The CSRD Explained: What Businesses Need to Know About EU Sustainability Reporting

The Corporate Sustainability Reporting Directive (CSRD) is the EU's main sustainability reporting law. It only applies directly to the largest companies, but its reach is much wider than that, and most mid-market businesses will encounter it through their customers rather than as a legal duty of their own. Here's what the CSRD is, who it applies to after the rules were simplified in 2026, and why it matters even if your business is nowhere near the size threshold.

What is CSRD?

The CSRD requires large companies operating in the EU to report on their environmental, social, and governance (ESG) impact. It replaced an older, narrower law (the Non-Financial Reporting Directive) and forms part of the EU's European Green Deal.

Companies in scope report against a set of standards called the ESRS, which set out exactly what to disclose. A simplified version of the ESRS was adopted in July 2026 and applies from the 2027 financial year. Reporting follows the principle of "double materiality": companies report both on how sustainability issues affect their business, and on how their business affects people and the environment. For most, carbon emissions are central to both.

In early 2026, the EU simplified the CSRD through its Omnibus I Directive, which sharply raised the size thresholds and reduced how many companies are caught. When it proposed the changes, the Commission estimated they would save businesses around €4.4 billion a year in reporting costs. The rules below reflect those changes.

Who has to report under CSRD?

After the 2026 changes, the CSRD only applies to the largest organisations:

Large EU companies: more than 1,000 employees and annual turnover above €450 million. Both thresholds must be met.
Non-EU companies: more than €450 million in EU turnover for two consecutive years, plus an EU subsidiary or EU branch with turnover above €200 million.

Listed SMEs previously had to report under lighter rules, now removed from scope entirely. Smaller unlisted companies were never covered. In practice, this means the great majority of SMEs and mid-market businesses have no obligation to report under the CSRD. To put that in perspective, the original CSRD was expected to cover around 50,000 companies. The 2026 changes leave only the very largest businesses with a direct duty to report. That does not mean it won't reach you, as we explain below.

When does CSRD apply?

The CSRD is already in force, with the first companies (large public-interest entities with more than 500 employees) reporting since their 2024 financial year. Those below the new thresholds drop out of scope from the 2027 financial year, and EU countries can choose to exempt them for 2025 and 2026. After the 2026 simplification (and an earlier "stop-the-clock" delay), large companies newly brought into scope will report for the first time in 2028, covering their 2027 financial year. Qualifying non-EU companies follow in 2029.

What does CSRD require?

Reporting under the CSRD is more involved than publishing a single emissions figure, and it helps to understand what an in-scope company actually has to produce.

The starting point is a double materiality assessment. Before reporting anything, a company identifies which sustainability topics are "material" to it: the issues that affect its business financially, and the areas where it has the greatest impact on people and the environment. That assessment determines which parts of the standards it then reports against.

From there, companies report against the ESRS. These span environmental topics (climate change, pollution, water, biodiversity, and resource use), social topics (its own workforce, workers in its value chain, affected communities, and consumers), and governance (business conduct). A company reports in depth on the topics flagged as material, alongside a set of general disclosures, required of everyone, covering its strategy, governance, and how it manages these issues. In practice, climate is material for almost every business, so the climate standard applies to nearly all of them. The report is published within the company's annual management report and independently assured by a third party.

For carbon, the relevant standard is ESRS E1, on climate change. It is usually the most demanding section, and it requires:

Gross greenhouse gas emissions across Scope 1, Scope 2 (reported both by location and by market) and Scope 3, in tonnes of CO2 equivalent.
Energy consumption and the mix of energy used.
Its climate transition plan, if it has one, including whether it is compatible with limiting global warming to 1.5°C. If it doesn't have one, it must say so and whether it plans to adopt one.
Any emissions reduction targets it has set, and the physical and transition risks.

Scope 3 is the hardest part. Every category has to be assessed, the significant ones quantified, and any left out explained. For most companies it is also the largest share of the footprint by far. Emissions are reported gross, without netting off carbon credits or removals, and the figures have to be solid enough to pass independent assurance. That last point is exactly why the data your customers ask you for has to be reliable.

Why CSRD matters for SMEs and mid-market firms

Even if you never file a CSRD report, you are likely to feel its effects, and this is the part many businesses miss.

Every large company reporting under the CSRD has to account for its Scope 3 emissions, and those come largely from its suppliers. It can estimate them, but many will ask their suppliers for real data to make those figures more accurate. If you sell to a large EU company, or one that trades in the EU, expect to be asked for your emissions data, regardless of your own size.

The rules do protect smaller suppliers. From the 2027 financial year, if you have 1,000 or fewer employees, a large customer can't require more information for its CSRD reporting than a set list of datapoints from the EU's new Voluntary Standard, which is based on the Voluntary Sustainability Reporting Standard (VSME). For businesses with more than 10 employees, that covers your energy use and your Scope 1 and location-based Scope 2 emissions. Scope 3 sits above the cap: a customer can still ask for it, but must tell you that you have the right to decline.

Here's the opportunity in that. Because a large company's own report is independently assured, and the standards ask it to prioritise specific, verified data where it can, reliable supplier data is valuable. A supplier who can hand over a credible, well-measured footprint makes that company's job easier, and stands out against competitors who can't. Increasingly, strong carbon data isn't just a box to tick for procurement, it's a genuine selling point that helps win and keep larger clients.

Getting the data right

What makes this manageable, and what makes your data worth having, is its quality. Many businesses start by estimating emissions from how much they spend, applying an average figure to each spending category. It is a reasonable first step, but it reflects spending rather than real activity, and the number won't fall as you genuinely reduce emissions.

Activity-based data, drawn from real figures like energy use, mileage, and materials, gives a more accurate footprint and one that actually moves as you make changes. It is also far more credible to a customer whose own report depends on it. As reporting standards tighten and figures get independently checked, that accuracy is what separates data a large client can rely on from data they have to question. An accurate, full-scope footprint is the foundation everything else relies on.

The bottom line

Fewer companies now have to file a CSRD report, but through Scope 3 the law is pushing the demand for credible carbon data across entire supply chains, from large corporates down to the SMEs and mid-market firms that supply them. Whether the CSRD reaches you directly or through a customer, the answer is the same: an accurate carbon footprint you can measure, reduce, and report with confidence.

Seedling helps growing businesses do exactly that, with expert support at every step. If you'd like to get your carbon data in order, get in touch.

FAQs

What does CSRD stand for?

CSRD stands for the Corporate Sustainability Reporting Directive. Its full legal name is Directive (EU) 2022/2464.

Who has to comply with the CSRD?

Large EU companies with more than 1,000 employees and turnover above €450 million, and non-EU companies with more than €450 million in EU turnover and a qualifying EU subsidiary or branch. Listed SMEs were removed from scope in 2026.

Does the CSRD apply to UK businesses?

Not automatically. A UK group is caught at group level only if it makes more than €450 million in EU turnover for two years running and has an EU subsidiary or branch with turnover above €200 million. Separately, an EU subsidiary of a UK business can be in scope in its own right if it has more than 1,000 employees and turnover above €450 million. Most UK businesses will feel it indirectly, through carbon data requests from large EU customers.

Do SMEs have to report under the CSRD?

Not directly. However, SMEs supplying larger in-scope companies are likely to be asked for carbon data as part of those companies' Scope 3 reporting, though from 2027 what they can be required to provide is capped.

What is double materiality?

It is the idea that a company reports both on how sustainability issues affect its business, and on how its business affects people and the environment.

When does the CSRD come into effect?

It is already in force. The first companies reported on their 2024 financial year. Newly in-scope large companies start in 2028 (covering 2027), and qualifying non-EU companies in 2029.

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