The preparedness of “first wave” companies to the European corporate sustainability reporting directive (CSRD)

The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) [Directive (EU)2022/2464, 2022] is intended to address the shortcomings of Directive 2014/95/EU (2014) (the NonFinancial Reporting Directive), pointed out in the public consultations as part of the fitness check carried out by the European Commission (EC) [European Commission (EC), 2021]. Respondents, in particular users of nonfinancial information, considered that the existing standards and reporting frameworks do not ensure the consistency and comparability of such information, and that the absence of an assurance requirement limits their reliability. Preparers revealed that they found it difficult to decide what information to report, incurring unnecessary costs due to overlapping frameworks and stakeholders’ requests that went beyond the requirements of the Directive.

Implementing the CSRD involves making several changes. The most visible of these is the replacement of the term “nonfinancial reporting” with “sustainability reporting.” The scope of sustainability reporting is extended to cover all large companies (both listed and unlisted) and all listed companies (except for listed micro companies). The entry into force of CSRD was planned in phases, with the first phase corresponding to its application to the sustainability reporting for the 2024 financial year by companies that were already covered by this obligation under the previous Directive 2014/95/EU.

The CSRD requirements that bring about the most significant changes are the standards to be followed in preparing sustainability information, the mandatory certification of this information, the presentation format, and the concept of materiality to be applied in identifying the aspects to be reported.

Regarding the standards to be followed when preparing sustainability information, companies covered by the CSRD must follow the European Sustainability Reporting Standards (ESRS) prepared by the European Financial Reporting Advisory Group (EFRAG) [European Financial Reporting Advisory Group (EFRAG), 2024]. As for certification, companies are now obliged to provide limited assurance of reliability, which is expected to evolve into a requirement for reasonable assurance of reliability. The sustainability information to be reported can no longer be presented in a separate report, but must be incorporated into the management report, which is intended to evolve into an integrated report. In addition, sustainability information is required to be disclosed in electronic format according to a digital taxonomy. Finally, the identification of material aspects to be reported should be based on a double materiality analysis, which considers how sustainability-related risks may affect the company’s financial performance and how the company’s activities impact the environment and stakeholders. This materiality concept combines financial materiality with impact materiality (Oll et al., 2025).

A new financial or sustainability reporting context provides fertile ground for new studies, particularly on how companies prepare for new requirements or what determines the early or voluntary adoption of new requirements. The adoption of International Accounting Standards and International Financial Reporting Standards (IAS/IFRS) in Europe in 2005 and the entry into force of Directive 2014/95/EU in 2017 are examples of contexts previously studied. The new context of CSRD, has already motivated studies on the preparedness of European companies for ESRS adoption, by Filho et al. (2025) and Nicolo et al. (2025). These authors assessed the level of preparedness to the CSRD, specifically for complying with ESRS, based on relevant and recent disclosures of sustainability information on corporate websites and/or in publicly available reports.

The Euronext Lisbon’s EU regulated market comprised 34 companies in 2024. These companies constitute the first wave of companies subject to the CSRD, as they were already within the scope of the previous Directive. The benchmark stock index in Portugal is the Portuguese Stock Index (PSI), which was initially launched as the PSI 20, to include the 20 highest ranking companies. In 2022 it was renamed the PSI to allow a variable number of constituent companies to enter the index, provided they have a free float market capitalization of at least 100 million euros (Euronext, 2021). The PSI index comprised 15 companies in 2024.

Our study aims to provide evidence of the preparedness of the first wave companies for the new requirements of the CSRD, by answering two research questions:

We use a different approach from that of previous studies on the preparedness to the CSRD (Filho et al., 2025; Nicolo et al., 2025). While Filho et al. (2025) included in their sample listed SMEs that will only be required to apply the directive later, we focus on listed companies that are subject to the CSRD from the 2024 financial year onwards, corresponding to the first wave of CSRD application. We assess the level of preparedness based on the application by companies of a set of reporting practices that represent the main changes introduced by the CSRD to overcome the limitations of Directive 2014/95/EU. Nicolo et al. (2025) analyzed other reporting practices alongside the preparedness for the ESRS, but only for the year 2023. In addition, our study focuses on a three-year period prior to the implementation of the CSRD (2021–2023) and, to the best of our knowledge, this is the first study to examine the effect of inclusion in a benchmark stock index on corporate reporting practices.

The results reveal significant differences in the level of preparedness among companies subject to the first wave of CSRD implementation, with companies included in the benchmark stock index adopting most of the new sustainability reporting requirements as early as 2023. The level of preparedness is higher among larger companies, those included in the benchmark stock index and companies with lower leverage. The findings provide regulators with evidence that companies require differentiated support in implementing the CSRD, depending on their size and debt. For managers, the results indicate that inclusion in a stock market index generates institutional pressures that enhance reporting quality, an effect that can be strategically anticipated by companies seeking such inclusion.

The contexts relating to the voluntary or early adoption of IAS/IFRS and the entry into force of Directive 2014/95/EU provide evidence and theoretical support for the reasons that lead companies to anticipate the adoption of a new reporting requirement. This makes it possible to understand the factors that determine the level of preparedness for the new reporting context.

By “voluntary adoption” we mean the decision to implement standards spontaneously by companies whose application is not mandatory, i.e. not imposed by a legal instrument. “Early adoption” of standards refers to the decision to implement standards before they become mandatory for the companies to which they will apply from a certain date. Thus, although they are different concepts, they are both decisions made by managers and neither result from a legal obligation or imposition. In either case, managers must prepare for the new requirements in the expectation that the benefits will outweigh the costs. Therefore, the decision to voluntarily adopt or to anticipate the adoption of a new reporting standard, indicates a certain level of preparation for it.

The implementation of IAS/IFRS has provided fertile ground for studying the preparedness for adoption and the determinants of early adoption or voluntary adoption of new regulations (Agana et al., 2023). Before Regulation 1606/2002 was introduced, listed companies were required to prepare financial information in accordance with either local GAAP, US GAAP or IAS/IFRS. Empirical evidence in this context, shows that voluntary adoption of IAS/IFRS was driven by the desire to improve communication with multiple stakeholders, particularly for companies listed on multiple stock exchanges, while avoiding the additional cost of preparing financial information (e.g. Ashbaugh, 2001; Cuijpers and Buijink, 2005; Dumontier and Raffournier, 1998; Murphy, 1999).

Regulation 1606/2002 required IAS/IFRS to be applied when preparing the consolidated accounts of European listed companies, from 2005 onwards, and provided a context to analyze the determinants of early adoption and to assess the preparedness of companies to the new standards (e.g. Affes and Callimaci, 2007; Guerreiro et al., 2008; Zéghal and Sellami, 2010). Guerreiro et al. (2008) measured the degree to which Portuguese listed companies were prepared for the adoption of IAS/IFRS, through a questionnaire based on their situation in terms of the conversion process and the assessment of the impact of IFRS.

Other contexts regarding determinants of and preparedness for IAS/IFRS include the voluntary adoption of the standards by private (nonlisted) companies (e.g. Bertrand et al., 2021; Guerreiro et al., 2012; Matonti and Iuliano, 2012; Yang, 2014) and the early adoption of specific standards such as IFRS 15 (e.g. Quagli et al., 2021). Quagli et al. (2021) examined the level of preparedness of European companies for the application of IFRS 15 based on the information disclosed on the expected impact, in the pre-adoption phase.

In the context of sustainability reporting, following the entry into force of Directive 2014/95/EU, several studies have emerged with the aim of assessing the level of preparedness of companies, analyzing the period between the publication of the Directive and its entry into force in 2017. In these studies, companies’ level of preparedness was assessed based on their “nonfinancial information” reporting practices before the Directive, which were voluntary in nature, analyzing the degree to which these practices were aligned with the requirements imposed by the Directive. Thus, a greater number of disclosures of nonfinancial information represents a greater level of preparedness for Directive 2014/95/EU (e.g. Dumitru et al., 2017; Venturelli et al., 2019).

Recently, studies have begun to emerge examining the level of preparedness for ESRS (Filho et al., 2025; Nicolo et al., 2025) and for the IFRS Sustainability disclosure standards (Baboukardos et al., 2022). Filho et al. (2025) analyzed the level of preparedness of EU companies to comply with the ESRS, based on a sample of 20 listed companies, from different countries and sectors. The level of preparedness is assessed by identifying relevant and recent disclosures of sustainability information on corporate websites and publicly available reports. The results show a substantial variation in preparedness, with larger companies exhibiting higher levels of preparedness compared with small and medium-sized companies. Nicolo et al. (2025) assessed the degree of preparedness of Italian companies for the implementation of ESRS, based on the alignment of disclosures already made by companies that follow GRI standards with the new ESRS requirements. Baboukardos et al. (2022) analyzed the degree of preparedness of companies with high levels of greenhouse gas emissions to comply with the requirements of IFRS S2, based on the information disclosed in their annual reports prior to the publication of that standard.

We consider that “voluntary adoption,” “early adoption” and the preparation for a new reporting context to be decisions aimed at improving the quality of financial and nonfinancial (sustainability) information reported. Previous studies identify reasons, factors and motivations that may influence those decisions, capturing them through determinants such as size, leverage and profitability. This study tests six determinants, described below, based on stakeholder theory, agency theory, signaling theory, legitimacy theory and institutional theory.

Empirical evidence shows a positive relationship between company size and the level of preparedness for both new financial reporting standards (e.g. Affes and Callimaci, 2007; Guerreiro et al., 2008; Quagli et al., 2021; Zéghal and Sellami, 2010) and new sustainability reporting frameworks (e.g. Dumitru et al., 2017; Nicolo et al., 2025; Venturelli et al., 2019). Large companies have more complex business models and are more diversified across geographical and product markets. In the light of stakeholder theory (Freeman, 1984; Freeman and Evan, 1990), large companies have more diverse stakeholder groups with which to communicate through sustainability reporting and are more pressured to meet the information needs of those stakeholders. In addition, larger companies tend to be more exposed to public scrutiny, facing higher political and litigation costs that could be mitigated through better quality reporting (Watts and Zimmerman, 1978, 1990). In summary, large companies have more incentives to disclose better information, while at the same time they are better able to bear the costs associated with preparing for a new reporting framework, as they have more resources and expertise needed to produce more sophisticated reports:

Agency theory centers on the contractual relationship (the agency contract) between managers (the agent) and capital providers – investors/shareholders and lenders (the principal). This relationship is characterized by the existence of information asymmetries and agency conflicts, known as agency costs (Fama and Jensen, 1983; Jensen and Meckling, 1976). These agency costs, along with information asymmetries, are reflected by investors and lenders in the returns required and, consequently, affect the cost of capital (Diamond and Verrecchia, 1991). More leveraged companies may have incentives to prepare better reports to reduce information asymmetries and agency costs associated with debt contracting, thereby reducing the cost of debt, or improving other debt conditions. For this reason, empirical evidence documented a positive relationship between leverage and early adoption of new regulations (e.g. Affes and Callimaci, 2007; Zéghal and Sellami, 2010). However, companies in Portugal, including listed companies, mostly rely on private lending in the form of bank loans. Compared to public debtholders, private lenders have greater access to private information and closer relationships with borrowers (Fama, 1985). In this context, corporate reporting is not the only means of addressing information asymmetry. For this reason, a greater dependence on debt can have the opposite effect or no effect on the level of preparedness to new reporting contexts (e.g. Guerreiro et al., 2008; Nicolo et al., 2025). Within this context, we adopt a neutral position, refraining from specifying the expected direction of the relationship between the level of preparedness and leverage:

Profit (positive net income) is an important indicator to investors and other stakeholders as employees, so it represents a “good new” and signals the quality of the company. In the light of the signaling theory (Connelly et al., 2011; Spence, 1973) only “high quality” companies are likely to send signals to differentiate themselves from “low quality” companies. By early adopting best reporting practices, companies present themselves as more transparent and signal their reporting quality. More profitable companies also have more resources to allocate to the reporting process. Empirical evidence corroborates these effects showing a positive relationship between profitability and the level of preparedness to new regulations (e.g. Guerreiro et al., 2008; Quagli et al., 2021):

Legitimacy theory explains the differences observed in sustainability reporting practices of companies operating in industries with different environmental impacts. Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions (Suchman, 1995). The harmful impact of an activity on the environment creates public pressures and regulatory risks to companies. Thus, companies in industries with a greater environmental impact can use sustainability reporting to manage their legitimacy, i.e. to gain, maintain or repair legitimacy (Suchman, 1995). Empirical evidence suggests that companies belonging to environmentally sensitive industries tend to disclose more sustainability information to justify their actions (Boshnak, 2022) and to adopt better sustainability reporting practices to maintain their reputation and mitigate legitimacy threats (Nicolo et al., 2025) than companies in other industries:

The existence of a sustainability committee within the board of directors provides specialized knowledge, efficient task division and increased accountability related to sustainability matters (Dobija et al., 2025). According to stakeholder theory (Freeman, 1984; Freeman and Evan, 1990), setting up sustainability committees improves management’s ability to act in the stakeholders’ best interests, particularly regarding the quality of sustainability reporting (Nicolo et al., 2025; Velte and Stawinoga, 2020):

To remain in the PSI index, companies must comply with free float market capitalization criteria. This presupposes attracting investors and analysts, which puts pressure on companies to generate interest and confidence in their shares among these groups. On the one hand, this context provides incentives to improve the quality of sustainability reporting, which serves as a mechanism for reducing information risk and increasing liquidity (Diamond and Verrecchia, 1991). On the other hand, companies belonging to the PSI index are subject to a similar constraining process, that forces them to resemble each other, leading to a homogenization of the reporting practices. Institutional theory (DiMaggio and Powell, 1983) describes this process as mimetic isomorphism, which pressures companies to adopt similar reporting practices even when they are voluntary and flexible.

In this study we question whether the fact that the company is listed on the PSI index can determine the level of preparedness. Being listed on a stock exchange puts more pressure on companies to adopt best reporting practices, as listed companies have their reported information scrutinized more closely by investors, regulators and analysts. Listed companies are at greater risk of reputational damage if they fail to keep up with the latest reporting trends and mitigating reputational risk can be an incentive to adopt better reporting practices (Bebbington et al., 2008). Belonging to an index exacerbates these pressures:

The level of companies’ preparedness to adopt the CSRD is measured by the presence of reporting practices that reflect the new reporting requirements, as follows:

• INTEGR: Presentation of an integrated report or a combined report.

The CSRD requires the presentation of sustainability information within the management report, not allowing the presentation of separate sustainability reports. It promotes the integrated presentation of financial information with sustainability information. Integrated reporting was introduced in 2010 with the establishment of the International Integrated Reporting Council [International Integrated Reporting Council (IIRC), 2021, 2024]. Integrated reporting is not a mandatory practice for Portuguese companies. However, many companies have combined the various components of the traditional annual report in one single document, to reduce repetition of information and promoting the articulation of financial and nonfinancial information. Therefore, we consider that both the presentation of integrated reports in accordance with the IIRC Framework and the combination of information without following the IIRC Framework (which we refer to as a combined report) are indicators of preparedness for the CSRD.

• ESRSTA: Application of the ESRS for the preparation and presentation of sustainability information.

The CSRD requires the use of the ESRS to promote standardized and comparable sustainability reporting. These standards were only published in July 2023 by EFRAG, so we don’t expect to find reference to them in 2021 and 2022.

The first companies to adopt these standards are those that were already subject to the previous Directive 2014/95/EU. For these companies, the application of ESRS will be mandatory in 2025, for information relating to the 2024 financial year. However, this application could take place as early as 2023, as a way of preparing for the requirements of the new CSRD. We consider as an indicator of preparedness for the CSRD, the effective application of the ESRS in 2023. Reports that only mention the standards as a future obligation, without demonstrating their implementation, are not considered.

• DOUBLM: Presentation of a double materiality analysis.

The concept of double materiality was introduced in Directive 2014/95/EU, but it has gained greater prominence and importance in the CSRD, since becoming mandatory. The CSRD established that companies must report on the financial impact of sustainability on their business and the impact of their activities on society and the environment. Disclosure of a materiality analysis now encompasses both impact and financial materiality. We consider the presentation of a double materiality matrix to indicate compliance with this requirement. Disclosure of impact materiality indicators alone is not considered.

• ASSURE: Certification of sustainability information based on either a limited assurance or a reasonable assurance.

Directive 2014/95/EU granted Member States the freedom to require an independent service provider to verify nonfinancial information. In such cases, the external auditor’s responsibility was limited to ensuring that the nonfinancial information was presented in one of the provided formats. In Portugal, no additional requirements were imposed, meaning external auditors were not required to verify the reliability of the nonfinancial information. The CSRD now requires companies’ sustainability information to be certified by means of a limited assurance, with the aim of moving on to reasonable assurance later. Therefore, we consider the presentation of a limited or a reasonable assurance to be an indicator of preparation for the certification requirement of the new directive.

The four reporting practices described highlight the main changes imposed by the CSRD to overcome the limitations of Directive 2014/95/EU. The presence of these practices is quantified using a binary variable that takes the value 1 when the practice is implemented, and 0 otherwise (Nicolo et al., 2025; Venturelli et al., 2019). To answer the first research question, a descriptive analysis of these practices is carried out. The answer to the second research question and the hypotheses testing are based on a multivariate analysis. For the multivariate analysis, we create the PREP variable, which captures the implementation of the CSRD requirements in a combined manner. Following previous studies (Nicolo et al., 2025; Venturelli et al., 2019) the PREP variable consists of a score constructed from the sum of the values of the previous variables (INTEGR, ESRSTA, DOUBLM and ASSURE), divided by 4 (the maximum possible score). Therefore, the PREP variable ranges from 0 (the lowest level of preparedness) to 1 (the highest level of preparedness).

The potential effect of the identified determinants on the level of preparedness is tested using a multivariate regression model, with the following specification:

The dependent (explained) variable is the level of preparedness (PREP), the independent variables include SIZE, LEV, PROFIT, ENVSENS, SUSTCOM and PSI. Table 1 shows the definitions of all the variables.

The sample comprises Portuguese listed companies that will be subject to CSRD as of the 2024 financial year (the first wave of CSRD implementation). To this end, the Euronext Lisbon website was consulted on 07/01/2025 (Link to Euronext websites Link to the cited article). For the period under analysis, there were 34 companies listed on the main market, 15 of which were included in the PSI index. Nine companies were excluded for various reasons, namely, having a financial year different from the calendar year and lack of sustainability information for the sample period. This resulted in a final sample of 25 companies, 14 of which belong to the PSI index.

The first financial reporting period of effective application of the CSRD corresponds to the year 2024, so we considered the years 2021–2023 as the analysis period to provide a broader and more comprehensive view of the preparation process. This allows us to identify progressive changes in companies’ behavior before, during and after the publication of the CSRD. The year 2021 represents the period before the publication of CSRD, when future obligations were unclear. Conversely, the year 2022 corresponds to the year of the official publication of the CSRD, marking the beginning of the phase in which companies became aware of the requirements and started adjusting to them. Finally, the year 2023 shows how companies are preparing for and adapting to the requirements that will become mandatory in 2024.

The data used to construct PREP (INTEGR, ESRSTA, DOUBLM and ASSURE), ENVSENS and SUSTCOM variables was collected from corporate reports and processed through manual content analysis. This analysis was focused on combined reports, integrated reports and reports and accounts with separate sustainability reports from each company in the sample, for the years 2021, 2022 and 2023. The analysis looked for the presence or absence of the respective reporting practice.

The SIZE, LEV and PROFIT variables were constructed using financial data collected from the ORBIS online database, on 21 February 2025, via software version 358 and update number 358004.

The answer to the first research question (RQ1) is based on a descriptive analysis of the reporting practices adopted by Portuguese listed companies in our sample (see Table 2). These practices are represented by dichotomous variables that take the value 1 when a given practice is implemented and the value 0 when it is not.

As can be seen from Table 2, the practice of presenting an integrated or combined report (INTEGR) has been progressively adopted by companies over the analyzed period, rising from 18 companies in 2021 (72%) to 22 (88%) in 2023. This is the reporting practice with the greatest level of implementation, consistent with the fact that the concept of integrated reporting emerged several years ago.

Regarding the adoption of ESRS, no companies applied them in 2021 or 2022, as these standards were only published in 2023. In 2023, 11 (44%) companies have decided to adopt these standards early to prepare for the requirements imposed by the new CSRD.

The variable relating to the implementation of the double materiality concept (DOUBLM) has increased markedly, rising from 2 (8%) companies in 2021 to 16 (64%) in 2023. This signals the companies’ concern about identifying the material ESG aspects that should be disclosed.

During the analyzed period, the certification of sustainability information based on a limited or reasonable assurance (ASSURE) has not evolved, suggesting that a group of 14 (56%) companies decided early on to certify their information, while the remaining 11 companies are delaying compliance with this requirement until the CSRD becomes mandatory. As will be seen later, 13 of the 14 companies that subject their sustainability information for external certification belong to the PSI index.

Table 2 also presents the annual average values for the level of preparedness (PREP). As PREP represents the proportion of practices implemented by each company, we observe an overall growing trend in implementation, from 34% in 2021 to 47% in 2022 and 63% in 2023. In response to RQ1, Portuguese companies achieved an average preparedness level of 63% in 2023 to implement the CSRD.

Table 3 presents the practices implemented separately for companies that are and are not listed on the PSI index. There are differences in the level of preparedness, with companies belonging to the PSI showing a higher level of implementation of the various practices analyzed, compared to companies not belonging to the PSI. In 2023, all companies belonging to the PSI (14) adopted the double materiality concept, and 13 of the 14 present an integrated report or a combined report and subject their sustainability information to limited or reasonable assurance. The adoption of ESRS is the least implemented practice, with only 11 of the 14 PSI companies already following these standards in 2023. It is also noted that assurance is the practice that seems to have been implemented earlier by PSI companies, since the 13 companies that assure information in 2023 have been doing so since 2021. Regarding companies not belonging to the PSI, the practice with the highest degree of implementation is the presentation of an integrated or combined report, with 9 of the 11 companies doing so since 2021. The application of ESRS is a practice that has not yet been implemented by any of these companies. As for double materiality analysis and assurance, only 1 and 2, respectively, of the 11 companies not belonging to the PSI shows evidence of implementing it in 2023.

These results suggest that inclusion in the PSI index may be a determinant of the level of preparedness for the CSRD requirements, which is consistent with greater information demands from these companies’ stakeholders. Because the inclusion in the PSI index was not tested in previous studies, we also perform a cross-tabulation analysis on the association between membership in the PSI index and the implementation of each of the reporting practices required by CSRD (see Table 4).

As can be seen in Table 4, regarding the PSI and INTEGR variables, the test is not significant, meaning that the hypothesis of independence of the variables is not rejected. This suggests that the presentation of integrated or combined reports is not associated with the company’s membership of the PSI index. Regarding the other reporting practices (ESRSTA, DOUBLM, ASSURE), the test is significant and the hypothesis of independence of the variables is rejected. These results corroborate that a company’s presence in the PSI index should be considered as a determinant of the level of preparedness for the CSRD requirements.

To test the hypotheses formulated, we estimated the regression model using ordinary least squares method. Table 5 provides the descriptive statistics for the continuous variables, i.e. the model’s dependent variable (PREP) and independent variables that capture the determinants identified in previous studies (SIZE, LEV and PROFIT).

The PREP variable reflects the level of preparedness of companies for the new CSRD requirements and ranges from 0 (the lowest level of preparedness) to 1 (the highest level of preparedness). As can be seen from analyzing Table 5, a minimum value of 0 for this variable indicates that there are companies that have not yet started preparing to implement the CSRD. Conversely, the maximum observed value of 1 show that some companies are already fully prepared for the new directive’s requirements. The mean value of 0.480 indicates the average level of preparedness of Portuguese listed companies to implement the CSRD over the entire period analyzed.

Table 6. Shows the multivariate regression estimation results.

As can be seen in Table 6, the model exhibits adequate explanatory power, as evidenced by the significant p-value in the F-statistic and the adjusted R² of 53.2%. Also, all VIF values are well below the threshold limit of 10 (the maximum VIF value is 3.378 for PSI), so the absence of multicollinearity issues is confirmed (Gujarati and Porter, 2009).

The results of the model estimation reveal a positive (0.137) and statistically significant coefficient (p  < 0.05) for SIZE, indicating that company size positively affects preparedness, as predicted in H1. Larger companies engage with a more diverse set of stakeholders, to whom they communicate through sustainability reporting. According to stakeholder theory (Freeman, 1984; Freeman and Evan, 1990), these groups exert pressures that shape the characteristics and quality of such disclosures, particularly regarding the level of preparedness for the CSRD. In line with the recent study by Nicolo et al. (2025) on Italian companies, this result suggests that larger companies tend to have greater visibility and public exposure, as well as more financial resources, enabling them to invest more in adapting to the new CSRD.

The LEV variable shows a negative (−0.402) and statistically significant coefficient (p  < 0.01), indicating that indebtedness negatively affects companies’ preparedness to implement the new Directive. This result corroborates H2, as the sign of the relationship was not predicted. Agency theory (Fama and Jensen, 1983; Jensen and Meckling, 1976) predicts a positive relationship between leverage and the level of preparedness, as found by Nicolo et al. (2025) in the Italian context. However, this type of relationship is not observed in the Portuguese context. The negative effect of leverage suggests that private debt providers, such as banks and suppliers, may be less likely to pressure companies into providing sustainability reports than capital market investors and may use other means to address information asymmetry.

The results reveal a positive (0.241) and statistically significant coefficient (p  < 0.01) for PSI, indicating that membership to the PSI index positively affects the extent to which companies are prepared to implement the new Directive, corroborating H6. Testing for this determinant is novel, and the results suggest that, in addition to the pressure of greater visibility and public exposure induced by capital markets, membership of the PSI index leads to a mimetic isomorphism (DiMaggio and Powell, 1983), resulting in the homogenization of reporting practices among PSI index companies.

The coefficients for the remaining variables (PROFIT, ENVSENS and SUSTCOM) are not statistically significant, indicating that they have no effect on the dependent variable. These findings contradict initial expectations and do not support H3, H4 and H5. This suggests that profitability, industry environmental sensitivity and the existence of a sustainability committee do not influence Portuguese companies’ preparedness to CSRD. Nicolo et al. (2025) obtained significant results regarding industry environmental sensitivity and the presence of a sustainability committee, but not regarding profitability.

Based on a content analysis of sustainability reporting practices implemented by Portuguese listed companies, this study depicts the level of preparedness of companies for the application of the CSRD in the first wave of implementation.

Almost all companies belonging to the PSI index adopted the practices required by the CSRD in 2023, except for the application of ESRS, which, for obvious reasons, only began later. These practices include presenting sustainability information in an integrated or combined report, adopting a double materiality concept and certifying sustainability information based on limited assurance. In contrast, companies that do not belong to the PSI reveal very low levels of preparedness.

A multivariate analysis revealed that company size, PSI index membership and leverage are key determinants of the degree of preparedness for the CSRD. The company’ s size and PSI index membership have a positive effect on preparedness, supporting the predictions of stakeholder theory and institutional theory. However, contrary to the predictions of agency theory, leverage has a negative effect, indicating that sustainability reporting plays a different role in private lending. It seems that the degree of preparedness for the CSRD is not determined by profitability, the industry’s environmental sensitivity, or the existence of a sustainability committee.

To the best of our knowledge this is one of the first studies to test the effect of inclusion in a benchmark stock index on corporate reporting practices, providing evidence that capital market pressure is a key determinant of companies’ level of preparedness for new reporting requirements and may serve as indicator of more stringent reporting behavior.

The findings offer insights for regulators, managers and academics. For regulators, they highlight the need for differentiated support mechanisms, particularly targeting smaller and more indebted companies which exhibit lower levels of preparedness. For managers, the evidence indicates that the visibility associated with inclusion in a stock market index generates institutional pressures that lead to more stringent reporting behavior. For academics, the data and methodology used in this study allow the research to be replicated in other countries, providing empirical evidence that is temporally very close to the phenomenon under investigation.

The focus on determinants at company level, the small sample size, and the manual collection of most of the data can be pointed out as limitations of this study. However, the particularities of smaller capital markets can only be understood through studies of this nature, conducted by researchers familiar with their own country’s particularities.

Similar studies need to be carried out in other European countries to provide evidence to identify institutional patterns that can be tested as determinants in a European sample.