Corporate Sustainability Reporting Directive (CSRD): Why Act Now?

If you’re running a business today, you’ve likely noticed that conversations around environmental responsibility are no longer confined to annual reports or industry events; they’re becoming part of daily operations. Sustainability has shifted from a buzzword to a critical business imperative. As environmental, social, and governance (ESG) expectations grow, companies across Europe are being called to demonstrate real accountability, not just in principle, but through clear, structured reporting. 

The Corporate Sustainability Reporting Directive (CSRD) is a major regulatory step in this direction, expanding the scope and depth of what organizations must disclose. It’s no longer a question of if companies will be held accountable, but how soon.

Let’s review CSRD reporting, how it impacts businesses, and the key benefits of integrating it into your D365 workflow with ExFlow Co2 Insights.

Key highlights:

• The Corporate Sustainability Reporting Directive (CSRD) introduces rigorous, standardized reporting requirements across the EU, prompting companies to embed ESG performance into core business operations and decision-making.
• Traditional ERP workflows often lack structured emissions data, audit trails, and value chain visibility, making it challenging to meet CSRD’s demands without integrated tools and automation.
• Integrating sustainability metrics into your ERP system creates a single source of truth, enabling real-time tracking, centralized data access, and alignment across finance and compliance teams.
• Purpose-built for Microsoft Dynamics 365, ExFlow Co2 Insights enables accurate emissions tracking, automated audit trails, and ESRS-aligned reporting, helping businesses meet CSRD requirements with greater speed, accuracy, and control.

What Is the Corporate Sustainability Reporting Directive?

The Corporate Sustainability Reporting Directive is a major European Union regulation that came into effect in January 2023, designed to standardize and strengthen sustainability reporting across the corporate sector. It replaces and expands the earlier Non-Financial Reporting Directive (NFRD) by requiring more companies to disclose detailed information about their ESG practices.

Under the CSRD, companies must report on a wide range of sustainability metrics, including climate change risks, carbon emissions, resource use, human rights, diversity, and corporate governance, using a unified set of standards known as the European Sustainability Reporting Standards (ESRS). These reports must be audited and digitally tagged to ensure transparency, consistency, and comparability across industries and borders.

Who Does the CSRD Apply To?

The directive applies in phases, beginning with large public-interest companies and eventually covering nearly 50,000 companies across the EU, including:

• Large companies (EU-based or with significant EU operations)
• Listed small and medium-sized enterprises (SMEs)
• Non-EU companies with a net turnover of over €150 million in the EU and at least one branch or subsidiary within the EU

CSRD vs NFRD: What Is the Difference?

The Corporate Sustainability Reporting Directive is a new EU regulation that requires companies to disclose detailed information about how their activities impact the ESG factors, and how these factors, in turn, affect their business. It aims to create a unified, transparent framework for reporting across all member states.

Replacing and expanding the previous NFRD, the CSRD significantly broadens the scope of companies required to report. It affects not just large listed companies, but also many medium-sized enterprises, listed SMEs, and non-EU companies with significant operations in the EU. 

The directive also introduces more stringent reporting standards, digital tagging, third-party assurance, and alignment with the ESRS. The CSRD will require almost 50,000 companies in the European Union to report on their environmental and social impacts, a significant jump from the roughly 11,000 organizations previously covered by the NFRD.

Here are  the key differences between NFRD and CSRD:

Aspect	NFRD	CSRD
Adoption Year	2014	2022
Effective From	2017	Phased in starting 2024, fully effective by 2028
Applies To	Approx. 11,700 large public-interest companies in the EU	Approx. 50,000 companies, including large, listed, and some SMEs
Reporting Standards	General guidelines without a unified standard	Mandatory use of ESRS
Assurance Requirement	Not required	Limited assurance by an independent auditor or certifier
Digital Format Requirement	Not required	Required – reports must be tagged in a machine-readable format (XHTML)
Scope of Disclosure	Basic ESG topics	Detailed ESG reporting, including impacts, risks, strategies, and metrics
Non-EU Company Applicability	No	Yes – applies if revenue in the EU exceeds €150 million

Types of Businesses Subject to the CSRD

The CSRD is being phased in gradually, but its scope is significantly broader than that of its predecessor, the NFRD. Businesses must assess whether they fall under one of the directive’s categories to avoid regulatory compliance risks and missed reporting deadlines. Below are the key groups of companies affected and essential details for each.

Large EU Companies

Large companies based in the EU will be among the first required to comply with the CSRD. These are businesses that exceed specific financial and workforce thresholds, regardless of whether they are listed on a stock exchange.

CSRD applies if two of the following criteria are met:

• The company has over 250 employees, 
• A company has over €40 million in net turnover, 
• Total company assets exceed €20 million 

These thresholds are assessed over two consecutive years, and meeting two out of the three will trigger mandatory reporting. If applicable, these companies must begin reporting on metrics for the 2025 financial year, with their first reports published in 2026. It’s critical to begin preparations now, as compliance requires data integration, cross-functional collaboration, and alignment with European Sustainability Reporting Standards.

Publicly Listed SMEs (Small and Medium-Sized Enterprises)

While CSRD reporting requirements initially focus on larger enterprises, publicly listed SMEs in the EU are also included. This marks a notable shift from previous regulations, extending responsibilities to a broader base of the business ecosystem.

All SMEs (excluding micro-enterprises) that are publicly traded on an EU-regulated exchange must begin reporting. These businesses typically have fewer resources than large enterprises, making it essential for them to adopt efficient, integrated solutions to manage this new regulatory burden.

Reporting for listed SMEs is scheduled to begin in 2026, covering the 2025 financial year. However, they may opt out until 2028; a built-in grace period designed to help smaller companies transition. Even so, preparing early can provide a competitive edge and build trust with stakeholders.

Non-EU Companies with Significant EU Activity

The CSRD impacts more than EU-based organizations. Non-EU companies with substantial economic activity within the European Union will also be required to comply, extending the directive’s influence globally.

Companies are required to report if they:

• Are a non-EU companies that generate more than €150 million in annual EU revenue 
• Operate a subsidiary or branch within the EU that meets specific size or activity requirements 

This threshold applies even if the parent company is headquartered outside the EU. These companies must publish reports that are compliant with CSRD and aligned with ESRS starting from 2028, for the 2027 financial year. Early compliance planning is strongly recommended, particularly for multinationals with complex operational structures and supply chains.

Companies Already Subject to the NFRD

The first wave of CSRD reporters are organizations already reporting under the Non-Financial Reporting Directive (NFRD). These entities are already familiar with non-financial disclosures but will need to meet stricter standards and expand the scope of their reporting.

Affected businesses include:

• Large listed companies
• Banks
• insurance firms
• public-interest entities operating within the EU

 Many of these organizations already report basic ESG metrics but must transition to the more detailed and standardized CSRD format. These businesses must begin reporting under the CSRD for the 2024 financial year, with reports due in 2025. This includes more rigorous assurance requirements, the use of digital tagging (XHTML/iXBRL), and the need to demonstrate double materiality, how sustainability impacts the business, and how the business impacts sustainability.

Why the CSRD Is Important for Businesses

Whether you’re already familiar with ESG frameworks or just beginning to explore reporting, CSRD represents more than a regulatory shift; it’s actually a strategic opportunity. The directive is designed not only to enforce transparency but to drive real accountability and alignment between financial performance and sustainability goals.

For forward-looking organizations, CSRD compliance isn’t just about avoiding penalties. It’s about building resilience, attracting investment, and earning stakeholder trust in a climate where transparency is increasingly expected, not requested. According to OECD, the total value of sustainable bonds issued by corporate and official sectors globally reached $2.3 trillion in 2023, reflecting a sharp increase in sustainable finance activity over recent years.

Growing Pressure from Stakeholders

Investors, customers, employees, and partners increasingly want to know how companies manage environmental and social risks. CSRD provides a framework to demonstrate accountability, strategy, and performance in these areas. Transparent reporting strengthens stakeholder relationships and meets the growing demand for responsible business practices in the value chain.

Reputational and Compliance Risks

Failing to meet CSRD standards could expose companies to legal scrutiny, investor hesitation, and public criticism. Companies without a credible strategy may find themselves left out of procurement pipelines, partnerships, or funding opportunities. In contrast, being proactive helps mitigate risk and positions your brand as trustworthy and compliant.

Competitive Advantage

Companies that act early gain a significant edge by embedding sustainability into operations before it becomes urgent or disruptive. Clear metrics can influence investor confidence, support better risk management, and uncover cost-saving opportunities through energy efficiency or emissions reduction. In the long term, compliance readiness becomes a differentiator, not a burden.

What Are the Penalties for Non-Compliance with CSRD?

While CSRD is intended to promote positive change, the consequences of non-compliance can be significant, particularly for organizations that delay preparation. These consequences aren’t just financial; they extend to business continuity, brand reputation, and future growth potential. 

According to Accountancy Europe, fewer than ten EU Member States had not yet completed the process of enacting CSRD into national law by early 2025, following infringement proceedings opened against 17 countries in September 2024 for missing the transposition deadline.

Potential penalties for non-compliance with CSRD include:

Fines and Legal Exposure

EU member states are responsible for enforcing CSRD requirements and may impose financial sanctions on companies that fail to comply. These penalties can be substantial and may include fines per reporting failure, missed deadlines, or inaccurate disclosures. In some cases, it may even impact public procurement eligibility or licensing.

Loss of Access to Capital and Contracts

More institutional investors and procurement departments are aligning decision-making with ESG benchmarks. Companies that don’t report under CSRD, or can’t provide precise, assured data, may struggle to access funding, loans, or large contracts, especially in industries with heavy environmental or social impact.

Damaged Reputation and Reduced Trust

Today’s consumers and stakeholders are quick to call out greenwashing or opacity. Non-compliance with CSRD may raise doubts about a company’s ethics, long-term viability, or willingness to evolve. Once trust is lost, it can be tricky (and expensive!) to rebuild, especially in competitive markets.

Core CSRD Reporting Requirements 

The Corporate Sustainability Reporting Directive sets a new benchmark for non-financial reporting across the EU. Unlike previous standards, the CSRD introduces clear, enforceable requirements that demand detailed, data-driven disclosures on performance. Below are the six core areas businesses must address to achieve compliance.

Double Materiality Assessment

Double materiality is a cornerstone of the CSRD framework. It requires companies to assess sustainability from both a financial and an impact perspective, reflecting a more complete picture of how environmental and social issues intersect with business performance.

The two types of materiality are:

• Financial Materiality: Companies must analyze how ESG risks and opportunities could affect their bottom line, shareholder value, or long-term viability. This includes scenarios like changing regulations, climate-related disruptions, or shifting consumer behavior, which could directly impact revenue, operations, or investment strategies.
• Impact Materiality: Businesses must also assess how their operations affect society and the environment, including areas like emissions, resource use, human rights, and labor practices. These impacts must be measured and disclosed, even if they don’t have a direct financial effect in the short term, reinforcing accountability and transparency.

Coverage of the Entire Value Chain

The CSRD requires organizations to report not only on their internal operations but also on the environmental and social impact of their entire value chain. This means evaluating:

• Upstream Coverage: Companies must gather data on their suppliers’ environmental and labor practices, emissions, and sourcing methods. This includes indirect emissions (Scope 3) and social risks such as human rights violations, requiring active supplier engagement and stronger due diligence processes.
• Downstream Coverage: Reporting must also include how products or services are used and disposed of, as well as the broader societal impact of business activities. Companies must evaluate post-sale responsibilities like recycling, waste, or digital product usage, emphasizing lifecycle thinking and sustainable design principles.
  

Integration Into the Annual Management Report

Sustainability disclosures are no longer optional appendices—they must be included directly in the annual management report, alongside financial results. This integration elevates ESG information to the same level of importance as traditional financial reporting.

Embedding metrics into the annual report ensures that investors, regulators, and stakeholders evaluate ESG performance as part of the company’s overall strategic outlook. It also forces internal alignment between financial and non-financial departments, promoting more cohesive risk management and long-term planning.

This shift encourages companies to treat sustainability as a core business concern rather than a parallel effort. It reinforces the link between profitability and responsibility, requiring board-level oversight and executive involvement in decision-making and performance tracking.

External Assurance

To ensure transparency and reliability, CSRD mandates independent third-party assurance of data. This represents a shift from self-reported claims to externally verified information, similar to financial auditing.

The first phase requires: 

• Limited assurance
• Confirming the plausibility of data
• Proper application of reporting analytics and standards. 

Over time, this will transition to reasonable assurance, demanding deeper scrutiny and verification of source data, processes, and controls. Companies must engage certified auditors to validate ESG disclosures and ensure alignment with the ESRS. Establishing a clear audit trail not only builds trust with stakeholders but also protects businesses from accusations of greenwashing or underreporting.

Digital Tagging of Sustainability Information

To make sustainability data more accessible and comparable, CSRD requires companies to tag their disclosures using machine-readable formats, such as XHTML and iXBRL. This allows integration into the European Single Access Point (ESAP), the EU’s public database for corporate information.

Digital tagging ensures that regulators, investors, and analysts can search, extract, and compare ESG data across industries and markets. This helps level the playing field and supports data-driven decision-making for funding, risk analysis, and supply chain engagement.

Companies must prepare their systems and reporting tools to generate properly structured data files. This could require software upgrades or new reporting capabilities, particularly for companies accustomed to manual or narrative-style reporting.

Comprehensive Environmental, Social, and Governance Topic Coverage

Under the CSRD, companies must address a wide range of environmental, social, and governance topics using a standard set of metrics defined by the ESRS. This ensures consistency and comparability across sectors and regions.

Environmental topics include: 

• Greenhouse gas emissions (Scope 1, 2, and 3)
• Water and energy use
• Waste 
• Pollution
• Biodiversity 
• Circular economy

Companies must demonstrate how they are reducing environmental harm and aligning with EU climate goals. Social disclosures must cover employee well-being, diversity and inclusion, human rights, labor conditions, community impact, and health and safety. This requires organizations to assess workforce risks and promote equitable practices both internally and across the value chain.

Governance reporting focuses on ethical business conduct, anti-corruption efforts, board composition, executive pay, lobbying activities, and stakeholder engagement. Companies must demonstrate accountability and integrity in leadership and decision-making processes, reinforcing trust across all levels of the organization.

Sustainability Compliance Reporting Gaps in ERP Workflows

Despite growing pressure to meet CSRD and ESG reporting standards, many organizations find their existing systems unequipped to support the structure and scope of disclosures. Below are some of the most common gaps that prevent smooth, compliant reporting within standard ERP environments.

Lack of Structured Emissions Data

Most ERP systems were built for financial transactions, not carbon tracking. As a result, emissions data is often stored in spreadsheets, external databases, or separate tools, making it difficult to validate, aggregate, or link to financial performance. Organizations struggle to meet CSRD’s double materiality and value chain coverage requirements without structured, traceable emissions data embedded in business workflows. 

This lack of integration delays reporting and reduces the accuracy and auditability of key environmental metrics.

Disconnected Financial and ESG Systems

Sustainability performance and financial performance are deeply interrelated, yet many companies still manage ESG data in siloed platforms that don’t communicate with their ERP. This disconnect prevents organizations from aligning emissions and resource consumption with actual costs or revenue streams. It also complicates the process of embedding data into annual management reports, as required by the CSRD. 

Companies face inconsistencies, duplicated efforts, and missed insights that hinder informed decision-making without a unified source of truth.

Manual Reporting Inefficiencies

Manual data entry, spreadsheet-based calculations, and disconnected approval chains remain common in ESG reporting. These practices are not only time-consuming but also introduce a higher risk of errors, version control issues, and audit gaps. As reporting expectations become more rigorous, these inefficiencies undermine both compliance and credibility. 

Companies without automation face constant backlogs when gathering and validating data, especially when aligning diverse datasets across finance, operations, and sustainability teams. This makes scaling or adapting to new reporting requirements increasingly difficult.

Limited Audit Trail for Compliance

CSRD reporting requires complete transparency and traceability, but traditional ESG reporting tools rarely offer robust audit trails. When data is scattered across teams, formats, and systems, it becomes challenging to document who submitted which figures, when they were updated, and how they were verified. 

This lack of accountability creates vulnerabilities during external assurance reviews and increases non-compliance risk. To meet the CSRD’s assurance requirements, companies need tools that can capture and preserve every step of the reporting process with precision.

Benefits of Embedding Corporate Sustainability Reporting into Existing Systems

As sustainability reporting requirements continue to evolve, organizations are rethinking how and where ESG data is captured, managed, and reported. Relying on spreadsheets or disconnected tools is no longer sufficient to meet current expectations for transparency, timeliness, and auditability.

By embedding sustainability reporting directly into your existing ERP system, you create a single source of truth that integrates financial and environmental performance data. This not only simplifies compliance, but also enables more strategic, data-driven decisions across the business. 

Here are the key advantages of taking an embedded approach to corporate sustainability reporting:

Centralized Data for Finance and Sustainability Teams

Embedding corporate sustainability reporting into your ERP system ensures that teams work from the same data foundation. This eliminates silos, supports more strategic decision-making, and enables unified reporting that reflects operational performance and environmental impact.

• Shared access to emissions, energy usage, and cost data allows teams to assess sustainability performance in the financial context.
• Reduces time spent reconciling data from multiple sources and systems.
• Enables cross-functional collaboration on ESG goals, forecasting, and compliance planning.
  

Real-time Tracking and Transparency

When reporting tools are embedded in your ERP, you can track metrics as they occur, not weeks or months later. This allows you to respond to risks faster, meet reporting deadlines with confidence, and provide stakeholders with timely updates.

• Live dashboards provide ongoing visibility into carbon footprint, resource use, and ESG KPIs.
• Reduces the reliance on static reports or outdated spreadsheets.
• Enables more agile planning and course correction throughout the year.
  

Lower Compliance Risk and Audit Readiness

Integrated reporting reduces the risk of compliance issues by creating a consistent, auditable data trail within your core systems. It ensures that your sustainability data is subject to the same governance, controls, and security measures as your financial data.

• Automated recordkeeping supports CSRD’s assurance requirements and simplifies external audits.
• Minimizes the risk of errors, omissions, or version control issues.
• Strengthens confidence in your disclosures, internally and externally, by aligning ESG data with verified ERP workflows.
  

CSRD Best Practices for Organizations 

For many companies, aligning with the CSRD is not just a compliance exercise; it is a significant transformation in collecting, managing, and reporting non-financial data. To meet these new standards effectively, businesses need more than a reporting template; they need a scalable strategy that aligns with operations, finance, and sustainability functions across the organization.

Adhering to CSRD best practice guidelines involves more than ticking regulatory boxes. It involves establishing internal processes that promote transparency, data accuracy, and accountability. From assessing double materiality to integrating ESG reporting within existing ERP systems, each step should be approached with the same rigor typically reserved for financial reporting. Below are six essential practices organizations should adopt to ensure they are ready for CSRD now and in the years ahead.

1. Start with a Clear Double Materiality Assessment

Understanding which sustainability topics are most relevant to your business and how your operations affect people and the planet is a required first step. A double materiality assessment helps prioritize which issues must be included in your disclosures.

• Identify both financial and non-financial stakeholders, such as regulators, investors, employees, and suppliers.
• Map key risks and opportunities across environmental, social, and governance areas from both financial and societal perspectives.
• Use the assessment results to guide topic selection, data collection priorities, and long-term ESG strategy.

2. Map and Assess Your Value Chain

The CSRD requires transparency beyond your internal operations. You must report on both upstream and downstream impacts across your entire value chain, making it essential to understand where data gaps or ESG risks might exist.

• Document your full supply and distribution network, from raw materials to end-of-life product impact.
• Evaluate ESG maturity and data availability for each supplier and partner, particularly those operating in high-risk sectors or regions.
• Identify areas where additional oversight, engagement, or collaboration may be required to meet reporting expectations.
  

3. Align with the European Sustainability Reporting Standards

The CSRD is tightly linked to the ESRS framework, which outlines specific disclosure requirements for environmental, social, and governance topics. Companies must report based on these standards, not general guidelines.

• Review the ESRS topic categories and sector-specific standards applicable to your organization.
• Cross-check your current ESG reporting efforts against these requirements to uncover any gaps or inconsistencies.
• Develop a plan to upgrade systems or processes where needed in order to capture the right metrics and data.

4. Integrate Reporting into Core Business Systems

Rather than managing data in spreadsheets or siloed platforms, organizations should embed reporting into their ERP environment. This allows sustainability and financial data to live side by side, improving traceability and reducing risk.

• Use integrated tools such as ExFlow Co2 Insights within Microsoft Dynamics 365 to capture emissions and ESG metrics alongside financial activity.
• Create shared access points for finance, sustainability, and compliance teams to collaborate and align on disclosures.
• Automate reporting workflows to reduce manual effort, ensure consistency, and support audit readiness.

5. Prepare for Third-Party Assurance

Under CSRD, disclosures are subject to external assurance, much like financial audits. Preparing for this step early helps ensure data integrity and builds trust with regulators and stakeholders.

• Establish internal controls to monitor ESG data accuracy, source tracking, and version control.
• Select an independent assurance provider with experience in sustainability audits and ESRS alignment.
• Maintain clear documentation at every stage of the reporting cycle, from initial data input to final publication.

6. Build a Cross-Functional Sustainability Team

Sustainability compliance is not a task for one department. It requires buy-in and coordination across multiple functions, from operations and procurement to finance and legal.

• Appoint representatives from key business areas and define roles and responsibilities clearly.
• Assign ownership of specific ESG metrics and align them with individual or departmental KPIs.
• Hold regular strategy and review sessions to track progress, address challenges, and adjust goals as reporting requirements evolve.

Integrate CSRD Reporting into D365 with ExFlow Co2 Insights

Meeting the demands of the CSRD doesn’t have to mean starting from scratch or adding disconnected tools. If you’re already using ExFlow to streamline your AP workflow, you’re in a strong position to extend that efficiency into sustainability reporting. 

ExFlow Co2 Insights is a purpose-built extension for Microsoft Dynamics 365 that helps businesses monitor and manage emissions and ESG data directly within their existing ERP environment. Designed to align with CSRD and the ESRS, ExFlow enables you to track carbon data across business processes and value chains, ensuring reporting accuracy, auditability, and operational efficiency.

 By working within the familiar Dynamics 365 interface, the solution supports cross-functional collaboration between all teams, eliminating any disconnect between compliance and core workflows.

Key features of ExFlow CO₂ Insights include:

• Real-Time Emissions Tracking: Capture and measure carbon emissions directly within D365 workflows using actual business activity data such as invoice lines, project activities, or resource consumption.
• Value Chain Transparency: Gain visibility into Scope 1, 2, and 3 emissions, with tools that help you collect, organize, and analyze supplier data and downstream impact.
• Integration with Finance and Procurement: Align sustainability metrics with financial data to improve decision-making, planning, and CSRD-aligned disclosures, without leaving the ERP environment.
• Automated Audit Trail and Data Assurance:  Maintain full traceability of data inputs, calculations, and changes to support CSRD’s assurance requirements and simplify the verification process.
• Pre-Configured Reporting Aligned with ESRS: Access standardized templates and dashboards that are mapped to CSRD criteria, ensuring your disclosures meet the regulatory format from day one.

Book a demo today to learn how ExFlow Co2 Insights can streamline your compliance with the corporate sustainability reporting directive and help you transform an obligation into a strategic advantage.