CSRD and CSDD: What are the differences?
Summary
The CSRD focuses on reporting companies' environmental, social, and governance (ESG) performance, requiring transparency in these areas. The CSDD directive imposes due diligence obligations to identify and mitigate negative impacts on human rights and the environment throughout the value chain.
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What is the CSRD?
The CSRD (Corporate Sustainability Reporting Directive) is a European directive that strengthens sustainability reporting obligations for companies. Adopted in 2021, it replaces the NFRD (Non-Financial Reporting Directive) and broadens the transparency requirements regarding companies’ environmental, social, and governance (ESG) impacts.
The CSRD aims to standardize and improve the quality of the information disclosed, thereby facilitating comparisons between companies and enabling investors to better assess sustainability-related risks. This directive applies to a wide range of companies.
What is the CSDD?
The CSDD (Corporate Sustainability Due Diligence Directive) is a European directive that requires large companies to implement procedures to identify, prevent, and mitigate the negative impacts of their activities on human rights and the environment throughout their value chain. Adopted in 2022, the CSDD aims to hold companies accountable for their business practices, particularly regarding their relationships with suppliers and partners.
This directive mainly applies to large companies operating within the European Union, as well as non-European companies generating significant revenue in the EU. The companies concerned must not only assess the risks related to human rights and the environment but also take corrective actions and publish reports.
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For a company, it is crucial to understand the differences between the CSRD and the CSDD: while the CSRD imposes strict transparency requirements on ESG performance, the CSDD goes further by requiring concrete actions to prevent and mitigate negative impacts on human rights and the environment throughout the value chain.
The differences between CSRD and CSDD
CSRD vs. CSDD: objectives and scope
The CSRD (Corporate Sustainability Reporting Directive) and the CSDD (Corporate Sustainability Due Diligence Directive) pursue distinct yet complementary objectives in the realm of sustainability. The CSRD aims to improve corporate transparency regarding environmental, social, and governance (ESG) performance by standardizing sustainability reports. Its primary objective is to provide investors and other stakeholders with reliable information to assess sustainability-related risks.
In contrast, the CSDD focuses on implementing effective due diligence practices to identify, prevent, and mitigate negative corporate impacts on human rights and the environment. Its scope extends throughout the entire value chain.
CSRD vs. CSDD: companies covered
The CSRD applies to a broad range of companies, including large publicly traded companies, those with more than 250 employees, a turnover of more than 40 million euros, or a total balance sheet exceeding 20 million euros. On the other hand, the CSDD primarily targets large companies operating within the European Union. It also covers non-European organizations with significant activities in the EU. The CSDD includes requirements for companies with complex supply chains, obliging them to monitor and manage risks within their value chain.
CSRD vs. CSDD: compliance requirements
The CSRD requires companies to publish detailed reports on their environmental, social, and governance (ESG) performance. Companies must comply with reporting standards proposed by EFRAG, and their reports must be verified by an independent third party to ensure accuracy and transparency.
Conversely, the CSDD requires companies to implement tailored procedures to identify and reduce negative impacts on human rights and the environment within their value chain. Companies must also take corrective measures in cases of non-compliance and publicly report their sustainability efforts. Non-compliance with the CSDD can lead to legal sanctions and negatively affect an organization’s brand image.
CSRD vs. CSDD: impact on corporate strategy
Both the CSRD and the CSDD have significant impacts on corporate strategy. The CSRD pushes companies to integrate sustainability into their strategy by making transparency on ESG performance mandatory. This requires rigorous data collection, aided by specialized software like D-Carbonize, and clear communication with all stakeholders.
The CSDD, on the other hand, directly influences risk management and supply chain practices. Companies must not only monitor but also act to mitigate risks, which may involve changes in their business practices and supplier relationships. Both directives thus encourage a more proactive and responsible approach to sustainability.
