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One of the biggest CSRD failure patterns is not poor sustainability data. It is misjudging whether, when, and how the obligation applies.
The Corporate Sustainability Reporting Directive (CSRD) introduces legally binding sustainability reporting obligations for a broad range of EU and non-EU companies. Once a company is in scope, reporting under the European Sustainability Reporting Standards (ESRS) is mandatory, auditable, and enforceable.
What CSRD Applicability Really Means
CSRD applicability determines:
- whether sustainability reporting is legally required,
- which reporting standards apply (ESRS),
- whether reporting is done at group or entity level,
- where disclosures must be published,
- and whether disclosures are subject to statutory assurance.
This is not an ESG maturity question. It is a legal classification.
Getting this wrong leads to:
- late or invalid reporting,
- audit findings,
- regulatory exposure,
- loss of credibility with investors and customers.
CSRD Applies in Reporting Waves — Not Universally
CSRD obligations are introduced in phases, based on company size, listing status, and geographic footprint. Each wave carries different timing and proportionality rules — but the obligation itself is fixed.
Wave 1: Companies Previously Covered by NFRD
Who Is In Scope
Companies already subject to the Non-Financial Reporting Directive (NFRD), including:
- large EU-listed companies,
- large banks,
- large insurance undertakings,
with more than 500 employees.
Reporting Obligation
- First CSRD reporting period: Financial year 2024
- First ESRS sustainability statement: Published in 2025
- Reporting standards: ESRS (mandatory)
There are no opt-outs, delays, or simplifications for this group. These companies are already reporting under CSRD.
Wave 2: Other Large EU Companies
Who Is In Scope
EU companies not previously covered by NFRD that meet at least two of the following criteria:
- more than 250 employees,
- more than €40 million net turnover,
- more than €20 million total assets.
Regulatory Status (Updated)
These companies are legally in scope under CSRD. However, their reporting start dates and disclosure depth are affected by:
- EU-level phasing-in measures, and
- simplification initiatives introduced to reduce first-time reporting burden.
What this means in practice:
- CSRD applicability is not removed,
- reporting timelines may shift,
- some ESRS datapoints may be deferred or simplified.
Important: Applicability still applies even if first reporting is delayed.
Wave 3: Listed SMEs
Who Is In Scope
- EU-listed small and medium-sized enterprises,
- including listed non-EU SMEs.
Special Provisions
Listed SMEs:
- are within CSRD scope by law,
- will report using simplified ESRS standards, and
- may opt out temporarily under defined transition provisions.
This wave expands CSRD coverage while applying proportionality — but does not eliminate the obligation.
Non-EU Companies: CSRD Has Extraterritorial Reach
CSRD applies beyond EU-headquartered companies.
Who Is In Scope
Non-EU companies that:
-
generate more than €150 million annual turnover in the EU, and
-
have either:
- a significant EU branch, or
- an EU subsidiary classified as a large company or listed SME.
Reporting Obligation
- Reporting is required at group level
- Based on dedicated non-EU sustainability reporting standards
- Expected first reporting period: financial year 2028
- First sustainability statement published: 2029
While the detailed standards are still under development, the legal obligation is already established.
Group vs Entity-Level Reporting: A Critical Boundary
CSRD reporting is primarily designed as a group-level obligation.
General Rule
- If a parent company prepares CSRD-compliant consolidated sustainability reporting, subsidiaries are generally exempt from separate reporting.
Important Exceptions
Subsidiaries may still face reporting obligations if:
- they are listed in the EU,
- they exceed large-company thresholds independently,
- or the parent company is outside CSRD scope.
Why this matters: Misunderstanding consolidation rules is one of the most common CSRD scoping errors identified by auditors.
Where CSRD Disclosures Must Appear
CSRD sustainability information:
- must be included in the management report,
- cannot be published as a standalone ESG or sustainability report,
- is subject to statutory audit processes.
This integrates sustainability disclosures into formal corporate reporting and governance.
Assurance Is Not Optional
Once CSRD applies:
- sustainability disclosures are subject to mandatory assurance,
- limited assurance applies initially,
- reasonable assurance is expected in later phases.
Applicability therefore triggers not just reporting, but audit-grade data, controls, and documentation.
ESRS Are Mandatory Once CSRD Applies
If a company falls within CSRD scope:
- ESRS must be used,
- alternative frameworks (GRI, ISSB) do not replace ESRS,
- sustainability data must follow ESRS structure, materiality logic, and disclosure requirements.
There is no scenario in which CSRD applies and ESRS do not.
Applicability Does Not Mean “Do Nothing Until Reporting Starts”
Even companies whose first reporting year is delayed must:
- assess CSRD applicability formally,
- prepare for double materiality assessments,
- identify data gaps — especially in the value chain,
- establish governance and documentation structures.
Waiting until the first reporting year almost guarantees compliance failure.
CSRD Applicability Checklist (Decision Lock)
Before proceeding further, every company should be able to answer yes or no to the following:
- Are we part of an EU or non-EU group?
- Do we exceed CSRD size thresholds?
- Are we listed in the EU?
- Do we prepare consolidated reporting?
- Does a parent entity report under CSRD?
- What is our first applicable financial year?
- Will reporting be group-level or entity-level?
- Are ESRS mandatory for us?
- Are disclosures subject to assurance?
- Do we have documented evidence supporting our scoping decision?
If any of these answers are unclear, applicability has not been properly assessed.
CSRD Applicability Is a Legal Determination
CSRD applicability is not about ambition, sustainability maturity, or voluntary ESG strategy. It is a binding regulatory classification.
Companies that misjudge their scope will face:
- late reporting,
- rushed materiality assessments,
- audit findings,
- and long-term credibility damage.
Companies that get applicability right gain time, structure, and control — before reporting pressure begins.