Sustainability & Legislation Series - Chapter 4: The EU’s Shifting Sustainability Framework

Welcome to chapter 4 of our ‘Sustainability & Legislation’ series. I am Jesper Risa, Data Analyst at Humans Not Robots. In this chapter, I will examine the continually evolving position of the European Union on the complex issue of sustainability legislation, tracing how its policies have developed over time.

While the NFRD and the EU Green Deal were both forward-thinking pieces of legislation made to ensure compliance with the target of reaching net-zero across the union by 2050, there has been some backlash (or ‘greenlash’). This is coupled with a push to “simplify” EU rules in an attempt to encourage greater competition in the international market. This has led to the creation of the ‘EU Omnibus’, championed by the centre-right parliamentary group, the EPP (European People’s Party).

As of the time of writing (November 2025), the European position is unclear and ever-changing. The Omnibus is being slowly phased in (though with revisions), but the CSRD still remains transcribed into law across many European countries.

Non-Financial Reporting Directive (NFRD)

The NFRD was adopted in 2014 to ensure greater business transparency and accountability regarding environmental issues. It mandates that companies covered by the directive must publish an annual, non-financial report outlining their ESG performance.

The directive covers undertakings which meet at least two of the following three criteria (or are considered public interest entities):

• More than 500 employees
• €20 million balance sheet total
• €40 million net turnover

This was expected to cover just over 11,000 undertakings. Under the NFRD, these businesses were obligated to report on topics including:

• Environmental matters
• Social responsibility and employee matters
• Diversity
• Human rights
• Anti-bribery and corruption

It was later replaced by the CSRD, which aimed to expand both the scope and scale of sustainability reporting.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD was implemented as part of the European Green Deal in 2022, followed by the new ‘European Sustainability Reporting Standards’ in 2024. These were both designed to propel the EU towards its target of reaching net-zero by 2050. As a result, the union would see the most ambitious and large-scale sustainability reporting ever seen in the world.

CSRD standards

The CSRD includes four areas of reporting: ‍

General

• ESRS 1 - General requirements
• ESRS 2 - General Disclosures ‍

‍Environmental

• E1 - Climate change
• E2 - Pollution
• E3 - Water and marine resources
• E4 - Biodiversity and ecosystems
• E5 - Resource use and circular economy ‍

Social

• S1 - Own workforce
• S2 - Workers in the value chain
• S3 - Affected communities
• S4 - Consumers and end-users ‍

Governance

• G1 - Business conduct

The implementation of CSRD reporting is gradual, prioritising reporting from larger undertakings.

From 2025, companies already falling under the NFRD must report on their 2024 sustainability performance:

• 500+ employees
• Public interest entity

From January 2026:

• 250+ employees
• €50 million in annual revenue, and/or
• €25 million in total assets

From January 2027:

• 50 - 250 employees
• €10 million in annual revenue, and/or
• €25 million in total assets

From January 2029:

• Non-EU companies with subsidiaries or branches in the EU, and a turnover of >€150 million within the EU over the last two financial years, or
• Have subsidiaries that are large undertakings or listed SMEs, or with >€40 million turnover in the last financial year

Reporting requirements

ESRS 1 outlines a standardised format and structure for sustainability reporting. This includes digitisation, the use of double materiality (a concept discussed in chapter 3 of our Sustainability & Legislation Series), and the use of reasonable assurance. Companies are also obliged to set time-bound, absolute greenhouse gas emission reduction targets.

A CSRD report must include:

• A description of the role of AMS bodies in relation to sustainability matters (including their expertise and skills, or access to them).
• Information on incentive schemes related to sustainability matters for members of AMS bodies.
• A description of the due diligence process on sustainability matters, including actual or potential adverse impacts of:
• Operations
• Products/services
• Business relationships
• Value chain
• Any actions taken to prevent, mitigate, remediate, or address these impacts.
• Principal risks related to sustainability matters, including:
• Dependencies on those matters
• How said risks are managed
• Information on the value chain, including:
• Products and services
• Business relationships
• Supply chain

Additional reporting requirements

The CSRD also outlines certain additional reporting requirements. If information on a specific topic is unavailable, the company must provide an explanation of its efforts to obtain the information, the reasons for the missing data, and its plans for obtaining the necessary information in the future.

The full report must be in accordance with ESRS requirements, a diversity policy must be reported, and workers' representatives must be informed and engaged regarding sustainability information and the means of obtaining and verifying it.

Other CSRD standards

Small or medium-sized enterprises (SMEs), small and non-complex institutions, and captive insurance and reinsurance undertakings can limit their sustainability reporting to certain information:

• A brief description of the business model and strategy
• Policies
• Principal adverse impacts
• Risks
• Key indicators

SMEs may also choose not to include required information for financial years starting before 1 January 2028. If they do so, they must briefly state why this information is not reported.

It should be noted, however, that CSRD SME standards have not been fully developed and are unlikely to be fully implemented due to the EU Omnibus. This is a piece of legislation aimed at deregulating sustainability reporting in the EU, which will be discussed in a later chapter of this series.

Under the CSRD, parent companies of branches/subsidiaries may prepare consolidated sustainability reports. Undertakings may be exempt if they are included in the consolidated management report of another undertaking (even if this is not a parent company).

Despite the current uncertainty surrounding EU legislation, robust and transparent sustainability reporting remains a critical business function. Proactive compliance not only prepares your organisation for future mandates, but also builds resilience and stakeholder trust.  

Connect with Humans Not Robots today to streamline your CSRD reporting process and take meaningful steps toward sustainability.