CSRD Compliance: What Accountants and Finance Professionals Need to Know (2026)

What is CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation that fundamentally changes how large companies report on their environmental, social, and governance (ESG) performance. It replaces the earlier Non-Financial Reporting Directive (NFRD) and dramatically expands both the scope of who must report and the depth of what they must disclose.

For accountants and finance professionals — whether you work in a company that is in scope, advise companies that are, or audit sustainability reports — CSRD is one of the most significant regulatory developments of the decade.

Why Does CSRD Matter for Finance Professionals?

Under the old NFRD, only around 11,000 large public-interest entities in the EU were required to report on non-financial matters, and requirements were relatively vague. CSRD expands this to an estimated 50,000+ companies, with detailed, standardised disclosure requirements under the European Sustainability Reporting Standards (ESRS).

For finance teams, CSRD means sustainability is no longer a communications exercise — it becomes a compliance and financial reporting function, with the same rigour applied to ESG data as to financial data. The finance function now owns a significant portion of CSRD implementation.

Who Must Comply with CSRD?

CSRD applies in phases based on company size and type:

Phase 1 — Financial year 2024 (reporting in 2025)

Large public-interest entities already in scope of NFRD: listed companies, banks, and insurance companies with more than 500 employees.

Phase 2 — Financial year 2025 (reporting in 2026)

Other large companies meeting at least two of the three following criteria: more than 250 employees; net turnover exceeding €40 million; total assets exceeding €20 million.

Phase 3 — Financial year 2026 (reporting in 2027)

Listed SMEs, small and non-complex credit institutions, and captive insurance undertakings. Listed SMEs have the option to opt out until 2028.

Non-EU companies

Non-EU companies with significant EU operations — net turnover over €150 million in the EU and at least one large subsidiary or listed branch in the EU — fall into scope from the 2028 financial year.

What Must Be Disclosed?

CSRD requires disclosure under the European Sustainability Reporting Standards (ESRS), developed by EFRAG (European Financial Reporting Advisory Group). The standards cover cross-cutting requirements applicable to all companies (ESRS 1 and ESRS 2), environmental topics across five standards (climate change, pollution, water, biodiversity, resource use), social topics across four standards (own workforce, value chain workers, affected communities, consumers), and governance through one standard (business conduct).

Not every standard applies to every company. Applicability is determined through a double materiality assessment — a cornerstone concept of CSRD.

Double Materiality: The Central CSRD Concept

Double materiality is one of the most important — and most misunderstood — aspects of CSRD. Traditional financial materiality asks: "Does this information affect investors' financial decisions?" Double materiality asks two questions:

1. Impact materiality — Does the company significantly affect people or the environment, positively or negatively?
2. Financial materiality — Do sustainability factors create significant financial risks or opportunities for the company?

If a topic is material under either lens, it must be disclosed. A company with a large environmental footprint must report on it even if that footprint doesn't (yet) create financial risk. Conversely, a company exposed to significant climate transition risk must report on it even if its own emissions are modest.

Conducting a robust double materiality assessment is one of the first tasks for any finance team beginning CSRD preparation, and it requires close collaboration between finance, sustainability, legal, and operations functions.

The Role of Finance Teams in CSRD Compliance

CSRD squarely falls within the finance team's domain for several reasons. Sustainability data must be collected, validated, and reported with the same rigour as financial data — and finance already has the governance infrastructure for this. CSRD also requires limited assurance on sustainability reports from an independent auditor, bringing the familiar audit framework into sustainability reporting. Furthermore, CSRD information must be published as part of the management report in the annual financial report — a document finance owns.

Finance professionals also typically manage the procurement and supplier data that underpins Scope 3 emissions reporting and social standards in the value chain — making them central to the most complex data-gathering challenges in CSRD.

CSRD and the UK

The UK is not directly subject to CSRD as a matter of domestic law following Brexit. However, UK-based companies with significant EU operations may be in scope if they meet the non-EU company threshold.

The UK has introduced its own parallel framework: the UK Sustainability Disclosure Standards (UK SDS), based on the IFRS Sustainability Disclosure Standards (IFRS S1 and S2), are expected to be mandated for listed companies and large public interest entities. Finance professionals in the UK need to track both frameworks, particularly if they advise or work for businesses with EU operations.

What Finance Teams Should Be Doing Now

If your organisation is in Phase 2 (reporting for the 2025 financial year in 2026), preparation should already be well underway. Key steps are:

1. Conduct a double materiality assessment — Identify which ESRS topics are material to your business and which standards apply.
2. Assess data gaps — Map the data you need (emissions, energy use, workforce metrics, supply chain social data) against what you currently collect. Gaps are common and take time to close.
3. Build data collection processes — Implement controls to collect, validate, and store sustainability data to audit-ready standards.
4. Engage your assurance provider early — Your auditor will provide limited assurance on the sustainability report. Early conversations will shape your approach significantly.
5. Train your team — Finance professionals need working knowledge of CSRD and ESRS concepts. CPD training in sustainability reporting is increasingly a core requirement for finance teams in larger organisations.

Frequently Asked Questions

What is the difference between CSRD and ESG reporting?

ESG reporting is a broad term covering any disclosure about a company's sustainability performance. CSRD is a specific EU legal framework that mandates ESG reporting to a defined standard (ESRS) for in-scope companies. Think of CSRD as the regulatory structure that makes ESG reporting compulsory and standardised.

Does CSRD apply to UK companies?

UK companies are not directly subject to CSRD unless they have significant EU operations (net EU turnover above €150 million and at least one large EU subsidiary or listed branch). However, the UK has its own parallel sustainability reporting framework (UK SDS/IFRS S1 and S2) coming into force for listed companies.

What is the ESRS?

The European Sustainability Reporting Standards (ESRS) are the reporting standards specifying what companies must disclose under CSRD. Developed by EFRAG and adopted by the European Commission in July 2023, they cover environmental, social, and governance topics across 12 sector-agnostic standards, plus sector-specific standards under development.

When do Phase 2 companies need to start reporting?

Phase 2 companies must report for financial years starting on or after 1 January 2025 — meaning the first reports will be published in 2026. Preparation should have started in 2024 at the latest; companies beginning in 2025 are already behind schedule.

Is CSRD sustainability reporting subject to audit?

Yes. CSRD requires limited assurance on sustainability reports from an independent auditor. The European Commission may subsequently mandate reasonable assurance — a higher standard comparable to a financial audit — as the market matures. This means sustainability data must meet audit-ready standards, with proper controls, documentation, and evidence trails.