Compliance
Corporate Sustainability Reporting Directive: The New Reality for ESG and Compliance Risk Managers
The Corporate Sustainability Reporting Directive (CSRD) has emerged as the dominant ESG regulatory challenge for compliance risk managers in 2025, fundamentally transforming how companies approach sustainability disclosures. The regulation mandates forward-looking and detailed environmental, social, and governance information in assured sustainability reports, covering actual and potential material ESG liabilities at both entity and site levels.
The staggered implementation timeline creates immediate pressure for thousands of European companies. While large public interest entities began reporting in 2024, the expansion to smaller public companies and non-EU companies with significant EU operations is creating a compliance tsunami. ESG and compliance risk managers must navigate not only the substantive requirements but also the complex threshold determinations that can change based on company growth or structural changes.
Data quality and assurance present the most significant operational challenges. Unlike traditional financial reporting, CSRD requires forward-looking disclosures about sustainability risks and opportunities, demanding sophisticated data collection and validation processes. Compliance risk managers must establish entirely new internal controls to ensure the accuracy of ESG metrics, often requiring coordination across multiple business units and geographies where data collection practices may vary significantly.
The European Commission’s response to industry concerns has been the development of omnibus packages aimed at simplification. The “stop-the-clock” directive, approved in April 2025, provides temporary relief by postponing certain reporting obligations, while the broader Omnibus I package proposes more substantial simplifications including extended phase-ins and scaled-back compliance requirements. However, these changes remain under negotiation, leaving compliance managers planning for multiple scenarios.
The intersection with other ESG regulations compounds the complexity. CSRD reporting must align with EU Taxonomy requirements, CSDDD due diligence obligations, and sector-specific sustainability regulations. This regulatory convergence means compliance risk managers cannot treat CSRD as an isolated reporting exercise but must integrate it into broader ESG governance frameworks.
Third-party assurance requirements add another layer of complexity and cost. Unlike financial audits, sustainability assurance requires specialized expertise in ESG metrics and methodologies that may not be readily available from traditional audit providers. This creates both capacity constraints and quality concerns as the assurance market scales to meet regulatory demand.
The global implications extend beyond European companies. Non-EU entities with EU subsidiaries or significant EU operations face similar reporting requirements, forcing multinational compliance teams to implement CSRD-compliant processes across their global operations even where local regulations may not require such disclosures.
Citations Used:
ESG Compliance Management and Corporate Strategy
https://www.hoganlovells.com/en/publications/esg-compliance-management-and-corporate-strategy-what-to-expect-in-2025
The Uncertain State of EU ESG Legislation (CSRD & CSDDD) in 2025
https://www.kodiakhub.com/blog/uncertain-state-of-eu-esg-csrd-csddd-in-2025
The Challenges of ESG Reporting: Navigating the Complexity of EU …
https://grc2020.com/2025/02/13/the-challenges-of-esg-reporting-navigating-the-complexity-of-eu-csrd/