CSRD for the Manufacturing Industry

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that mandates comprehensive sustainability reporting for companies. It replaces the previous Non-Financial Reporting Directive (NFRD) and significantly expands the number of affected businesses. For manufacturing companies, the CSRD is not an abstract compliance task—it sets concrete requirements for production data, energy metering, and carbon accounting that cannot be met without robust shop floor data.

Who is Affected and When?

The CSRD is being phased in:

• 2024 Fiscal Year: Large capital-market-oriented companies (>500 employees).
• 2025 Fiscal Year: All other "large" companies meeting at least two of three criteria: >250 employees, >€50M turnover, or >€25M total assets.
• 2026 Fiscal Year: Listed SMEs (under simplified standards).

For medium-sized manufacturers exceeding the thresholds, reporting begins in 2025. Even companies below the threshold may face data requests from customers (OEMs) who need to report their own supply chain impact.

What Must Be Reported: The ESRS Standards

The content of CSRD reports is defined by the European Sustainability Reporting Standards (ESRS). Key standards for manufacturers include:

• ESRS E1 – Climate Change: The most extensive standard, requiring disclosure of Scope 1, 2, and 3 greenhouse gas emissions, transition plans, and climate targets.
• ESRS E2 – Pollution: Covers emissions to air, water, and soil—critical for metalworking, chemical processes, and surface treatment.
• ESRS E5 – Resource Use and Circular Economy: Addresses material efficiency, waste volumes, and recycling rates—data directly measurable on the shop floor.
• ESRS S1 – Own Workforce: Focuses on working conditions, qualifications, and diversity.

Carbon Reporting: Understanding Scope 1, 2, and 3

Following the GHG Protocol, emissions are categorized into three scopes:

1. Scope 1 (Direct): Emissions from company-owned sources, such as gas combustion in furnaces or fuel for company vehicles. This requires sensors and meters on the shop floor.
2. Scope 2 (Indirect - Purchased Energy): Emissions from purchased electricity and heat. Energy monitoring at the machine level provides the necessary data here.
3. Scope 3 (Indirect - Value Chain): Emissions from purchased materials, logistics, and product disposal. This is the most complex part, as Tier-1 suppliers will receive requests from OEMs to provide the carbon footprint of their parts.

Why Production Data is the Foundation

CSRD reporting is not a finance task for the accounting department; it is a data challenge that begins at the machine. The following data must come from production:

• Energy consumption per machine, line, and order.
• Material usage and scrap rates for resource efficiency.
• Production volumes per item to calculate product-specific carbon intensities.
• Downtime and utilization rates, as idle machines consume energy without output.

Relying on estimates is becoming risky. Starting in 2026, reports require Limited Assurance (external audit), which will eventually move toward Reasonable Assurance (full audit). An MES that captures machine data and material flows in real-time serves as the "Single Source of Truth" for these audits.

Double Materiality: What It Means for Manufacturers

The CSRD introduces the principle of Double Materiality. Companies must report both:

1. Financial Materiality: How sustainability risks affect the company’s bottom line.
2. Impact Materiality: How the company’s activities affect the environment and society. For manufacturers, this means energy consumption and shop floor working conditions are reportable because of their societal impact, even if they don't pose an immediate financial risk.

FAQ

When must a manufacturer with 300 employees and €60M turnover report? Since it meets two of the "large company" criteria, it must report for the 2025 fiscal year (report published in 2026). Preparation should begin in 2024 to ensure comparative data is available.

Is an external audit mandatory? Yes. From the first reporting year, Limited Assurance by an auditor is required. By 2028, this will likely transition to Reasonable Assurance, making unverified estimates unacceptable.

What is the difference between CSRD and ESG? ESG (Environmental, Social, Governance) is a general term used by investors. CSRD is the specific EU legal obligation to report according to ESRS standards.

How do CSRD and the Supply Chain Act (LkSG) relate? The LkSG requires active due diligence (action), while the CSRD requires reporting (disclosure). They complement each other; documentation used for LkSG compliance often fulfills parts of the CSRD requirements.