An analysis of the Corporate Sustainability Reporting Directive (CSRD), which replaces the Non-Financial Reporting Directive (NFRD), and its impact on corporate ESG reporting obligations.

Introduction

In November 2022, the European Union adopted the Corporate Sustainability Reporting Directive (CSRD), replacing the previous Non-Financial Reporting Directive (NFRD). The new directive aims to expand and clarify sustainability reporting requirements, particularly in the area of ESG—Environmental, Social, and Governance. CSRD introduces new obligations for companies regarding ESG disclosures and affects the role of auditors, who will be responsible for verifying these reports.

Key Changes Introduced by CSRD

Broader Scope of Application CSRD applies to a significantly larger number of entities than NFRD. The reporting obligation now covers all large companies—both listed and unlisted—as well as small and medium-sized enterprises (SMEs) listed on stock exchanges.

A notable change is the requirement for companies to disclose their entire value chain, including business partners such as suppliers and subcontractors. For large-scale enterprises operating internationally, it may be more beneficial to collaborate with entities that voluntarily comply with CSRD guidelines and maintain ESG-related data.

Reporting Timeline

  • Companies currently reporting under NFRD must submit a CSRD-compliant report for 2024 (covering 2023) in 2025.
  • Large companies not previously subject to NFRD, employing over 250 people, generating over €40 million in turnover, or holding €20 million in assets, must report for 2025 (covering 2024) in 2026.
  • SMEs with more than 10 employees will be required to report for 2026 in 2027.
  • From 2029, non-EU companies generating over €150 million in turnover and operating at least one subsidiary or branch within the EU will also be subject to CSRD reporting for 2028.

Detailed Reporting Requirements CSRD introduces more granular reporting standards, to be developed by the European Financial Reporting Advisory Group (EFRAG). Reports must include detailed information on ESG strategies, objectives, risks, policies, and performance.

Double Materiality Principle CSRD introduces the concept of “double materiality,” requiring companies to report both:

  • the impact of their activities on ESG issues (“impact materiality”), and
  • the impact of ESG issues on their financial performance (“financial materiality”).

This means companies must consider not only the external effects of their operations but also how climate change, human rights, and social factors affect their business.

Digital Reporting Format CSRD mandates digital reporting using the European Single Electronic Format (ESEF), designed to improve data accessibility and comparability.

Impact on Companies

Legal Sanctions Companies will incur significant costs to comply with the new reporting requirements. These include implementing ESG data collection systems and hiring sustainability experts and auditors. Firms that fail to meet CSRD standards or submit inaccurate reports may face legal consequences.

Under current Polish legislation, there are no specific penalties for failing to meet ESG reporting obligations. However, the matter falls under the Accounting Act, which in Article 79 provides for fines ranging from PLN 100 to PLN 1,080,000 or imprisonment from one month to 15 years under the Penal Code.

Increased Management Complexity Integrating ESG into daily business operations will require staff training, internal process adjustments, and strategic alignment. For companies unfamiliar with sustainability management, this may be particularly challenging, requiring a shift in mindset, organizational culture, and adoption of new practices and standards.

Challenges for Auditors

Alongside ESG reporting obligations, CSRD introduces a new requirement for assurance—external verification of ESG disclosures.

Assurance under CSRD Assurance refers to the process of verifying and confirming the accuracy and compliance of ESG reports by an independent external entity. Its purpose is to ensure that companies present their environmental, social, and governance data reliably and in accordance with applicable standards.

This service differs significantly from financial auditing and requires specialized training and qualifications. Currently, there are few established audit standards for ESG reports. Auditors will need to rely on new EU guidelines, which may initially pose challenges in interpretation and application.

This has sparked controversy, as the draft legislation presented by the Ministry of Finance stipulates that the company’s management board would be responsible for contracting ESG assurance services exclusively with the audit firm selected by the supervisory board to conduct the financial audit.

Summary

The CSRD Directive presents a major challenge for many EU companies. The new ESG reporting requirements offer an opportunity to improve environmental, social, and governance practices, but also pose challenges related to cost, risk management, and operational adaptation. Both companies and auditors must prepare for new responsibilities and potential risks to ensure successful implementation of CSRD.

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