A new chapter begins
Making sense of the Corporate Sustainability Reporting Directive
With sustainability appearing to shift from ambition to measurable progress, there are increasing standards being implemented with respect to sustainability reporting.
The directive is comprised of three building blocks:
A fundamental part of this reporting structure is the principle of double materiality. Businesses must assess how their operations impact both the environment and society, in addition to how sustainability issues could affect their own financial performance. This dual perspective encourages businesses to prioritize the sustainability issues that are most relevant to their operations and stakeholders.
Executing a double materiality assessment requires significant coordination both internally and externally. When done effectively, we believe it does more than just support CSRD compliance, it may help businesses identify risks earlier, respond to stakeholder expectations, and discover areas for potential innovation.
Another component of the CSRD, third party assurance, aims to provide stakeholders with confidence in the accuracy of sustainability reporting. This can be broken down into the following sub-sections:
- Scope: This assesses whether the methodologies a business uses are consistent, appropriately applied, free from errors, and aligned with relevant frameworks.
- Standards: The assurance process evaluates this scope with established standards such as those set by the International Auditing and Assurance Standards Board (IAASB) and the International Organization for Standardization (ISO).
- Timing: The timeline set for establishing a comprehensive assurance process is currently a phased approach.
Assurance currently falls under two types – limited & reasonable. Limited assurance typically provides a moderate level of assurance to stakeholders while reasonable assurance is typically a higher level requiring a thorough examination of the sustainability information and is often preferred for critical sustainability metrics (such as greenhouse gas emissions emissions).
Promoting Sustainable Growth, Not Just Compliance
While the CSRD marks a major step forward for sustainability reporting, the surrounding policy landscape is also continuing to shift. Over the past year, regulatory bodies have recognized the scale of the challenge for businesses, particularly smaller firms or those with less established reporting infrastructure and have responded with measures aimed at streamlining implementation of the CSRD.
In February 2025, the European Commission published an “Omnibus” package, designed to greatly simplify the CSRD framework. Following this, the European Parliament approved the ‘Stop-the-Clock’ proposal in April, implementing a two-year delay for certain businesses to begin the implementation process. These initiatives, in our view, reflect a broader shift towards greater realism within sustainability regulation, arguably making it more achievable for businesses to comply, without seeking to compromise the quality or impact of information disclosed. In addition to this two-year delay, businesses may potentially see greater flexibility surrounding global greenhouse gas reporting boundaries, a 50% reduction in mandatory data points, simplified requirements for setting policies, actions and targets, and adjustments to how non-E.U. businesses are brought into scope.
While these changes may ease short-term compliance pressures, they do not alter the broader trajectory. The European Commission remains committed to raising the standard for sustainability disclosure, requiring companies to provide transparent, data-led insights.
For companies looking to stay ahead of the curve, key areas of focus may include:
- Conducting a comprehensive double materiality assessment
- Identifying and seeking to align business practices and reporting capabilities with applicable components of the ESRS
- Monitoring ongoing regulatory developments at both E.U. as well as local levels
- Evaluating whether current consultants, data systems, and assurance partners are fit for purpose
The CSRD may feel complex, but it’s an opportunity for businesses to seek to strengthen how they communicate their impact and future plans. With the right approach, firms can leverage compliance to help promote greater transparency and, more importantly, more sustainable growth.
Sustainability
Principal and Sustainability Architect, Mercer