EU’s Bold Move:
New Mandatory ESG Regulations Set
to Revolutionize
Climate Risk Management

EU’s Bold Move:
New Mandatory ESG Regulations Set
to Revolutionize
Climate Risk Management

In a bid to reinforce Environmental, Social, and Governance (ESG) disclosures, the European Union (EU) has introduced sweeping rules expected to impact tens of thousands of companies. The EU's Corporate Sustainability Reporting Directive (CSRD) is a robust response to the escalating urgency surrounding climate change and environmental degradation.

The EU's pioneering 'double materiality' approach, a cornerstone of the new European Sustainability Reporting Standards (ESRS), requires companies to disclose both the effects of environmental factors on their businesses and the impacts their operations exert on the societies they inhabit.

The CSRD expands on previous regulations such as the EU's Non-Financial Reporting Directive (NFRD), increasing the depth and breadth of impacted organizations. This regulation is anticipated to affect not only EU-based companies but also those based outside the EU but operating significantly within its borders.

Companies of all sizes are mandated to report, as per the CSRD guidelines, affecting approximately 50,000 large, medium, and small-sized companies in the EU between 2024 and 2029. Specific criteria apply to large companies or large groups with consolidated subsidiaries. Non-EU companies with substantial operations in the EU will also be required to comply with the CSRD.

A new mandate within the CSRD is Scope 3 reporting, requiring businesses to gather sustainability information across their entire value or supply chain. This directive is set to shift the status quo for many international companies, particularly US companies that have traditionally only reported their Scope 1 and 2 emissions.

Verification of these disclosures by an independent assurance service provider, such as a third-party audit, will be required to assess a company's data gathering process. In tandem with digitization requirements, this will necessitate investments in technology to ensure reliable data-gathering processes and a robust data trail.


The push for digitization is a vital component of the CSRD, with companies required to prepare their reports in XHTML format in accordance with the European Single Electronic Format Regulation. The report must be tagged with sustainability information according to a digital categorization system under development by the ESRS.


Digitization holds the potential for significant cost savings for companies, by making information transfer more efficient, promoting transparency and accountability, and allowing greater data accessibility for investors and stakeholders. However, the initial costs of digitization and the complexities of global frameworks and standards may pose short-term challenges.

Nevertheless, with the EU and CSRD leading the charge on stringent reporting regulations, companies globally are advised to familiarize themselves with the CSRD regulations and benchmark their practices against peers to prepare for the future of reporting in their jurisdictions.

The CSRD and ESRS establish a new standard for corporate responsibility within the EU, pushing businesses to become more accountable for their actions. This historic initiative aims to shape the corporate landscape, encouraging transparency, accountability, and more proactive engagement with environmental, social, and governance issues. These stringent regulations underscore the EU's commitment to creating a more sustainable and climate-resilient economy, setting a benchmark for other regions worldwide.

Is your company familiar with CSRD and ESG regulations?

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