The Regulatory Framework
An overview of the EU sustainability legislation affecting European businesses.
Corporate Sustainability Reporting Directive (CSRD)
The CSRD is the centrepiece of the EU's sustainability transparency agenda. Adopted in late 2022, it replaces and significantly expands the Non-Financial Reporting Directive (NFRD). Companies subject to CSRD must disclose detailed environmental, social and governance data using the European Sustainability Reporting Standards (ESRS).
Who is in scope?
Large companies, all companies listed on EU-regulated markets, and certain non-EU companies with substantial EU operations.
What must be reported?
Greenhouse gas emissions, energy consumption, environmental risks, social impact, governance practices — reported under standardised ESRS frameworks.
Timeline
Progressive phase-in from 2024, with reporting deadlines determined by company size and listing status.
Non-compliance may result in financial penalties under national transposition laws. Beyond penalties, companies risk exclusion from public procurement, financing and partnership opportunities.
Green Claims Directive
The EU Green Claims Directive targets misleading environmental marketing. Companies will no longer be permitted to make generic claims such as 'green', 'eco-friendly' or 'sustainable' without transparent, standardised substantiation. Claims must be based on recognised scientific evidence and assessed using a defined methodology.
Companies that fail to substantiate environmental claims face enforcement action, fines and mandatory corrective measures.
Corporate Sustainability Due Diligence Directive (CSDDD)
The CSDDD goes beyond disclosure. It requires companies to actively identify, prevent and address environmental and human rights harms throughout their value chains. This includes direct operations and upstream and downstream business relationships.
Companies must implement due diligence policies, establish grievance mechanisms and report on their risk management. Failure to comply can result in administrative sanctions and civil liability.
EU Taxonomy for Sustainable Activities
The EU Taxonomy provides a science-based classification system that defines which economic activities qualify as environmentally sustainable. It serves as a reference framework for investors, companies and policymakers to assess the environmental performance of economic activities.
Companies subject to CSRD must report the proportion of their revenues, capital expenditure and operating expenditure that is Taxonomy-aligned.
Additional Regulations
The EU regulatory landscape includes further obligations such as the Deforestation Regulation, the Ecodesign for Sustainable Products Regulation (ESPR) and sector-specific environmental standards. These regulations form part of the broader European Green Deal, which targets climate neutrality by 2050.
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