As global sustainability becomes a central focus, the European Union's Corporate Sustainability Reporting Directive (CSRD) marks a transformative step in environmental and social accountability. Replacing the Non-Financial Reporting Directive (NFRD), the CSRD introduces mandatory and comprehensive ESG reporting requirements, compelling businesses worldwide—including those in Oman and the wider GCC with European operations—to reassess their sustainability strategies. Beyond compliance, aligning with the CSRD unlocks opportunities for attracting investment, fostering sustainable growth, and enhancing competitiveness in a globalized market.
Purpose of the CSRD
The CSRD is part of the European Commission’s Sustainable Finance Package and aims to improve transparency, consistency, and accountability in sustainability reporting. It mandates businesses, including certain EU subsidiaries of non-EU companies, to disclose detailed information on their environmental, social, and governance (ESG) actions and their implications on business operations.[1],[2] By broadening the scope of sustainability disclosures, the CSRD supports Europe’s 2050 climate-neutrality target and the European Green Deal initiatives, driving clean technological innovation, promoting energy-efficient infrastructure, and reducing climate risk.[1]
The harmonization of reporting standards is also expected to lower long-term reporting costs and foster consistency across industries, benefiting both companies and stakeholders.[3] Furthermore, by standardizing ESG reporting, the CSRD empowers investors with more comprehensive and comparable data, allowing them to better evaluate the financial risks and opportunities tied to climate change and other sustainability issues, fostering better-informed investment decisions.[1],[3]
Key Requirements of the CSRD
The CSRD imposes several critical requirements on companies:
1. Expanded Scope of Reporting
The CSRD significantly broadens the scope of reporting requirements, with reference to the whole value chain, impacting around 49,000 companies across Europe, including large enterprises and listed SMEs. The organizations that must comply with the CSRD include: (1) Listed companies on EU-regulated markets, except micro-undertakings that do not meet at least two of these criteria: EUR 450,000 in assets, EUR 900,000 in revenue, or 10 employees. (2) Large EU-based companies, listed or not, meeting two of the following: EUR 25 million in assets, EUR 50 million in revenue, or 250 employees. (3) Non-EU parent companies with over EUR 150 million in EU revenue and either a large EU subsidiary, a listed EU subsidiary, or an EU branch with EUR 40 million in turnover.[4]
Compliance with the CSRD will be phased in from 2024 through 2029. Companies already covered by the NFRD, including those listed on EU-regulated markets with 500 or more employees, will need to start reporting from the 2024 financial year, with their first reports due in 2025. Large undertakings not previously mandated by the NFRD will follow, starting in 2025, with their first reports due in 2026. Listed SMEs will begin compliance in 2026, reporting in 2027, and certain third-country undertakings must comply starting in 2028, with reports due in 2029.[1]
2. Double Materiality
The CSRD introduces the concept of double materiality, requiring companies to assess and report on two dimensions of materiality: impact materiality and financial materiality. Impact materiality concerns how a company’s business activities affect environmental and social matters, such as carbon emissions, workforce diversity, and human rights. Financial materiality, on the other hand, deals with how these sustainability matters impact the company’s financial health, including cash flows, risks, and access to funding.[1],[5]
A critical aspect of implementing double materiality is engaging with stakeholders to identify and prioritize these material issues effectively. Companies gather insights from internal and external stakeholders through consultations, surveys, and dialogue to ensure the assessment aligns with both organizational objectives and broader societal expectations.[6],[7]
3. Comprehensive ESG Reporting
Companies are required to report sustainability-related information using the European Sustainability Reporting Standards (ESRS). These standards encompass a wide range of environmental, social, and governance (ESG) topics, with ESRS E1 specifically addressing climate change. ESRS E1 mandates comprehensive disclosures to ensure transparency in how companies manage their impacts, risks, and opportunities related to climate change, emphasizing alignment with global climate goals like the Paris Agreement.[1],[8]
GHG-related disclosure requirements under ESRS E1 include reporting Scope 1, 2, and 3 emissions (E1-6). Companies must disclose transition plans for climate change mitigation, including targets and decarbonization strategies aligned with limiting global warming to 1.5°C (E1-1). Additional requirements include detailing GHG reduction targets in absolute and intensity terms, along with baseline and progress updates (E1-4), reporting energy consumption and mix (E1-5), and disclosing investments in GHG removals (both inside and outside their value chain) or carbon credits (E1-7).[9] These requirements are designed to help stakeholders assess a company's decarbonization progress and climate-related risks.[9]
CSRD and its Relevance to the GCC and Beyond
While the CSRD is an EU regulation, its impact extends globally, especially for companies with subsidiaries or operations in the EU. Any company with a subsidiary in the EU that meets the size or revenue thresholds must comply with its requirements.
A critical element of the CSRD is the mandatory disclosure of Scope 1, 2, and 3 emissions (E1-6). Scope 3 emissions, which encompass a company’s value chain and supply chain activities, are particularly impactful because they often involve entities outside the EU. For instance, if an EU company sources products or services from a GCC-based company, the emissions from that supply chain company are included in the EU company’s Scope 3 reporting.
This means that companies outside the EU, which may not be directly bound by the CSRD, will now need to track, measure, and disclose their GHG emissions to meet the reporting requirements of their EU-based clients. This creates a ripple effect across global supply chains, particularly in regions like the GCC, where companies have so far not been required to report their emissions but are now indirectly part of the EU companies’ compliance processes.
The impact of this regulation could influence business operations and decision-making, as companies in the EU will increasingly prioritize suppliers who demonstrate strong environmental practices. In this way, the CSRD's requirements help level the playing field by integrating global supply chains into the climate reporting framework, pushing companies worldwide towards more sustainable operations
By aligning their sustainability strategies with the CSRD, GCC companies can enhance their reputation, attract foreign investment, and contribute to the global transition to a low-carbon economy.
Navigating CSRD Compliance with Three Pillars Consulting
Complying with the CSRD and its detailed disclosure requirements, particularly under ESRS E1 for climate-related reporting, presents a significant challenge for businesses within and outside the EU.
TPC's expertise in GHG Assessments and Carbon Management positions us as a valuable partner for businesses aiming to meet CSRD requirements by helping them navigate ESRS E1’s specific requirements, such as disclosing comprehensive GHG inventories, setting Paris-aligned reduction targets, and reporting on decarbonization initiatives. Our team of in-house experts and international partners excel in developing robust sustainability strategies that align with global standards, including the ESRS required by the CSRD. We support our service lines with innovative solutions like our ClimateTab Carbon Accounting software, which enhances the accuracy and efficiency of GHG reporting.
Connect with us today to schedule a consultation and learn more about how we can support your company’s carbon management and sustainability efforts.
