The European Union are introducing a series of directives to encourage and enable businesses to reach sustainability goals, as part of the EU-wide aim of becoming climate-neutral by 2050. Two of the most widely discussed directives are the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Despite being created to complement each other, the two directives differ in certain ways.
Similar Aim
One of the largest sustainability directives introduced is the CSRD. The CSRD was introduced to give businesses a guide for measuring and managing their impacts, risks, and opportunities. It focuses on the idea of double materiality, which reflects the joint aim of, impacts on the company, and impacts due to the company. It has the widest scope of all directives and covers a wide range of topics, culminating in an annual sustainability report that companies are required to publish publicly.
The Corporate Sustainability Due Diligence Directive (CSDDD) entered into force in July 2024, although companies are not required to comply until 2027, with a phase-in process until mid 2029. It has been introduced to implement specific due diligence processes for companies regarding their impacts on human rights and the environment. The due diligence directive requires companies to take account of the risks and impacts not only in their direct operations, but in their value chain. The value chain includes their subsidiaries, partners and any other important stakeholders that have a material impact on the business.
Both directives emphasise the importance of transparency and accountability. Companies subject to both directives must demonstrate efforts to measure, manage and disclose their impacts, risks and opportunities.
Differing Reporting Requirements
Although both directives have some differences, they are not completely separate. They were constructed so that companies do not need to treat them completely separately. Although the CSRD is more urgent in terms of timeline, the CSDDD is designed to overlap with the CSRD reporting requirements.
The CSRD is a directive that outlines mandatory reporting guidelines. It indicates what companies subject to the directive are required to report regarding their operations and management approaches. The CSRD requirements are aligned with a group of standards named the European Sustainability Reporting Standards (ESRS). These are split into Environmental, Social and Governance topics. Material topics are identified for each company, which are then assessed based on their impacts on business, and the business's impact on the topics. Those that are subject to the CSRD will know that the reporting requirements are combined in a financial-style sustainability report with all required information reported on an annual basis.
The CSDDD requires companies to introduce certain processes, holding them accountable for their current business ethics, and setting a higher standard. It highlights the importance of companies' accountability for their impacts, which has been extended to include their up and downstream chain of activities. The core element of this requirement is the identification of adverse human and environmental impacts in a company's supply chain. It requires companies to complete due diligence on real and potential effects of company activity throughout their value chain. When the CSDDD is in action, companies can combine both reporting requirements into one report. Although both directives have different focuses, the information required will overlap.
Scope Overlap
CSRD Scope & Timeline | CSDDD Scope & Timeline |
Phase-in process: 2025-2029 | Phase-in process: 2026-2028 |
European Companies Large undertakings are those that satisfy any two of;
| European Companies Large EU limited liability companies and partnerships with;
|
Non- European Companies
| Non- European Companies
|
SMEs Small and Medium Enterprises are eligible if they satisfy any two of;
| SMEs SMEs are not covered by the proposed rules, but the directive provides measures for SMEs which can indirectly affect them as business partners in supply chains. |
Complementary Nature
For those companies that are subject to both directives, there is overlap between the two and it is recommended that companies do not treat them as separate entities because the information required to comply with one directive, can also be a requirement of the other. Reporting on the CSRD and CSDDD simultaneously can give a detailed understanding of the company value chain.
The main difference between the two directives lies in their focus. The CSRD requirements provide a comprehensive overview of the impacts both on and by the company. In contrast, the CSDDD specifically examines the upstream and downstream operations of the value chain.
Company Takeaways
There are a lot of misconceptions about the sustainability directives being introduced. Although they require more work, in terms of data collection, measurement and management, companies who are subject to more than one sustainability directive often find a lot of overlap between the requirements. This can make data management and reporting requirements easier to achieve and give companies a great deal of insight into their operations and value chain.
In this new age of sustainability reporting, it can be easy to concentrate on the added work and time needed to comply. However, these directives are also an opportunity to redefine your company’s measure of success. The transparency and accountability of your company carries more weight than it has before. Using these directives can give companies a competitive advantage.