The History of CSRD: How Europe Built Its Sustainability Reporting
Introduction
Europe’s Corporate Sustainability Reporting Directive (CSRD) did not appear overnight. It is the result of nearly a decade of evolving EU policy — one that recognised the growing link between sustainability, financial stability, and corporate accountability.
For small and growing businesses (SMEs), understanding why CSRD exists is just as important as knowing what it requires. This story traces how Europe’s sustainability reporting revolution began, from early transparency laws to today’s ambitious European Green Deal.
1. From Non-Financial Reporting to Sustainability Disclosure
The roots of CSRD lie in the Non-Financial Reporting Directive (NFRD), adopted in 2014. The NFRD was Europe’s first attempt to make large companies report publicly on environmental, social, and governance (ESG) matters — such as emissions, workforce diversity, and anti-corruption policies.
However, the NFRD had two key weaknesses:
- It applied to only around 11,000 large EU companies.
- The information reported was inconsistent and hard to compare.
By 2020, investors, civil society, and even businesses themselves were calling for clearer, standardised, and more reliable data on sustainability. The European Commission concluded that voluntary reporting frameworks were not enough to meet the Union’s climate and social goals.
2. The Green Deal and the Shift to “Sustainability Information”
In December 2019, the European Green Deal set the stage for a radical shift in EU economic policy. It committed Europe to become the world’s first climate-neutral continent by 2050 — transforming the economy to decouple growth from resource use and ensure a “just transition” for all regions.
The Green Deal identified corporate transparency as essential to this transformation. As noted in the CSRD’s recitals, sustainability reporting was no longer “non-financial” — it had clear financial relevance for risk management, investment, and competitiveness.
CSRD therefore replaced the old term non-financial information with sustainability information — a symbolic change that reflected a deeper truth: sustainability had become a financial matter.
3. The Sustainable Finance Agenda and Double Materiality
The CSRD forms part of the EU’s Sustainable Finance Action Plan of 2018, which aimed to redirect capital flows toward sustainable investments. Alongside regulations such as the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), the CSRD ensures that investors receive reliable data to assess companies’ environmental and social impacts.
A key innovation introduced was the concept of double materiality — meaning companies must report:
- How sustainability issues affect their business (financial materiality); and
- How their operations affect people and the environment (impact materiality).
This dual perspective ensures that reporting serves both investors and wider society, strengthening accountability across value chains.
4. EFRAG and the Birth of the ESRS Standards
To make reporting consistent, the European Commission appointed EFRAG (European Financial Reporting Advisory Group) to develop detailed reporting standards — the European Sustainability Reporting Standards (ESRS).
EFRAG’s role, as defined in the CSRD, is to provide technical advice and ensure that the ESRS align with the EU’s Green Deal, the Sustainable Development Goals, and global frameworks such as the ISSB.
For smaller businesses, EFRAG also created the VSME Standard — a voluntary, simplified framework for non-listed SMEs that mirrors the structure of the ESRS while remaining proportionate.
Together, the ESRS and VSME aim to make sustainability reporting achievable for all companies in the EU’s value chain, not just listed ones.
5. A Directive for the Decade Ahead
Adopted in December 2022, the CSRD formally amended EU company law (Directive 2013/34/EU). It expands sustainability reporting obligations to nearly 50,000 companies across Europe — including large private firms and listed SMEs — while requiring limited assurance of the data.
The directive’s staged rollout from 2024 to 2028 ensures that smaller entities have time to prepare, with guidance and digital standards being introduced step by step.
By integrating environmental, social, and governance data into financial reporting, CSRD brings sustainability to the heart of corporate strategy. For SMEs, this means not only compliance but also greater trust and competitiveness in European supply chains.
Frequently Asked Questions
Why did the EU replace the NFRD with the CSRD?
The NFRD lacked consistency and left many companies outside its scope. The CSRD was designed to fix this by introducing detailed reporting standards (ESRS) and extending requirements to more companies, ensuring comparable, audited sustainability data across Europe.
Learn more about who must report under CSRD →
What does “double materiality” mean for SMEs?
It means companies should consider both how sustainability issues affect their business (financial risks and opportunities) and how their activities affect society and the environment. For SMEs, this encourages balanced decision-making and transparency in value chains.
Explore double materiality examples →
How does EFRAG influence CSRD implementation?
EFRAG develops the technical standards (ESRS and VSME) that define how to report under CSRD. It acts as the EU’s independent adviser, consulting widely with stakeholders to ensure standards are practical for companies of all sizes.
What are the main goals of the CSRD?
CSRD’s goals are to improve data reliability, support sustainable investment, prevent greenwashing, and help businesses transition to resilient, low-carbon models. It ties directly into the EU’s Green Deal and its 2050 climate neutrality objective.
Key Terms
- CSRD – Corporate Sustainability Reporting Directive (Directive 2022/2464/EU)
- NFRD – Non-Financial Reporting Directive (Directive 2014/95/EU)
- ESRS – European Sustainability Reporting Standards developed by EFRAG
- VSME – Voluntary Sustainability Reporting Standard for non-listed SMEs
- EFRAG – European Financial Reporting Advisory Group
- Double Materiality – Concept requiring companies to assess both financial and impact materiality
- Green Deal – The EU’s economic strategy for climate neutrality and sustainable growth
Conclusion
CSRD represents more than a new set of rules — it’s a cultural shift in how Europe defines corporate responsibility. By turning sustainability into a measurable, comparable part of financial reporting, the EU has set a new global benchmark.
For SMEs, this evolution is not a threat but an opportunity: to build credibility, access sustainable finance, and join a transparent European market built on trust and shared values.
With a clear understanding of where CSRD came from — and why — your business can prepare confidently for the years ahead.