes are key here.

The standards require a mix of qualitative and quantitative information. Qualitative disclosures explain your policies, strategies, and processes, while quantitative data focuses on measurable outcomes and performance trends. This dual approach helps stakeholders understand your progress and compare results across reporting periods.

In addition, sector-specific standards are being developed to address the unique challenges faced by industries like agriculture, mining, and financial services. These will complement the overarching ESRS framework with more tailored requirements.

Assurance and Digital Reporting

The CSRD also raises the bar for assurance, moving from limited assurance to reasonable assurance by 2028.

• Limited assurance provides moderate confidence in the accuracy of reported information. Auditors perform procedures like inquiries, analytical reviews, and limited testing of data and processes. While less rigorous than reasonable assurance, it still demands strong evidence and documentation.

• Reasonable assurance involves more extensive testing, a detailed review of internal controls, and comprehensive verification processes. To meet these standards, companies need to adopt robust data governance and documentation practices early on.

CSRD reports must be prepared in European Single Electronic Format (ESEF) using XBRL tagging. This ensures data points are marked with standardised tags that align with ESRS requirements, enabling automated analysis and comparison. Accurate tagging is critical, as errors can lead to compliance issues or audit findings. Implementing systems that generate correctly tagged reports - or working with specialised providers - can help avoid these pitfalls.

The digital format also supports real-time data integration and automated validation checks. As companies build their reporting infrastructure, understanding how to integrate financial and sustainability data efficiently becomes increasingly important. For more insights, you can explore this resource on financially-integrated sustainability management.

Lastly, the CSRD enforces strict audit trail requirements. Companies must maintain clear records of figures, assumptions, and data quality. Auditors will scrutinise the entire reporting process, making strong data governance, accountability, and systematic verification essential. Meeting these demands requires a well-structured framework that addresses both ESRS compliance and professional assurance standards.

CSRD Audit Preparation Steps

To meet the requirements of the CSRD reporting framework, it's essential to follow a structured approach that ensures you're fully prepared for an audit. This involves focusing on materiality assessments, building strong data systems, and collaborating effectively with assurance providers.

Conducting Double Materiality Assessments

Double materiality assessments are a key part of aligning your sustainability efforts with CSRD audit standards. Start by identifying critical sustainability topics using the ESRS baseline and validating them through stakeholder engagement.

Begin with a thorough understanding of your value chain. Map out key stakeholders and review existing sustainability reports, climate risk assessments, and human rights due diligence findings. Incorporate relevant legal and regulatory frameworks into your analysis.

Next, define the most relevant sustainability topics for your organisation. Use the ESRS topic list as a starting point, and enhance it with insights from industry reports, established sustainability frameworks, and competitor benchmarks. This ensures you capture both broad and specific concerns.

Engage stakeholders through surveys and interviews to uncover risks, impacts, and opportunities that may not be immediately obvious. This collaborative approach adds depth to your assessment.

Once you've prioritised topics, identify and quantify the impacts, risks, and opportunities (IROs) for each. Consider how these issues affect people, the environment, and your business operations over the short, medium, and long term. Use ESRS parameters like scale, scope, and likelihood to guide your analysis, drawing on stakeholder input and expert advice.

Finally, evaluate how sustainability developments could influence your financial performance. This includes examining costs, revenues, and stakeholder relationships. Collaboration between sustainability, risk, and finance teams is crucial to fully understand the implications for enterprise value.

With a solid materiality assessment in place, the next step is to establish reliable ESG data systems.

Setting Up ESG Data Systems

Centralising and standardising ESG data is critical for creating audit-ready reports that meet CSRD standards. Auditors will scrutinise the quality, management, and traceability of your data, so a robust system is non-negotiable.

Start by assessing your current data systems against CSRD requirements to identify gaps. Many organisations face challenges with data quality and availability, so this step is vital.

Develop scalable processes to capture, store, and update ESG metrics across departments. Where possible, automate routine tasks and assign clear ownership for each data point to ensure accountability and create reliable audit trails.

For those seeking integrated solutions, platforms like neoeco offer tools for managing finance and sustainability data together. For example, the neoeco FiS Ledger integrates over 90 ESG impact factors directly into financial transactions, ensuring precise, audit-ready data while supporting CSRD compliance and other global standards.

Supply chain data often presents unique challenges. Address these by setting clear guidelines and providing training for suppliers on reporting requirements. Standardise your data collection tools - programmes like the CDP Supply Chain Programme are particularly useful for tracking emissions data. Collaborate closely with suppliers to streamline the reporting process.

Finally, strengthen internal governance by training employees on CSRD requirements and best practices. Elevating sustainability to a Board-level priority ensures the necessary resources and executive support are in place.

A strong ESG data system sets the foundation for effective collaboration with auditors.

Working with Auditors and Tracking KPIs

With clear materiality assessments and robust data systems, engaging with auditors early is key to building a solid CSRD compliance framework. As the shift from limited to reasonable assurance looms, establishing strong audit relationships and processes from the start is critical.

Engage auditors early to align on expectations, evaluation criteria, and required documentation. This helps mitigate risks, such as missing data or incomplete records. Initial assurance costs vary but tend to increase as you move from limited to reasonable assurance.

Maintain consistent communication and planning throughout your CSRD implementation. Define clear objectives and milestones that address both organisational needs and auditor requirements. Work closely with auditors to establish the scope of the audit, clarify expectations, and compile necessary documentation to avoid delays.

Ensure your data systems meet auditors' requirements for prompt data availability and verification. This includes maintaining complete, reliable records with clear audit trails.

Until the EU introduces its own assurance standard in October 2026, the International Standard on Sustainability Assurance (ISSA) 5000 is expected to remain the most widely used framework for CSRD compliance.

Regular internal and interim audits are invaluable for keeping documentation accurate and up to date. For example, conducting an interim audit in Q3 can help identify and address potential issues ahead of year-end reporting.

Adopt a mindset of continuous improvement by reviewing your processes regularly and incorporating feedback after each reporting cycle. This iterative approach refines your systems and strengthens your audit readiness.

Pay special attention to managing Scope 3 emissions, as these often represent the largest share of an organisation's carbon footprint. Sophisticated tracking systems are essential for accurate reporting in this area.

Finally, maintain open lines of communication with auditors about progress, assumptions, challenges, and findings. Transparent processes minimise misunderstandings and ensure smooth audit execution. When your material data is ready, prepare reports in both human-readable (XHTML) and machine-readable (XBRL) formats, and share all supporting documents with your assurance providers for thorough review.

Technology Solutions for CSRD Compliance

With the increasing demands of CSRD compliance, technology solutions have become indispensable. These platforms not only simplify the process of capturing, processing, and reporting sustainability data but also ensure adherence to constantly evolving regulations.

ESG Platforms and System Integration

Bringing ESG platforms and financial systems together creates a seamless approach to sustainability reporting, something auditors are now expecting. Instead of juggling separate systems for financial and sustainability data, integrated platforms eliminate data silos, reducing errors and inconsistencies that can complicate audits.

The best solutions merge financial and sustainability data at the transaction level. This method ensures that every business activity records both its financial impact and its environmental and social implications in real time. This integrated approach far surpasses traditional ESG add-ons, which often struggle with issues like data quality and traceability.

A standout example of this is neoeco and its Financially-integrated Sustainability Management (FiSM) platform. Using double-entry accounting principles, the platform's FiS Ledger embeds over 90 ESG impact factors directly into financial transactions, providing audit-grade precision from the moment data is captured. This eliminates the risk of retrospective data gaps.

The platform also simplifies compliance with multiple frameworks, including ISSB (IFRS S1 & S2), CSRD, and GHGP, all through a single interface. For organisations preparing for CSRD audits, this unified system streamlines the often complex processes of documentation and verification.

Additionally, the platform integrates seamlessly with tools like Xero, QuickBooks, ERP systems, energy metres, and HR platforms, ensuring smooth data flow from operational systems into reporting frameworks. By removing the need for manual data entry, this integration not only saves time but also reduces errors, making compliance efforts much more efficient.

AI-Driven Automation and Real-Time Data

Artificial intelligence is transforming ESG data collection by replacing manual, error-prone processes with continuous, automated operations. AI-powered platforms can capture, map, and process sustainability data automatically from multiple sources, dramatically reducing the time and resources needed for compliance while increasing data accuracy.

Real-time data processing also addresses the shortcomings of periodic data collection, such as quarterly or annual reporting, which can leave gaps in audit trails and make it harder to verify information.

neoeco's automation capabilities categorise data across 96 ESG impact categories, mapping transactions and activities to their environmental and social impacts. This level of detail provides the robust audit trails that CSRD compliance demands, while eliminating the laborious manual work typically involved in ESG reporting.

The platform also simplifies report generation with customisable dashboards and prebuilt templates aligned to CSRD requirements. This ensures organisations can produce consistent, audit-ready reports without the delays and errors that often accompany manual reporting processes.

For finance teams, AI automation offers scalability, enabling them to manage increasing reporting demands without the need to expand their workforce. This is particularly critical as organisations transition to stricter assurance requirements, where data completeness and accuracy become even more essential.

Life Cycle Assessment (LCA) for ESG Reporting

To complement system integration and automation, Life Cycle Assessment (LCA) methodologies provide a precise, science-based approach to ESG reporting. LCA tracks the environmental impact of products and services throughout their lifecycle, offering detailed insights into Scope 3 emissions and creating strong audit trails.

Traditional carbon accounting often relies on generalised emission factors, which lack the precision needed for rigorous audits. LCA, on the other hand, provides granular data by tracing impacts across the entire lifecycle of a product or service. This level of detail aligns with the higher standards auditors are increasingly applying to CSRD compliance.

neoeco's LCA integration takes this a step further with what it describes as a "science-based, finance-grade approach to carbon and ESG accounting." By tying reported metrics directly to business activities and established scientific principles, the platform ensures detailed, verifiable audit trails.

One of the most challenging aspects of CSRD compliance - Scope 3 emissions reporting - is also addressed through LCA integration. By combining LCA methodologies with financial transaction data, organisations can precisely track both upstream and downstream impacts within their value chains. This capability is becoming increasingly critical as auditors place greater emphasis on the completeness and accuracy of emissions reporting.

Moreover, LCA supports the double materiality assessments required for CSRD reporting. By providing detailed data across various environmental factors, LCA helps organisations pinpoint the sustainability issues most relevant to their operations and stakeholders.

The synergy between LCA precision and automated data capture creates a solid foundation for CSRD audit readiness. Instead of scrambling to gather and verify data during audits, organisations can maintain continuous, science-driven tracking that supports compliance and informs strategic decisions throughout the year.

Conclusion

Getting ready for a CSRD audit hinges on thorough double materiality assessments. These assessments lay the groundwork for data collection, system design, and reporting frameworks, ensuring organisations meet the required standards effectively.

To meet these obligations, building strong data systems is critical. The best-prepared organisations create integrated systems capable of capturing ESG data at the transaction level. This approach guarantees consistency, accuracy, and auditability from the very beginning.

Technology plays a pivotal role here. Platforms like neoeco's FiS Ledger now automate ESG data capture, offering precision that meets audit standards. By combining AI-driven automation with Life Cycle Assessment methodologies, organisations can gain real-time, detailed insights across 96 ESG impact categories. These tools ensure comprehensive audit trails for Scope 3 emissions reporting and meet double materiality requirements, forming a reliable foundation for CSRD compliance.

Starting early is what separates organisations that struggle through their first CSRD audit from those that establish ESG credibility right away. Companies that act now will gain a competitive edge in a business world increasingly focused on sustainability.

The shift to mandatory CSRD compliance signifies a new era of transparency and accountability. Organisations that prepare diligently, adopt robust systems, and leverage strategic technology will be better equipped to handle the evolving demands of ESG reporting and meet stakeholder expectations head-on.

FAQs

How can companies handle the challenges of Scope 3 emissions reporting under the CSRD?

Managing Scope 3 emissions reporting under the CSRD calls for a well-thought-out, team-driven approach. To start, bring senior leadership and supply chain partners on board to establish a shared understanding of the reporting obligations and ensure everyone is aligned on goals. Pinpointing and addressing data gaps is essential, with a focus on areas that have the greatest impact.

Using digital tools can make the process smoother by simplifying data collection, improving validation, and boosting the overall accuracy of your reports. Work closely with suppliers to enhance the quality of data and maintain clear traceability throughout the value chain. Lastly, ensure that your actions are in line with the CSRD's specific requirements for value chain emissions, helping you stay compliant and maintain transparency.

What is double materiality, and why is it essential for CSRD compliance?

Double materiality takes ESG reporting to the next level by asking companies to look at two key angles: financial materiality (how sustainability issues impact the company’s bottom line) and impact materiality (how the company’s actions affect the environment and society). While traditional ESG reporting tends to zero in on risks and opportunities tied to financial performance, double materiality broadens the scope significantly.

This approach is crucial for meeting the requirements of the Corporate Sustainability Reporting Directive (CSRD). It ensures companies provide detailed and transparent sustainability disclosures that address both their internal challenges and external effects. By doing so, businesses can better meet stakeholder demands, improve accountability, and stay aligned with evolving European sustainability regulations.

How can technology, like AI-driven platforms, help companies prepare for CSRD audits?

Technology, especially AI-powered platforms, has become a game-changer in preparing for CSRD audits. By automating essential tasks like data collection, analysis, and reporting, these tools not only cut down on manual work but also enhance precision and ensure alignment with ever-changing standards.

AI tools can pinpoint areas of non-compliance, simplify materiality assessments, and produce audit-ready reports, saving organisations both time and money. They also offer continuous monitoring and risk detection, helping businesses stay audit-ready while maintaining transparency and traceability in their sustainability efforts.

Take platforms like neoeco, for example. They combine financial and sustainability data, offering real-time insights into environmental, social, and governance metrics. Using AI and advanced methodologies, such solutions enable organisations to meet CSRD requirements efficiently and with confidence.

Related Blog Posts

• Checklist for Real-Time ESG Performance Tracking

• CSRD Audit: Aligning Materiality with Financial Risk

• CSRD Audit Timelines: Key Deadlines to Know

• Double Materiality: Preparing for External Audits