Identify your CSRD-related strengths and weaknesses through a GAP analysis.

When your organization starts preparing for CSRD reporting or applies the CSRD requirements of other sustainability disclosure standards, it is recommended to conduct a GAP analysis as a first step. The assessment will provide a picture of your organisation’s level of readiness in light of the CSRD standard and other environmental, social and governance (ESG) reporting standards as required. The assessment also provides significant assistance in obtaining stakeholder engagement.

Following the analysis, focus areas will be identified and a roadmap for addressing the issues will be jointly developed.

What is the CSRD?

With the growing momentum of ESG (Environmental, Social & Governance), the lack of high-quality and reliable sustainability data has caused many problems for all stakeholders. It is difficult for investors to see the true picture of companies’ ESG performance, which jeopardises the objectives of the European Green Deal to transform the European Union into a sustainable economy. In addition, the large number of standards makes it extremely difficult for companies to know what information to report and on the basis of what they will be evaluated. Large companies regularly receive requests for largely overlapping sustainability information from their business partners and social organisations, which involve considerable costs.

It was with an eye to addressing these problems that the European Union adopted the Corporate Sustainability Reporting Directive (CSRD) with the aim of also setting a direction for ESG reporting at international level. The CSRD also replaces the EU’s Non-Financial Reporting Directive (NFRD).

The main obligation imposed by the CSRD is that it requires companies subject to it to include, as part of their annual financial reports, a separate section in their management report for the previous financial year, reporting on specific environmental, social and governance aspects.

Entities subject to CSRD reporting obligations

In 2025, the following entities will have to submit reports for the year 2024:

Large companies and financial institutions that are considered to be public interest entities and that have any two of the following three indicators exceeding the thresholds below at the balance sheet date in the previous financial year:

• balance sheet total of EUR 20 million;

• annual net sales revenue of HUF 40 million;

• average number of employees in the financial year of 500 persons.

In 2026, the following entities will have to submit reports for the year 2025:

Large companies for which any two of the following three indicators exceeded the thresholds below at the balance sheet date in the previous financial year:

• balance sheet total of EUR 20 million;

• annual net sales revenue of HUF 40 million;

• average number of employees in the financial year of 250 persons.

The scope of those subject to the reporting obligation will be broadened again in subsequent years: from 2027, it will include publicly listed SMEs, small and non-complex credit institutions and captive insurance undertakings, and finally third-country companies with subsidiaries or branches in the EU provided that they have a net turnover in the EU of more than EUR 150 million in the two years preceding the reporting year.

Benefits of the CSRD

The CSRD will present significant challenges, new demands and additional work for companies as they will need to create robust processes and provide high-quality data in a timely manner. However, it also brings a number of benefits:

• It helps companies understand ESG requirements, introduces a common set of concepts that facilitates dialogue between parties, and supports the response to environmental, social and governance challenges.

• The ESRS reporting standard, linked to the (CSRD) provides clarity and certainty on what sustainability information needs to be disclosed, reducing unnecessary costs for ESG reporting. Processes to ensure ESRS interoperability between different international standards have already started in parallel with the consolidation of the market of standards.

• The framework nature of the CSRD and the annual reporting requirement will make it easier to set corporate targets and to monitor progress. At the same time, it will also help in identifying weaknesses, risks and areas for improvement.

• The CSRD makes it clear and accepted that supply chain actors must provide transparent data at all levels of the supply chain. This reduces the huge and invisible environmental and social damage to supply chains, especially in international trade.