Adopted on 14 December, 2022, the CSRD replaced the Non-Financial Reporting Directive (NFRD) as part of the Green Deal’s Sustainable Finance Package. The Directive tasked the European Financial Reporting Advisory Group’s (EFRAG)  with the development of European Sustainability Reporting Standards (ESRS), which the Commission adopted as a delegated act in July 2023.

Together the CSRD and ESRS develop a public framework for sustainability reporting covering topics such as climate change, biodiversity and ecosystems, workforce, affected communities, and business conduct. The act follows the ‘double materiality’ principle, which requires companies to disclose the risks they face from climate change, but also the impacts of their activities on the environment and society. Among other things, companies will have to explain how their business models, investments, and transition plans align with international and European emissions reductions targets.

The CSRD has already entered into force for some of the larger companies in the EU on 1 January 2025. However,  a revision to the CSRD (Directive 2025/794) has postponed the implementation of the Directive for other companies, while the Omnibus I package – the Commission’s plan to reduce companies’ administrative burdens – has proposed a further reduction in scope and number of companies subject to the CSRD.

Carbon dioxide removal (CDR) is covered by the CSRD in its reporting requirements on the use of carbon credits, and companies’ emissions and carbon removals in their value chains.

Scope of application

On 1 January 2025, the CSRD entered into force for the largest companies with more than 500 employees and those already within the scope of the previous NFRD. Directive 2025/794 postponed the entry into force of reporting requirements to 1 January 2028 for companies with 251 – 500 employees and either more than EUR 40 million in turnover or more than EUR 20 million on their balance sheet. Listed SMEs, credit institutions and insurance companies have until 2029 to implement the CSRD, by which point they would be subject to adapted and simplified standards. Reporting requirements also enter into force in 2029 for third-country companies operating in the EU. As part of the Omnibus I package on regulatory simplification, the Commission’s proposal for Directive 2025/0045 aims to reduce the number of companies subject to sustainability reporting obligations by around 80%. According to this proposal, the CSRD would only apply to companies with more than 1000 employees and either a turnover of more than EUR 50 million or a balance sheet superior to EUR 25 million.

Climate Transition Plans and Targets

In accordance with the requirement on combating climate change in the Corporate Sustainability Due Diligence Directive (CSDDD), companies covered by the CSRD are required to disclose their transition plan for climate change mitigation, explaining how their strategy and business model are compatible with the transition to a sustainable economy, with limiting global warming to 1.5°C, and with achieving climate neutrality by 2050, as established in the European Climate Law. This disclosure requirement includes disclosing greenhouse gas (GHG) emissions reduction targets and how they align with the Paris Agreement’s 1.5°C goal. Companies are also required to explain the scope, methodologies and frameworks they apply and how they intend to neutralise residual GHG emissions. The ESRS acknowledge the possibility of sectoral variations in decarbonisation pathways.

Mitigation actions and the use of carbon credits

The ESRS mandate the disclosure of gross Scope 1, 2, and 3 GHG emissions, and total GHG emissions separately from the purchase and use of carbon credits. The standards also require companies to 1) separately report GHG removals from their own operations or value chain, 2) report on GHG removals financed through the purchase of carbon credits, and 3) report GHG emissions reductions financed through the purchase of carbon credits outside their value chains.

Furthermore, the ESRS require biogenic emissions to be reported separately. GHG removals within the value chain, as well as GHG removal credits, must also be differentiated by removal and storage type (biogenic, land-use change, technological, hybrid). These data points form a solid information basis that the proposed Green Claims Directive and civil society can draw on to police the net-zero and climate claims that rely on GHG removals.

Additionally, the ESRS’ definition of a ‘net zero target’ in Annexe II states that the neutralisation of residual emissions can only be done through GHG removals. Net zero claims are treated slightly differently. Any kind of carbon credit, whether generated by emissions reductions or emissions avoidance projects, can be claimed as compensation for a company’s GHG emissions. Nevertheless, the regulation of claims falls under the scope of the proposed Green Claims Directive more so than the CSRD, and the articulation of the two policies has been hindered by the slower pace of the legislative process for the proposed Green Claims Directive.

Room for improvement

Climate transition plans and targets: A key challenge in implementing such reporting requirements is the lack of officially recommended sectoral decarbonisation pathways in public policies and the absence of a clear, rigorous definition of residual emissions. The EU should therefore establish a transparent process for classifying emissions as residual or ‘hard-to-abate’ on a regular basis as technology evolves, costs reduce, and circumstances change to ensure carbon removals are only used where necessary and do not deter reduction efforts.

Links with other files: Unfortunately, the Carbon Removal and Carbon Farming (CRCF) Regulation is only explicitly integrated into the CSRD’s GHG removal reporting requirements if these removals occur within the operations of the reporting company. At a minimum, all GHG removals should align with the CRCF’s quality requirements. This alignment would ensure a level-playing field for standard developers, certifiers, suppliers and users of such credits and provide another use case for CRCF credits.

Climate mitigation and CDR investments and projects: The Corporate Sustainability Reporting Directive requires companies to explain and quantify their investments and resources for implementing their transition plans and key mitigation activities. Yet the CSRD could go beyond these disclosures and require companies to explicitly quantify the initial investment and operational costs of these CDR projects.