CSRD and Carbon Credits: What the EU's New Sustainability Reporting Rules Mean for Your Ledger

2026-07-28

Which companies are in scope for CSRD, what the double materiality assessment means for carbon credit disclosures, and what level of assurance will be required on voluntary offset claims.

Understanding CSRD's Impact on Voluntary Carbon Credit Holdings

The EU's Corporate Sustainability Reporting Directive (CSRD) significantly elevates the reporting requirements for voluntary carbon credit holdings, demanding greater transparency, accuracy, and auditability from companies. This directive, which officially entered force in January 2023, replaces the Non-Financial Reporting Directive (NFRD) and introduces more detailed and stringent sustainability reporting obligations.

Companies in Scope: Who Needs to Report?

The CSRD applies to a broad range of companies, including non-EU entities with significant operations within the EU, in a phased approach based on size and other criteria.

Initially, the CSRD primarily targets large EU firms. This includes companies already subject to the NFRD (large public-interest entities with over 500 employees), who began reporting for fiscal year 2024, with reports due in 2025. The scope then expands to other large companies not previously under NFRD, which meet at least two of three criteria: over 250 employees, a turnover of more than €50 million, or total assets exceeding €25 million. These companies will start reporting for fiscal year 2025, with reports due in 2026.

Yes, CSRD does apply to non-EU companies. Non-EU companies may fall within the scope of CSRD if they have significant operations within the EU. Specifically, from January 1, 2028, non-EU companies with a net turnover exceeding €40 million in the EU and at least one EU subsidiary or branch generating over €200 million in turnover will be required to report. Some sources indicate a threshold of €150 million in EU revenue for non-EU companies with an EU branch or subsidiary, with reporting starting in 2029 for the 2028 fiscal year. The scope for non-EU companies was revised in December 2025 by the Omnibus I package, which narrowed the scope to companies with net revenue in the EU greater than €450 million for two consecutive years, and with an EU subsidiary or branch with revenues greater than €200 million. These non-EU companies will report on their global operations on a consolidated basis.

The Double Materiality Assessment and Carbon Offset Disclosures

The double materiality assessment is a cornerstone of CSRD reporting, requiring companies to consider sustainability from two perspectives: impact materiality and financial materiality. This means assessing both how the company's activities impact people and the environment (inside-out perspective) and how sustainability issues, including climate change, create financial risks and opportunities for the company (outside-in perspective).

For carbon offsets, this assessment is crucial. Companies must disclose how their climate mitigation activities, including the use of carbon credits, align with limiting global warming to 1.5°C. Under ESRS E1 (Climate Change), companies are required to disclose the amount of greenhouse gas (GHG) emission reductions or removals financed through carbon credits. Importantly, ESRS E1 mandates that gross Scope 1, 2, and 3 GHG emissions be reported separately from any carbon credits or removals; netting is not allowed. Carbon credits cannot be used to show progress against emission reduction targets or to claim that emissions are lower than they actually are.

The standard requires detailed reporting on the extent and quality of carbon credits purchased or planned for purchase from the voluntary carbon market. This includes a breakdown of the total amount of carbon credits purchased and retired, specifying whether they are for emission reduction or removal projects, the type of carbon sink (biogenic or technological), and the quality standards applied. Companies must also disclose which third-party schemes will verify or certify the carbon credits.

Assurance Requirements for Sustainability Information

The CSRD mandates that companies obtain third-party assurance for their sustainability information, including disclosures related to carbon credits. The assurance level starts at 'limited assurance' and is expected to progressively shift to 'reasonable assurance' (equivalent to a financial audit) from 2028.

Limited assurance provides a moderate level of confidence that the information is free from material misstatement. Reasonable assurance, a higher level, provides a high level of confidence, similar to that provided by a financial audit. This transition signifies the EU's commitment to ensuring the reliability and credibility of sustainability reporting. Auditors will scrutinize the internal coherence of reported figures, traceability of each declared tonne to a registry-identified credit, and compliance with the non-substitution principle (i.e., clear separation between reduction trajectory and carbon contribution).

Documentation for Voluntary Carbon Offsets under CSRD

To support carbon offset claims under CSRD, companies need robust documentation and a transparent system. ESRS E1-7 specifically requires companies to report each credit separately, detailing its volume, type, standard, European share, and corresponding adjustment. This strict separation aims to prevent greenwashing and provide clear insight into a company's actual emissions trajectory and the quality of purchased credits.

Key records required include:

• Registry Information: Details from registries like Verra or Gold Standard Impact Registry.
• Verification Reports: Documentation verifying the emission reductions or removals.
• Project Design Document (PDD): Outlining the project's methodology and expected outcomes.
• Quality Assessment: Documentation of the quality criteria applied when purchasing carbon credits, including minimum thresholds for additionality, permanence, and co-benefits.
• Retirement Confirmation: Proof that the carbon credits have been retired.
• Methodologies and Assumptions: A clear description of the methodologies and assumptions used for calculating GHG removals, carbon credits, or avoided emissions.

Companies must ensure their GHG inventory and carbon credit records are kept in separate systems or datasets to demonstrate independent determination of gross emissions. Lennexus can be instrumental here, providing an audit-ready carbon credit subledger that ensures clear data lineage from source to disclosure, documented methodologies aligned with GHG Protocol and ESRS, and version-controlled evidence packs for emissions, targets, and any credits purchased.

CSRD Implementation Timeline

The implementation of CSRD is phased, with different deadlines for various company sizes and types.

Note that the thresholds for non-EU companies were revised by the Omnibus I package in December 2025, increasing the net revenue in the EU to greater than €450 million for two consecutive years, and requiring an EU subsidiary or branch with revenues greater than €200 million.

Summary

• The CSRD significantly increases transparency and reporting requirements for voluntary carbon credit holdings, replacing the NFRD.
• The directive applies to a wide range of companies, including non-EU entities with substantial EU operations, with phased implementation starting from fiscal year 2024.
• The double materiality assessment requires companies to report on both the impact of their activities on the environment and the financial implications of sustainability issues, including detailed disclosures on carbon credits under ESRS E1.
• Gross GHG emissions must be reported separately from carbon credits; netting is strictly prohibited to prevent greenwashing.
• Companies must obtain third-party assurance for their sustainability reports, moving from limited to reasonable assurance by 2028.
• Robust documentation, including registry information, verification reports, PDDs, quality assessments, and retirement confirmations, is essential to support carbon offset claims.