With more reported data flowing into the market, financial institutions need to develop mechanisms for ingesting and processing the data
Ethical and responsible corporate practices are increasingly commonplace. This trend is driven by both a growing societal expectation for companies to operate sustainably and pressure from regulators asking companies to be more transparent with their non-financial information.
The European Union’s Corporate Sustainability Reporting Directive (CSRD) is an example of such regulation, aiming to standardize sustainability reporting across companies and enhance transparency and accountability. Over the coming years, more companies will be subject to CSRD, which means that an increasing number of organizations will be required to report on their sustainability performance.
This expansion will also have implications for asset managers, banks, and insurance companies based in the EU. They will now have a larger wealth of information for both sustainability reporting and investment and lending decision-making. In this article, we explore the size of the upcoming waves of CSRD implementation, based on the number of companies affected and their turnover.
From NFRD to CSRD: A Broadened Scope for Sustainability Reporting in the EU
The CSRD’s predecessor, the Non-Financial Reporting Directive (NFRD), applied to large Public-Interest Entities (PIEs) as defined by Member States during the implementation of the EU Accounting Directive, provided these companies met certain EU-defined thresholds.
On January 1, 2024, the NFRD regulation officially transitioned to the Corporate Sustainability Reporting Directive, initially only applying to companies already subject to the NFRD (first reports are due in 2025). In the coming years, however, the CSRD will expand to include additional entities (see chart 1):
- Starting January 1, 2026 (reporting on FY 2025): The CSRD will extend its scope to include all ‘large’ companies, beyond the previously targeted Public Interest Entities (PIEs). A ‘large’ company under the CSRD is defined as one that meets at least two of the conditions¹:
- Over 250 employees;
- More than €25 million in balance sheet total;
- More than €50 million in net turnover;
- From January 1, 2027 (reporting on FY 2026): Listed Small and Medium Enterprises (SMEs) will be obligated to begin their CSRD reporting. These companies will be granted a reporting exemption period of two years.
- From January 1, 2029 (reporting on FY 2028): The mandate will further expand to include non-EU companies that do substantial business (more than €150M in net turnover) within the EU.
Chart 1: Timeline of CSRD implementation and reporting periods²
Measuring the Different Stages of CSRD Implementation
As part of its cost-benefit analysis for CSRD implementation, and to better guide investors and other stakeholders, the EU Commission³ provided an estimation of the number of companies affected by the regulation in each wave (chart 2) and their net turnover (chart 3). The first wave represents firms with a total net turnover of €13.3 trillion, corresponding to companies already in the scope of NFRD.
Chart 2: Estimated size of CSRD waves (Number of companies subject to reporting). Source: Impact Assessment conducted by the EU Commission on Corporate Sustainability Reporting.
Note: This chart includes all NFRD companies in the first wave of reporting on CSRD which was greatly expanded by national transpositions. In the Commission’s impact assessment, they estimate the number of companies captured by the EU directive as 2000, with a further 9,500 captured by transpositions.4
The relevant increase in the number of CSRD companies seen in 2026 can be attributed to the inclusion of a group of firms characterized by lower average turnover, specifically large companies with more than 250 employees but less than 500. The last wave of the regulation highlights a substantial leap in net turnover, despite the relatively low number of new companies affected, due to the inclusion of non-EU firms. This last wave indeed includes large foreign multinational groups with EU subsidiaries.
The cumulative effect of these expansions brings the total number of companies affected by CSRD to almost 50,000 (more than €22 trillion in net turnover).
Chart 3: Estimated size of CSRD waves (Net Turnover in €T). Source: Impact Assessment conducted by the EU Commission on Corporate Sustainability Reporting
Opportunities and Challenges for the Financial Sector in Sustainable Data Integration
The CSRD unlocks access to a more transparent and larger dataset to financial market participants, allowing for better decisions around investment or lending. To make the most of this data, however, financial institutions will have to understand which companies are in scope and develop mechanisms for ingesting and processing the data.
For instance, knowing that a set of foreign enterprises will be subject to CSRD mandates in the future could help investors better plan their sustainable portfolio strategy around those companies, by for instance understanding which companies will be likely to develop transition plans under CSRD.
Clarity AI has already started analyzing and identifying organizations that will fall within the scope of upcoming CSRD phases. This will enable us to expand on our data collection in the coming years continually and, in turn, better provide our clients with the insights needed to navigate the evolving sustainability landscape.
This article was originally published on March 8, 2024, and updated on September 25th, 2024.
¹ The original thresholds were amended by the EU Commission through a delegated directive that entered into force in December 2023
² The timeline presents a simplified overview of key events and developments. It omits mentioning relief provisions and transition periods put in place by the EU Commission for specific groups of companies
³ The Impact Assessment conducted by the EU Commission is available here. This analysis is based on the original thresholds of the Regulation (prior to the delegated directive enforced in December 2023)
4 See page 216 of EU Commission Impact Assessment. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021SC0150
