What is double materiality — and why does it matter more than TCFD?

CSRD's double materiality requirement goes significantly further than the TCFD framework that many sustainability teams are familiar with. Under TCFD, you assess financial risks to the company from climate change. Under CSRD, you must assess both directions simultaneously:

1. Impact materiality (inside-out): how does your company affect the environment and society? Greenhouse gas emissions, labour conditions in the supply chain, land use, community impacts.
2. Financial materiality (outside-in): how do sustainability factors affect your company's financial performance? Physical climate risks (flooding, heat stress), transition risks (carbon pricing, stranded assets), regulatory exposure.

The outcome of the Double Materiality Assessment (DMA) determines which ESRS topics are material for your company and must therefore be reported. Non-material topics can be omitted — but the DMA methodology itself must be documented and disclosed in ESRS 2. This means every company must complete a DMA, even if most topics turn out non-material.

What are the penalties for CSRD non-compliance?

CSRD requires member states to establish effective penalties, but leaves the specific amounts to national law. In Spain, the CNMV supervises compliance for listed companies. Beyond formal sanctions, CSRD non-compliance creates material risks: lenders applying SFDR sustainability criteria may restrict access to green finance; institutional investors under UNPRI commitments may divest; and large corporate clients increasingly demand supplier CSRD data for their own Scope 3 reporting. The reputational cost of a missing or inadequate sustainability report is often larger than any regulatory fine.

CSRD compliance checklist for Wave 2 companies

1. Confirm your wave and first reporting year based on employee and financial thresholds
2. Conduct a formal Double Materiality Assessment (DMA) covering all ESRS topics
3. Identify material topics and required ESRS disclosures
4. Establish data collection processes for material metrics (Scope 1/2/3, workforce KPIs, governance indicators)
5. Appoint or train a Head of Sustainability Reporting with CSRD expertise
6. Prepare the sustainability statement for inclusion in the management report
7. Arrange limited assurance engagement with your statutory auditor
8. Tag the sustainability statement using the XBRL ESRS taxonomy (mandatory for listed companies)

Frequently asked questions

Does CSRD apply to non-listed companies?

Yes. Wave 2 covers all large companies exceeding two of the three size thresholds, whether listed or not. Listing status only affects timing for SMEs (Wave 3) and adds XBRL tagging requirements for companies on regulated markets.

Must we report Scope 3 emissions?

It depends on materiality. ESRS E1 requires Scope 1 and 2 emissions unconditionally. Scope 3 (value chain emissions) must be reported if your DMA concludes they are material — which they typically are for companies with global supply chains or high Scope 3 intensity sectors (retail, manufacturing, food, financial services).

Does CSRD apply to subsidiaries of US companies in Europe?

Yes, if the EU subsidiary exceeds the thresholds. Wave 4 (2029) also captures non-EU parent companies with more than €150M revenue generated in the EU. Many US and Asian multinationals are already preparing CSRD compliance for their European operations.

How does CSRD relate to the EU Taxonomy?

They are closely linked. ESRS E1 includes disclosures on EU Taxonomy eligibility and alignment. If your company operates in sectors covered by the Taxonomy (energy, manufacturing, transport, buildings, water, ICT), you must report the percentage of turnover, CAPEX and OPEX that meet Taxonomy criteria.

What is the difference between CSRD and GRI?

GRI (Global Reporting Initiative) is a voluntary sustainability reporting framework widely used globally. CSRD is mandatory EU law. Many ESRS disclosures overlap with GRI indicators, which is intentional — EFRAG designed ESRS with interoperability in mind. However, CSRD requires limited assurance from an auditor, mandatory XBRL tagging and integration into the statutory management report — requirements that voluntary GRI reports do not meet.

Can we use our existing GRI reports as a starting point for CSRD?

Yes, partially. Existing GRI data and indicators provide a useful foundation for several ESRS disclosures. However, CSRD also requires a formal DMA methodology, XBRL tagging, external auditor assurance and inclusion in the management report — elements that standalone GRI reports do not typically cover. IgeraRegtech helps bridge the gap between existing sustainability reporting and full CSRD compliance.

Article by the Igera Solutions editorial team. Based on Directive 2022/2464/EU (CSRD) and EFRAG ESRS standards as adopted via Delegated Regulation (EU) 2023/2772, updated June 2026. Not legal advice.