Introduction

The European Union has developed one of the world’s most significant sustainability reporting frameworks through the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS).

For businesses operating in Europe, supplying European companies, raising finance from European institutions or maintaining European subsidiaries, understanding CSRD and ESRS has become increasingly important.

The framework is designed to improve the availability, comparability and reliability of sustainability information.

However, the EU sustainability reporting landscape has changed significantly during 2025 and 2026. The Omnibus I simplification package narrowed the scope of companies covered by CSRD, postponed certain reporting obligations and initiated a major simplification of the ESRS. The European Commission adopted revised ESRS on 3 July 2026.

Therefore, businesses should not rely on older descriptions of CSRD that reflect the original 2022 framework without considering the 2026 changes.

1. What Is CSRD?

CSRD stands for Corporate Sustainability Reporting Directive.

It is an EU directive that establishes sustainability reporting obligations for companies falling within its scope.

CSRD replaced and significantly expanded the earlier Non-Financial Reporting Directive (NFRD).

The objective is to make sustainability information more comparable with financial information and more useful to investors and other stakeholders.

2. What Is ESRS?

ESRS stands for European Sustainability Reporting Standards.

CSRD establishes the legal reporting requirement, while ESRS provide the detailed standards that explain what and how companies should report.

A simple way to remember the distinction is:

CSRD = legal reporting framework

ESRS = reporting standards

The ESRS cover environmental, social and governance matters, including climate change, biodiversity, human rights and workforce issues.

3. What Is the Difference Between CSRD and ESRS?

Therefore, a company does not choose between CSRD and ESRS.

If it is within the applicable CSRD scope, it reports using the applicable ESRS.

4. Why Was CSRD Introduced?

The EU introduced CSRD to address limitations in earlier sustainability reporting.

Historically, sustainability information could be:

• Inconsistent
• Difficult to compare
• Selective
• Based on different methodologies
• Poorly connected to financial reporting

CSRD seeks to improve:

• Transparency
• Comparability
• Reliability
• Accountability
• Investor decision-making
• Stakeholder understanding

5. What Makes CSRD Different from Traditional ESG Reporting?

Traditional ESG reporting was often voluntary.

Companies could decide:

• What to disclose
• Which framework to use
• Which KPIs to highlight
• How extensively to report

CSRD moves sustainability reporting closer to regulated corporate reporting for companies within its scope.

This means companies need:

• Defined reporting processes
• Data ownership
• Internal controls
• Documentation
• Governance
• Evidence
• Assurance readiness

6. What Is Double Materiality?

One of the most important concepts under the EU sustainability reporting framework is double materiality.

It has two dimensions.

Financial Materiality

A sustainability matter is material if it could reasonably be expected to influence the company’s financial position, performance, cash flows, access to finance or cost of capital.

Impact Materiality

A sustainability matter is material based on the company’s actual or potential impacts on:

• People
• Workers
• Communities
• Environment
• Natural resources
• Human rights

A topic can be material from either perspective or both.

7. How Is Double Materiality Different from ISSB?

The distinction is important.

ISSB is primarily focused on sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects and therefore provide information useful to investors.

ESRS uses the broader concept of double materiality.

Therefore, an issue can be reportable under ESRS because of the company’s significant impact on people or the environment even if the financial effect is not immediately material.

8. Who Develops ESRS?

The technical development of ESRS has involved EFRAG – European Financial Reporting Advisory Group.

EFRAG provides technical advice to the European Commission.

The European Commission then adopts the applicable standards through the EU legislative process.

The European Commission’s current CSRD page identifies EFRAG as the body responsible for developing draft standards.

9. What Happened to CSRD in 2025 and 2026?

The original CSRD framework underwent significant changes.

The EU’s Omnibus I simplification package sought to reduce reporting burdens and narrow the number of companies subject to CSRD.

A separate “stop-the-clock” measure postponed certain reporting obligations for companies that would otherwise have entered later reporting waves.

The EU subsequently adopted revised ESRS in July 2026.

10. What Changed in the Revised ESRS?

The European Commission adopted revised ESRS on 3 July 2026.

The Commission states that the revised standards:

• Reduce mandatory datapoints by more than 60%
• Reduce total datapoints by more than 70%
• Introduce greater flexibility
• Simplify reporting
• Make the standards shorter and clearer
• Are expected to reduce reporting costs by more than 30% per company

This is one of the most important developments for companies preparing for EU sustainability reporting.

11. Are the Revised ESRS Already Fully Applicable?

The Commission adopted the revised ESRS on 3 July 2026, but the delegated act must go through the applicable EU scrutiny process before the revised standards enter into force.

Therefore, businesses should distinguish between:

• Standards adopted by the Commission
• Standards formally in force
• National implementation
• Reporting requirements applicable to a particular reporting year

The Commission’s official timeline identifies the July 2026 adoption and subsequent scrutiny process.

12. Which Topics Do ESRS Cover?

The original ESRS structure included three major categories.

Environmental

• Climate change
• Pollution
• Water and marine resources
• Biodiversity and ecosystems
• Resource use and circular economy

Social

• Own workforce
• Workers in the value chain
• Affected communities
• Consumers and end-users

Governance

• Business conduct

The revised standards simplify and modify the reporting architecture, but environmental, social and governance considerations remain central to the framework.

13. What Is ESRS E1?

ESRS E1 – Climate Change is one of the most important environmental standards.

Climate-related reporting can cover:

• Climate mitigation
• Climate adaptation
• Energy
• Greenhouse gas emissions
• Climate targets
• Transition planning
• Climate-related risks
• Climate-related opportunities

For many companies, E1 will be one of the most data-intensive parts of sustainability reporting.

14. What Is Scope 1 Under ESRS?

Scope 1 represents direct greenhouse gas emissions from sources owned or controlled by the company.

Examples include:

• Company-owned vehicles
• Boilers
• Furnaces
• Manufacturing equipment
• Industrial processes

Companies need reliable activity data and appropriate emission factors to calculate these emissions.

15. What Is Scope 2?

Scope 2 represents indirect emissions associated with purchased or acquired energy.

Examples include:

• Purchased electricity
• Purchased steam
• Purchased heating
• Purchased cooling

Companies should maintain appropriate energy-consumption records and document their calculation methodology.

16. What Is Scope 3?

Scope 3 represents other indirect emissions occurring throughout the company’s value chain.

Examples include:

• Purchased goods
• Transportation
• Business travel
• Employee commuting
• Use of sold products
• End-of-life treatment
• Investments

Scope 3 can be particularly challenging because the company may not directly control the underlying data.

17. Why Is Value-Chain Data Important?

A company’s environmental and social impacts can extend beyond its own facilities.

For example, a manufacturer may depend on:

• Raw-material suppliers
• Logistics companies
• Contract manufacturers
• Distributors
• Customers

Therefore, ESG reporting increasingly requires companies to understand their value chains.

This has significant implications for Indian exporters and suppliers to European companies.

18. Can an Indian Company Be Affected by CSRD?

Yes, potentially.

An Indian company may be affected directly or indirectly depending on its European presence and the applicable EU requirements.

Possible exposure can arise through:

• EU subsidiaries
• EU operations
• Group structures
• Significant EU business activities
• Relationships with CSRD-reporting customers

The EU is also developing sustainability reporting standards for certain non-EU undertakings under Article 40a of the Accounting Directive. As of October 2026, a related ESRS 40-a exposure draft was under consultation.

19. What Is the Value-Chain Cap?

One important 2026 development is the value-chain cap.

The EU has developed a voluntary sustainability reporting standard for smaller companies outside the mandatory CSRD scope.

The purpose is to prevent large companies within CSRD from demanding excessive sustainability information from smaller value-chain partners.

The Commission states that companies subject to CSRD cannot require value-chain partners with up to 1,000 employees to provide information beyond what is covered by the voluntary standard.

This is particularly important for MSMEs.

20. What Is the Voluntary Standard for Smaller Companies?

The European Commission adopted a voluntary sustainability reporting standard designed for smaller companies outside the mandatory CSRD scope.

It provides a proportionate framework that can help smaller companies respond to sustainability information requests from:

• Large customers
• Banks
• Investors
• Business partners

It is especially relevant because many smaller businesses may face indirect ESG data requests even when they are not directly required to publish a CSRD report.

21. What Are the Benefits of the Voluntary SME Standard?

It can help smaller companies:

• Organise ESG information
• Respond to customer questionnaires
• Improve bank discussions
• Prepare for future regulation
• Improve supply-chain transparency
• Demonstrate sustainability performance

For an Indian MSME supplying an EU company, understanding this type of proportionate reporting can become commercially valuable.

22. What Is the Role of the EU Taxonomy?

The EU Taxonomy is different from CSRD and ESRS.

CSRD/ESRS focus on sustainability reporting.

The EU Taxonomy provides a classification system for identifying economic activities that meet defined environmental criteria.

The two frameworks are connected but should not be treated as identical.

A company may therefore have both:

• ESRS sustainability disclosures
• EU Taxonomy-related information

where applicable.

23. What Is the Relationship Between ESRS and EU Taxonomy?

The EU is working to improve connectivity between the two frameworks.

The European Commission’s Platform on Sustainable Finance has specifically highlighted the need for better integration and mapping between ESRS and EU Taxonomy information to reduce duplication.

This is important for finance professionals because the same underlying data may support multiple reporting requirements.

24. Does CSRD Require Assurance?

Yes, sustainability reporting under CSRD is subject to an assurance framework.

The EU’s simplification approach has retained the requirement at the limited assurance level rather than moving to reasonable assurance.

This makes internal controls and evidence particularly important.

25. What Is Limited Assurance?

Limited assurance provides a lower level of assurance than reasonable assurance.

It generally involves procedures designed to determine whether anything has come to the practitioner’s attention indicating that the information is materially misstated.

Companies should therefore not interpret limited assurance as a replacement for strong internal controls.

Good controls remain essential.

26. What Data Should Companies Prepare?

A CSRD-ready company should consider establishing data systems covering:

Environmental

• Energy
• GHG emissions
• Water
• Waste
• Pollution
• Biodiversity
• Resource consumption

Social

• Employees
• Working conditions
• Health and safety
• Diversity
• Human rights
• Value-chain workers
• Communities
• Consumers

Governance

• Business conduct
• Anti-corruption
• Anti-bribery
• Whistleblowing
• Governance structures
• Political engagement
• Supplier relationships

27. What Internal Controls Are Needed?

Companies should develop controls similar to financial reporting controls.

Examples include:

• Data ownership
• Approval procedures
• Source documentation
• Calculation checks
• Reconciliations
• Version control
• Methodology documentation
• Management review
• Audit trails

For example, electricity consumption reported in a sustainability report should be traceable to source invoices, meters or reliable systems.

28. What Is the Role of the CFO?

The CFO is increasingly becoming a central figure in sustainability reporting.

The CFO may oversee:

• ESG data governance
• Reporting controls
• Budget implications
• Climate-related investments
• Sustainability KPIs
• Assurance readiness
• Financial implications of ESG risks
• Coordination between finance and sustainability teams

CSRD therefore brings sustainability information much closer to mainstream corporate reporting.

29. What Is the Role of CA Professionals?

Chartered Accountants can contribute to:

• ESG reporting
• Assurance
• Internal controls
• Risk management
• Materiality assessments
• Disclosure review
• Governance
• Compliance
• Financial impact analysis

The ability to understand both financial and sustainability information is becoming increasingly valuable.

30. What Is the Role of CMA Professionals?

Cost and Management Accountants have a particularly strong opportunity in:

• Environmental cost accounting
• Carbon costing
• Energy-cost analysis
• Resource efficiency
• ESG budgeting
• Sustainability KPIs
• Internal carbon pricing
• Cost-benefit analysis
• Management dashboards

For management accountants, CSRD can transform ESG information into a strategic management tool rather than merely a compliance exercise.

31. How Should Companies Prepare for CSRD?

A practical preparation roadmap can be divided into eight steps.

Step 1 – Determine Applicability

Identify whether the company or group falls within the applicable CSRD scope.

Step 2 – Regulatory Mapping

Map applicable EU and national requirements.

Step 3 – Conduct a Double-Materiality Assessment

Identify material sustainability impacts, risks and opportunities.

Step 4 – Establish Data Ownership

Assign responsibility for each ESG metric.

Step 5 – Build ESG Controls

Create processes for collecting, validating and approving information.

Step 6 – Calculate Baseline Metrics

Establish reliable baseline information for major KPIs.

Step 7 – Prepare for Assurance

Maintain documentation and evidence supporting reported information.

Step 8 – Integrate ESG With Strategy

Use sustainability information for:

• Capital allocation
• Risk management
• Procurement
• Product strategy
• Business planning

32. What Mistakes Should Companies Avoid?

Mistake 1: Treating ESG as a Marketing Exercise

CSRD requires structured reporting, not simply sustainability promotion.

Mistake 2: Waiting Until Year-End

ESG data should be collected throughout the year.

Mistake 3: Ignoring Scope 3

Value-chain information can become one of the most challenging areas.

Mistake 4: Poor Documentation

Every significant number should have evidence.

Mistake 5: Ignoring Materiality

Companies should establish a documented materiality process.

Mistake 6: Treating Sustainability and Finance as Separate

Financial and sustainability information increasingly interact.

Mistake 7: Ignoring Suppliers

A company’s ESG performance can depend heavily on its supply chain.

33. How Can Indian Companies Prepare for European Customers?

Indian businesses supplying European customers can establish an EU ESG Readiness Programme.

It can include:

Environmental

• Scope 1 and 2 calculation
• Scope 3 data collection
• Energy efficiency
• Renewable energy
• Waste management
• Water management

Social

• Labour practices
• Health and safety
• Human rights
• Employee development
• Diversity

Governance

• Anti-bribery
• Ethics
• Whistleblowing
• Supplier policies
• Data governance

This can help Indian companies respond more efficiently to European customer questionnaires.

34. CSRD vs BRSR: What Is the Difference?

Companies operating in both markets should not assume that one report automatically satisfies every requirement.

35. What Does CSRD Mean for MSMEs?

Most MSMEs will not face the same direct reporting obligations as large companies.

However, they may experience indirect reporting pressure from:

• Large customers
• Banks
• Investors
• Procurement teams
• European buyers
• Multinational supply chains

The value-chain cap and voluntary SME standard are therefore important developments.

MSMEs should focus on collecting a manageable set of reliable ESG information rather than attempting to reproduce a large-company sustainability report.

36. What Should an ESG Data Room Contain?

A company preparing for CSRD can establish a digital ESG data room containing:

• Energy bills
• Fuel records
• Emission calculations
• Waste records
• Water data
• Employee information
• Safety statistics
• Supplier information
• Policies
• Board approvals
• ESG targets
• Methodologies
• Certifications
• Assurance evidence

This can substantially improve reporting efficiency.

37. What Technology Can Support CSRD Reporting?

Companies may use:

• ERP systems
• ESG software
• Carbon accounting platforms
• Data warehouses
• Supplier portals
• Business intelligence dashboards
• Automated data collection
• Document management systems

However, technology cannot compensate for poor data governance.

The fundamental principle remains:

Good data + good controls + good methodology = credible ESG reporting.

38. What Should Companies Do in 2026?

Companies should first establish their actual regulatory perimeter rather than assuming that older CSRD timelines remain unchanged.

Then they should:

1. Review the 2026 EU legislative developments.
2. Confirm whether they remain in scope.
3. Monitor national implementation.
4. Understand the revised ESRS.
5. Review their materiality assessment.
6. Identify data gaps.
7. Strengthen ESG controls.
8. Engage finance and sustainability teams.
9. Prepare suppliers.
10. Monitor assurance requirements.

The EU’s official CSRD timeline and legislative materials should be monitored because the framework is continuing to evolve.

39. CSRD and ESRS – Quick Reference

CSRD: Corporate Sustainability Reporting Directive

ESRS: European Sustainability Reporting Standards

EFRAG: European Financial Reporting Advisory Group

EU Taxonomy: Classification system for environmentally sustainable economic activities

Double Materiality: Financial materiality + impact materiality

Scope 1: Direct emissions

Scope 2: Purchased energy-related emissions

Scope 3: Other value-chain emissions

Limited Assurance: Lower level of assurance than reasonable assurance

Value-Chain Cap: Protection limiting information requests from smaller value-chain companies

40. Final Takeaways

CSRD and ESRS represent a major shift in the way sustainability information is treated in corporate reporting.

The most important lessons for businesses are:

1. CSRD is the legal framework.
2. ESRS provide the reporting standards.
3. Double materiality is central to the EU approach.
4. Climate reporting is a major component.
5. Scope 3 and value-chain information can be significant.
6. Assurance increases the importance of reliable data and controls.
7. MSMEs can face indirect ESG information demands.
8. Indian exporters may be affected through European customers and supply chains.
9. The 2026 EU reforms significantly simplify the reporting framework.
10. Companies should prepare based on the current legal position, not outdated CSRD timelines.

Conclusion

CSRD and ESRS are changing sustainability reporting from a largely voluntary communication exercise into a more structured component of corporate reporting for companies within scope.

At the same time, the EU’s 2025–2026 simplification reforms demonstrate that sustainability regulation is evolving. The revised ESRS adopted in July 2026 significantly reduce the reporting burden while retaining the objective of high-quality sustainability information.

For businesses, the right strategy is neither to over-report nor to wait for the final deadline.

The right strategy is to build a proportionate, reliable and well-controlled ESG information system.

For CFOs, Chartered Accountants and Cost and Management Accountants, this represents a significant professional opportunity.

ESG reporting is increasingly becoming part of:

Finance + Risk + Strategy + Governance + Corporate Reporting.

Businesses that build strong ESG data and controls today will be better prepared for the evolving European sustainability reporting environment tomorrow.

The Worldonomics Times – ESG Knowledge Series