Myths vs. realities: EU CSRD implementation & double materiality — what the evidence actually supports

A 2025 survey by the European Financial Reporting Advisory Group (EFRAG) found that 72% of in-scope companies had not yet completed their double materiality assessment by the first reporting deadline, and 58% of compliance officers admitted they could not confidently distinguish between impact materiality and financial materiality as defined by the European Sustainability Reporting Standards (ESRS). The Corporate Sustainability Reporting Directive (CSRD) represents the most ambitious mandatory sustainability disclosure regime ever enacted, yet the myths surrounding its implementation threaten to derail compliance efforts across Europe and beyond.

Why It Matters

The CSRD applies to approximately 50,000 companies across the EU, up from the roughly 11,700 covered by its predecessor, the Non-Financial Reporting Directive (NFRD). The first wave of reporting began in fiscal year 2024 for large public interest entities with more than 500 employees, with the second wave covering all large companies beginning fiscal year 2025 and listed SMEs from fiscal year 2026. The European Commission estimates that CSRD compliance will generate 3.6 billion euros in annual reporting costs across the EU economy, though consulting firm PwC's 2025 analysis places the true figure closer to 5.2 billion euros when internal resource reallocation is factored in (PwC, 2025).

For policy and compliance professionals, the stakes are concrete. CSRD reports are subject to limited assurance from the outset, with a transition to reasonable assurance planned by 2028. Non-compliance carries financial penalties determined by individual Member States, with Germany setting fines up to 10 million euros or 5% of annual turnover under its CSRD transposition legislation. France has established personal liability provisions for directors who sign off on materially misleading sustainability statements. These enforcement mechanisms make it critical to separate myths from realities in CSRD implementation.

Key Concepts

Double materiality is the conceptual foundation of the CSRD and distinguishes it from every other major disclosure regime. Under double materiality, a sustainability topic is material if it meets either of two tests: impact materiality (the company has significant actual or potential impacts on people or the environment) or financial materiality (sustainability issues create risks or opportunities that materially affect the company's financial position, performance, or cash flows). A topic can be material under one lens, the other, or both.

The ESRS comprise 12 topical standards organized across environmental (E1 through E5), social (S1 through S4), and governance (G1) categories, plus two cross-cutting standards (ESRS 1 and ESRS 2). ESRS 2 contains mandatory disclosure requirements for all in-scope companies regardless of their materiality assessment results, including governance structure, strategy, and the materiality assessment process itself.

Myth 1: Double Materiality Is Just Financial Materiality With Extra Steps

One of the most persistent myths holds that double materiality is essentially the same as the single (financial) materiality used by the ISSB's IFRS S1 and S2 standards, with a few additional environmental data points bolted on. This misunderstanding leads companies to repurpose their existing enterprise risk management frameworks for double materiality assessments without modification.

The reality is fundamentally different. Impact materiality requires companies to assess their effects on the world regardless of whether those effects translate into financial risk. A chemical manufacturer that discharges pollutants into a river may face no financial consequence in jurisdictions with weak enforcement, but the impact on downstream communities and ecosystems makes the topic material under ESRS E2 (Pollution). BASF's 2025 CSRD report documented this distinction explicitly: the company identified 14 topics as material under both lenses, 6 topics as material only under impact materiality, and 3 topics as material only under financial materiality (BASF, 2025). This asymmetry demonstrates that double materiality produces meaningfully different outcomes from financial materiality alone.

Stakeholder engagement requirements under ESRS also differ substantially from ISSB's approach. Companies must consult affected stakeholders (workers, communities, supply chain partners) in the materiality assessment process, not merely consider investor perspectives. Unilever's 2025 implementation involved structured consultations with over 3,200 stakeholders across 28 countries, including smallholder farmers, factory workers, and community representatives near manufacturing sites, a process that identified labor practices in third-tier supply chains as impact-material despite generating no detectable financial risk signal (Unilever, 2025).

Myth 2: CSRD Only Affects EU Companies

A widespread belief, particularly in the United States and Asia, holds that the CSRD is a European regulation that can be safely ignored by non-EU businesses. This myth has caused dangerous delays in preparation.

The CSRD's extraterritorial reach is substantial. Non-EU companies with net turnover exceeding 150 million euros in the EU and at least one subsidiary or branch in the EU generating more than 40 million euros in turnover will be required to report under the ESRS from fiscal year 2028. The European Commission's 2025 impact assessment estimates that 5,200 to 7,800 non-EU companies, including approximately 2,100 US-headquartered firms, will fall within scope (European Commission, 2025).

More immediately, non-EU companies already face indirect compliance pressure through their EU customers and partners. Volkswagen Group notified its 63,000 direct suppliers in late 2024 that CSRD value chain disclosures under ESRS S2 (Workers in the Value Chain) and ESRS E1 (Climate Change) would require granular emissions, labor, and governance data from suppliers regardless of their jurisdiction (Volkswagen Group, 2024). Suppliers unable to provide this data risk exclusion from procurement processes. This cascade effect means that the CSRD's practical reach extends far beyond companies that are formally in scope.

Myth 3: Off-the-Shelf Software Will Handle CSRD Compliance Automatically

The rapid growth of ESG reporting software has fueled the myth that CSRD compliance is primarily a technology procurement exercise. Software vendors market platforms that promise automated double materiality assessments, pre-populated ESRS data points, and one-click assurance readiness.

The evidence tells a more nuanced story. A 2025 benchmark study by the European Federation of Accountants and Auditors (EFAA) tested seven leading ESG reporting platforms against the 1,178 individual data points required across all 12 ESRS topical standards. The best-performing platform automated data collection for 34% of required data points; the median was 22%. The remaining data points required manual input, expert judgment, or bespoke data collection processes that no software could automate (EFAA, 2025).

Siemens' CSRD implementation illustrates this gap. Despite deploying Sphera's ESG software platform, the company required a dedicated team of 85 full-time equivalents working for 14 months to complete its first CSRD-compliant report. The technology handled data aggregation and formatting effectively but could not perform the qualitative assessments, stakeholder engagements, and narrative disclosures that constitute roughly 60% of ESRS requirements by volume. The total first-year compliance cost was approximately 28 million euros, of which software licensing represented less than 8% (Siemens, 2025).

Myth 4: The Materiality Assessment Is a One-Time Exercise

Many companies approach the double materiality assessment as a compliance checkbox to be completed once and then filed. This assumption reflects how materiality has historically been treated under voluntary frameworks like GRI, where assessments were often updated every three to five years.

Under the CSRD, materiality assessments must be reviewed and updated annually. ESRS 1 paragraph 38 explicitly requires companies to reassess materiality at each reporting date and to disclose any changes in material topics, the reasons for those changes, and the implications for reported data. The rationale is straightforward: business contexts, scientific understanding, and stakeholder expectations evolve continuously.

Danone's experience demonstrates the practical implications. Between its 2024 and 2025 CSRD reports, the company reclassified water stress from financially material only to material under both lenses after the 2024 drought in southern France caused 47 million euros in direct operational disruptions at four dairy processing facilities. This reclassification triggered new disclosure requirements under ESRS E3 (Water and Marine Resources) that had not been applicable in the prior year's report (Danone, 2025).

Myth 5: Limited Assurance Means Auditors Will Be Lenient

Some compliance teams operate under the assumption that limited assurance, the initial standard for CSRD reports, is a low bar that auditors will apply loosely as companies learn the new framework. This myth is being rapidly dispelled.

Limited assurance under ISAE 3000 (Revised) requires auditors to obtain sufficient evidence to conclude whether anything has come to their attention that causes them to believe the sustainability information is materially misstated. While less rigorous than reasonable assurance, it still involves substantive testing, analytical procedures, and management inquiries. Early signals from the 2025 reporting season indicate that auditors are taking their responsibilities seriously. Deloitte reported rejecting or qualifying 12% of draft CSRD reports from its first-wave clients due to insufficient evidence supporting materiality assessment conclusions, inadequate documentation of stakeholder engagement processes, or inconsistencies between sustainability disclosures and financial statements (Deloitte, 2025).

What's Working

Companies that invested early in cross-functional implementation teams are reporting smoother compliance processes. Integrated teams combining sustainability, finance, legal, and operations staff avoid the siloed approach that creates inconsistencies between sustainability and financial disclosures. BASF's cross-functional team of 120 professionals, organized by ESRS topical standard rather than by corporate function, completed its first-year report three months ahead of the filing deadline.

Sector-specific materiality guidance from industry associations has proven valuable. The European Chemical Industry Council (Cefic) published sector-specific double materiality guidance in mid-2024 that reduced assessment time for its member companies by an estimated 30 to 40% by pre-identifying likely material topics and providing sector-relevant thresholds.

Digital tagging using the ESRS XBRL taxonomy enables machine-readable reporting that facilitates regulatory review and investor analysis. Companies that implemented XBRL tagging from the outset report that it forces disciplined data architecture, reducing errors in subsequent reporting cycles.

What's Not Working

Value chain data collection remains the most significant implementation challenge. ESRS requirements for Scope 3 emissions, supply chain labor practices, and biodiversity impacts require data from entities outside the reporting company's direct control. A 2025 survey by the Federation of European Securities Exchanges found that 81% of first-wave reporters used estimates or sector-average proxies for more than half of their value chain data points, raising questions about the reliability and comparability of reported information (FESE, 2025).

Member State transposition inconsistencies create compliance complexity for multinational companies. As of January 2026, nine EU Member States had not yet completed transposition of the CSRD into national law, creating legal uncertainty about enforcement timelines and penalty structures. Germany, France, and the Netherlands have adopted differing interpretations of the directive's provisions on group-level reporting exemptions, forcing companies with operations across multiple Member States to navigate conflicting requirements.

Key Players

Established Organizations

EFRAG: Developed the ESRS and continues to publish implementation guidance, interpretive notes, and sector-specific standards. Its technical expert group processes approximately 200 implementation questions per month.

Big Four Audit Firms (Deloitte, EY, KPMG, PwC): Providing both advisory and assurance services for CSRD compliance. Collectively employed an estimated 8,500 sustainability assurance professionals across Europe by end of 2025.

European Securities and Markets Authority (ESMA): Responsible for supervisory convergence on CSRD enforcement, publishing annual priorities and common enforcement actions.

Startups and Technology Providers

Sphera: Enterprise ESG platform used by Siemens, BMW, and other large industrials for ESRS data management.

Novata: Provides double materiality assessment tooling designed specifically for ESRS compliance, used by mid-cap companies.

Datamaran: AI-powered materiality assessment platform that monitors regulatory, media, and stakeholder signals to support annual reassessment requirements.

Investors and Standard-Setters

Eurosif: European sustainable investment forum advocating for robust CSRD implementation and investor-grade data quality.

ISSB: Collaborating with EFRAG on interoperability between ESRS and IFRS S1/S2 to reduce duplicative reporting burden.

Action Checklist

• Establish a cross-functional CSRD implementation team spanning sustainability, finance, legal, risk, and operations with clear executive sponsorship
• Conduct a formal double materiality assessment distinguishing impact materiality from financial materiality with documented stakeholder engagement
• Map all 1,178 ESRS data points against existing data sources and identify gaps requiring new collection processes
• Develop value chain data collection protocols with tiered approaches (primary data for critical suppliers, modeled estimates for others)
• Implement XBRL digital tagging infrastructure aligned with the ESRS taxonomy from the first reporting cycle
• Engage assurance providers early (at least 6 months before reporting deadline) and conduct pre-assurance readiness reviews
• Build an annual materiality reassessment process with triggers for interim review based on significant business or environmental changes
• Monitor Member State transposition developments for all jurisdictions where the company has operations or subsidiaries

FAQ

Q: How long does a double materiality assessment typically take for a large company? A: Based on first-wave reporting experience, a thorough double materiality assessment takes 4 to 8 months for large companies with complex value chains. This includes 6 to 10 weeks for stakeholder identification and engagement, 4 to 6 weeks for impact assessment across all ESRS topics, 3 to 4 weeks for financial materiality analysis integrating enterprise risk management data, and 2 to 4 weeks for governance review and board approval. Companies that allocated fewer than 3 months uniformly reported quality deficiencies that required rework before assurance engagement.

Q: Can companies use existing GRI or TCFD reports as a starting point for CSRD compliance? A: Existing GRI reports provide useful foundational data but are not sufficient for CSRD compliance. GRI's materiality concept focuses on impact materiality, which aligns with one half of the double materiality assessment. However, ESRS disclosure requirements are significantly more granular than GRI standards, with approximately 3 times as many individual data points. TCFD-aligned climate disclosures map more closely to ESRS E1 requirements but do not address the other 11 topical standards. Companies with mature GRI and TCFD reporting programs typically find that existing processes cover 25 to 40% of ESRS requirements.

Q: What are the consequences of getting the materiality assessment wrong? A: An incorrect materiality assessment can result in both over-reporting (disclosing on topics that are not material, wasting resources) and under-reporting (omitting material topics, creating legal and reputational risk). Under-reporting is the more serious concern: auditors may qualify the assurance opinion, and regulators may impose penalties for incomplete disclosure. More practically, investors and civil society organizations are actively benchmarking first-wave CSRD reports, and companies whose materiality assessments appear superficial or self-serving face reputational consequences and potential shareholder resolutions.

Q: How should non-EU companies prepare for CSRD scope expansion in 2028? A: Non-EU companies should begin preparation immediately by: confirming whether they meet the 150 million euro EU revenue threshold using 2025 or 2026 financial data; identifying which EU subsidiaries or branches generate more than 40 million euros in turnover; conducting a gap analysis of current sustainability reporting against ESRS requirements; and engaging with the adopted delegated acts on third-country company reporting standards. The European Commission is expected to finalize equivalent reporting standards for non-EU companies by mid-2026, providing a clearer picture of specific requirements.

Sources

• PwC. (2025). CSRD Implementation Costs: A Bottom-Up Analysis of First-Wave Reporting Companies. London: PricewaterhouseCoopers International Limited.
• BASF. (2025). BASF Report 2024: Sustainability Information in Accordance with ESRS. Ludwigshafen: BASF SE.
• Unilever. (2025). Annual Report and Accounts 2024: CSRD Sustainability Statement. London: Unilever PLC.
• European Commission. (2025). Impact Assessment: CSRD Delegated Acts for Third-Country Companies. Brussels: European Commission.
• Volkswagen Group. (2024). Supplier Code of Conduct and CSRD Data Requirements: Guidance for Value Chain Partners. Wolfsburg: Volkswagen AG.
• European Federation of Accountants and Auditors. (2025). ESG Software Platform Benchmark: ESRS Data Coverage Analysis. Brussels: EFAA.
• Siemens. (2025). Siemens Sustainability Report 2024: CSRD Implementation Insights. Munich: Siemens AG.
• Deloitte. (2025). CSRD Assurance: First-Wave Findings and Quality Indicators. London: Deloitte Touche Tohmatsu Limited.
• Federation of European Securities Exchanges. (2025). CSRD First-Wave Reporting Quality Review. Brussels: FESE.
• Danone. (2025). Universal Registration Document 2024: Sustainability Statement. Paris: Danone SA.