1. The Corporate Sustainability Reporting Directive (CSRD)
Enacted by the European Union, the CSRD significantly expands the scope and stringency of sustainability reporting for companies operating within the EU market. It replaces the older Non-Financial Reporting Directive (NFRD).
The CSRD mandates compliance with the European Sustainability Reporting Standards (ESRS), which cover environmental, social, and governance disclosures in detail.
 
2. Decoupling Single vs. Double Materiality
The conceptual core of European reporting diverges from the standard ISSB approach by enforcing the principle of Double Materiality:
┌───────────────────────────────────────┬──────────────────────────────────────┐
│ Financial Materiality (Outside-In)    │ Impact Materiality (Inside-Out)      │
├───────────────────────────────────────┼──────────────────────────────────────┤
│ How sustainability topics impact the  │ How the company's internal operations │
│ entity’s economic performance, cash   │ and value chain impact the external  │
│ flows, and valuation (ISSB focus).    │ environment and society (EU focus).  │
└───────────────────────────────────────┴──────────────────────────────────────┘

Under CSRD, a sustainability topic must be reported if it meets the criteria for materiality from either the financial perspective or the impact perspective.
 
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