The CSRD Directive promotes transparency and accountability in corporate sustainability reporting, aligning practices with environmental, social and governance standards. Developing an ESG strategy aligned with the CSRD is fundamental to sustainability in construction and other key sectors. In this article we provide you with all the information you need to understand the directive and how to apply it.
What is the CSRD?
The CSRD or Corporate Sustainability Reporting Directive is the new EU-wide regulation that replaces Directive 201/95/EU (NFRD) and regulates, from 2024, how companies in the European Union must report sustainability information. It aims to harmonise ESG reporting while bringing transparency and accountability to companies.
The directive is crucial to achieving the European Green Deal's objectives. It transforms non-financial reporting into sustainability reporting, giving it a distinct identity and elevating it to the same level as financial reporting.
The CSRD defines the legal framework and the scope of companies that must report, but does not provide the technical tools necessary to carry out sustainability reporting. Therefore, the NIES (European Sustainability Reporting Standards) provide the technical definition to do so.
Timetable for implementation
The application of the CSRD is established over time as follows:
- Financial year 2024: Companies with +500 employees already affected by the previous regulation, Non-Financial Reporting Directive (NFRD)
- Financial year 2025: Other large companies (other listed and unlisted) with more than 250 employees and/or EUR 40 million turnover and/or EUR 20 million total assets.
- Financial year 2026: Listed SMEs (less than 250 employees)
Implications of the CSRD for the building industry
The real estate sector is one of the main contributors to climate change, contributing approximately 36% of global CO2 emissions. These emissions are distributed along the value chain, affecting various companies such as property managers, developers, investors, construction companies, etc., through their Scope 1, 2 and 3 emissions.
The CSRD establishes a framework that seeks to improve transparency in sustainability reporting and, together with the SFDR (Sustainable Finance Disclosure Regulation) and European Taxonomy, is the regulatory framework supporting the European Green Deal. We can see the alignment of the environmental thematic standards of the ESRS (European Sustainability Reporting Standards) with the 6 key objectives of the European Taxonomy. This set of directives promotes synergies that aim to:
- Redirect funding and investment towards more sustainable technologies and businesses.
- Ensure long-term sustainable economic growth.
- Contribute to the creation of a low-carbon and climate-resilient economy by integrating sustainability into risk management.
What are the European Sustainability Reporting Standards (ESRS)?
ESRS are a set of standards that standardise and specify how European companies should disclose their material impacts, risks and opportunities in relation to sustainability issues.
These standards cover the environmental, social and governance (ESG) aspects of a company and are organised into 3 broad categories:
- Cross-cutting standards
- Thematic standards (environmental, social and governance)
- Sectoral rules
1. Cross-cutting standards
They apply to sustainability issues covered by the thematic standards and sectoral standards, and are as follows:
ESRS 1: General requirements
It describes the architecture of the ESRS standards, explains drafting conventions and key concepts and sets out the general requirements for preparing and presenting sustainability-related information.
ESRS 2: General information
It sets out disclosure requirements for the information that companies must provide at a general level on all material sustainability issues in relation to the areas of governance, strategy, management, metrics and targets.
2. Thematic standards
They cover sustainability issues and are grouped into three broad clusters: Environmental, Social and Governance.
Environmental standards
| Standard | Theme | Sub-themes |
| ESRS E1 | Climate change | - Adaptation to climate change - Climate change mitigation - Energy |
| ESRS E2 | Pollution | - Pollution of air, water, soil and living organisms - Substances of concern, very high concern and microplastics |
| ESRS E3 | Water and marine resources | - Water - Marine resources |
| ESRS E4 | Biodiversity and ecosystems | Factors affecting the state of: - Biodiversity - Species - Ecosystems - Ecosystem services and their dependencies on them |
| ESRS E5 | Circular economy | - Resource input (including utilisation) - Output of resources related to products and services - Waste |
Social standards
| Standard | Theme | Sub-themes |
| ESRS S1 | Own staff | - Working conditions - Equal treatment and opportunities for all - Other labour rights (child labour, forced labour, privacy, etc.) |
| ESRS S2 | Value chain workers | - Working conditions - Equal treatment and opportunities for all - Other labour rights (child labour, forced labour, privacy, etc.) |
| ESRS S3 | Affected groups | - Economic, social and cultural rights - Civil and political rights - Indigenous peoples' rights |
| ESRS S4 | Consumers and end-users | - Information-related incidents - Personal security - Social inclusion |
Governance Standards
| Standard | Theme | Sub-theme |
| ESRS G1 | Business conduct | - Corporate culture - Whistleblower protection - Animal welfare - Political engagement and lobbying activities - Supplier relationship management - Corruption and bribery |
3. Sectoral rules
They are applicable to all companies in a sector and address all impacts, risks or opportunities that may be relevant to all companies in that specific sector and that are not sufficiently covered by the thematic standards.
It remains to be seen whether a sectoral standard for the building industry will be published in 2026.
How to develop a CSDR-aligned ESG strategy?
Developing an ESG strategy aligned with the CSRD is crucial for companies, especially in the building industry, where sustainability plays a key role. Here are the 5 essential steps to achieve this.
1. Analysis of the regulatory framework
Firstly, an analysis of the European ESG regulatory framework (CSRD, ESRS, Taxonomy, etc.) will be carried out in order to understand the company's obligations in the short, medium and long term.
2. Definition of Stakeholder Groups (SGs)
Cooperation with the SGs is essential for the company's due diligence process and for the assessment of double materiality.
The company's stakeholders should be defined. Common categories of stakeholders are: employees and other workers, suppliers, consumers, customers, end-users, local communities and people in vulnerable situations, and public authorities.
Subsequently, the views on sustainability issues of all stakeholders will be collected and incorporated into the dual materiality analysis, and should therefore be taken into account in the company's strategy and business model.
3. Dual materiality analysis
Through the SG responses, a dual materiality matrix should be defined, from which it will be concluded which aspects are most relevant for the company and its stakeholders.
Dual materiality has two dimensions, impact materiality and financial materiality.
A sustainability issue is relevant in the materiality impact analysis when the company's activity (including its value chain) has a negative or positive impact on people or the environment in the short, medium or long term.
A sustainability issue is relevant in the financial materiality analysis when it influences the company's short, medium or long-term financial performance and/or business model.
4. ESG strategy
Once the material issues for the company have been identified, an ESG strategy should be drawn up around these issues.
At least one line of action and one action shall be defined for each material aspect, which shall fall under the environmental, social or governance dimension.
Subsequently, an indicator (KPI) must be defined to measure each action of each line of action and consolidation objectives must be set in the short, medium and long term.
Finally, all information will be compiled in a report that complies with ESG transparency requirements.
In conclusion, following the good practices set out in the CSRD and the ESRS helps companies to effectively manage risks and opportunities and promote transparency and good governance. In the coming years, the real estate sector will need to transform itself into a sector that contributes to the creation of a low-carbon and climate-resilient economy by integrating sustainability into companies' risk management in the short, medium and long term.
