Let us first consider non-pricing legislation. The primary purpose of disclosure requirements is to enhance corporate accountability and transparency regarding environmental impacts. By mandating companies to measure and disclose their greenhouse gas emissions, regulators create greater visibility into corporate climate performance. This transparency enables stakeholders – including investors, customers, policymakers, and the public – to assess a company’s environmental footprint and make more informed decisions.
Beyond transparency, standardized disclosure requirements improve the comparability and reliability of climate-related data. This allows financial markets to better integrate climate risks and opportunities into investment decisions and encourages companies to systematically measure, manage, and ultimately reduce their emissions.
Importantly, disclosure regulations do not exist in isolation. They form part of a broader policy framework through which governments pursue national and international climate targets. Many jurisdictions have set ambitious sustainability goals – for example, the European Union’s climate neutrality objective under the EU Green Deal. Reporting frameworks such as the Corporate Sustainability Reporting Directive (CSRD) serve as key policy instruments to support these ambitions. By requiring companies to report standardized sustainability and emissions data, regulators create the informational foundation needed to track progress toward climate goals, guide capital allocation toward more sustainable activities, and strengthen corporate accountability.
Ultimately, disclosure-based regulation complements other climate policy tools, such as carbon pricing or sector-specific standards. Together, these instruments encourage businesses to integrate carbon management into their strategic decision-making and contribute to the broader transition toward a low-carbon economy.
Now, you will learn about various non-pricing reporting and disclosure legislation.
EU Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is a European Union regulation that requires companies to disclose their environmental, social, and governance (ESG) performance with a level of rigor comparable to financial reporting. Within the ESG framework, the CSRD places particular emphasis on greenhouse gas (GHG) emissions reporting, which forms a central component of climate-related disclosures.
The reporting requirements under the CSRD are defined by the European Sustainability Reporting Standards (ESRS). These mandatory standards specify how companies must report sustainability information, including the structure, metrics, and qualitative disclosures that must be provided.
A core principle of the CSRD is the Double Materiality Assessment (DMA). Companies must assess both:
- how sustainability matters may create financial risks or opportunities for the business (outside-in perspective, also referred to as financial materiality) and
- how the company’s activities impact the environment and society (inside-out perspective, referred to as impact materiality). If climate change is identified as a material topic under either perspective, companies are required to disclose relevant climate-related information in accordance with the ESRS.
Under the CSRD, companies must report their total greenhouse gas emissions across Scope 1, Scope 2, and – where material – Scope 3, expressed in CO₂ equivalents. Emission removals, as well as the use of carbon credits or offsetting mechanisms, must be disclosed separately to ensure transparency and comparability.
These disclosures rely on standardized and quantitative metrics, which require companies to apply carbon accounting methodologies to measure, consolidate, and report emissions across their operations and value chains. Robust carbon accounting systems are therefore a fundamental prerequisite for CSRD-compliant climate reporting.
In addition, companies must disclose further information on topics such as material climate-related risks and opportunities, transition plans, and the governance and management of climate-related issues.
In practice, this means that many companies must establish new data collection processes, internal controls, and governance structures to ensure the accuracy and auditability of emissions data.
Companies in Scope
The directive applies to EU-based companies and to non-EU companies with significant business activities within the EU. This makes CSRD not just a European initiative but one that has global implications for companies trading in Europe.
The scope of CSRD is updated per the Omnibus I. Under Omnibus I, the scope is significantly narrowed to focus on the largest undertakings and to reduce indirect reporting pressure along value chains.
Note
You will learn in detail about the Omnibus simplification package later.
EU based companies in scope:
- Companies with more than 1,000 employees, and
- Either a net turnover exceeding €50 million, or
- A balance sheet total exceeding €25 million
Prerequisite: Meeting at least two of the above three criteria, in line with the revised "large undertaking" definition under Omnibus I.
Non-EU based companies:
- EU net turnover exceeding €450 million at consolidated level, and
- Either at least one large EU subsidiary meeting in scope EU criteria and applicable financial thresholds (see above), or
- An EU branch with net turnover exceeding €50 million within the EU
Here is a table indicating how the CSRD scope differs before and after the Omnibus.
Category | Before Omnibus | After Omnibus |
|---|
EU-based companies | In scope if both: > 1,000–1,750 employees and > €50–€450m net turnover (balance-sheet threshold not specified). | In scope if at least two of the following: > 1,000 employees; net turnover > €50m; balance sheet total > €25m. |
Non-EU based companies | In scope if EU net turnover > €150m AND either: a qualifying EU subsidiary with turnover > €40m, OR an EU branch with turnover > €40m | In scope if EU net turnover > €450m (consolidated) AND either: at least one large EU subsidiary meeting the above EU thresholds, OR an EU branch with EU net turnover > €50m. |
CSRD implementation follows a phased approach over several years, reflecting both the complexity of sustainability reporting and the gradual expansion of the directive’s scope. Prior to the introduction of the CSRD, ESG reporting in the EU was primarily governed by the Non-Financial Reporting Directive (NFRD) and various national regulations, which resulted in limited harmonisation across Member States.
Over time, the scope of the CSRD will expand to include large unlisted companies that meet the same size thresholds, as well as certain non-EU companies with significant business activities within the EU. Although small and medium-sized enterprises (SMEs) are not immediately required to comply, they are encouraged to begin preparing. To support this, the EU is developing simplified voluntary reporting standards that SMEs can use to align their sustainability disclosures with the expectations of larger customers, business partners, and other stakeholders.
Reporting Timelines and Phases
To reflect this gradual expansion of scope, the CSRD establishes a staged implementation timeline under which different groups of companies become subject to the reporting requirements over several years.
- 2024: From financial year 2024 (reports published in 2025), large EU-listed companies and public-interest entities previously subject to the NFRD began reporting under the CSRD framework.
- 2027: From financial year 2027 (reports published in 2028), large unlisted EU companies are expected to report under the CSRD, subject to the revised scope thresholds introduced by the Omnibus I simplification package.
- 2028: From financial year 2028 (reports published in 2029), non-EU companies with significant operations in the EU are expected to become subject to CSRD reporting obligations, provided they meet the revised EU turnover and establishment criteria under Omnibus I.
Note
The above timelines reflect the post-Omnibus I political agreement and may still be subject to adjustment following publication in the Official Journal of the European Union and national transposition. Implementation details, including transitional reliefs and scope limitations, may evolve through delegated acts and guidance.
While disclosure frameworks play a crucial role in supporting climate policy objectives and improving corporate transparency, sustainability regulation is not static. As governments refine their climate strategies and respond to economic and administrative considerations, regulatory frameworks continue to evolve. The European Union provides a clear example of this dynamic regulatory environment, as illustrated by the recent "Omnibus" simplification initiative.
