CSRD and CSDDD – the Directives Driving the EU Green Deal
CSRD and CSDDD are both sustainability directives passed by the European Commission. The CSRD is the Corporate Sustainability Reporting Directive, aimed to provide more transparency and accountability for stakeholders about the companies’ state of ESG. The CSDDD, or CS3D, is the Corporate Due Diligence Directive. It is the first EU directive that holds companies and their entire value chain accountable for due diligence.
Both directives are aligned with the goals of the EU Green Deal. The EU Green Deal aims to transform the EU into a modern, resource-efficient, and competitive economy by achieving no net emissions of greenhouse gases by 2050, decoupling economic growth from resource use, and ensuring that no person or place is left behind.
What is the CSDDD and what does it have to do with CSRD?
The aim of CSDDD
The CSDDD requires European companies and companies operating in the EU to create a strategy for conducting due diligence, such as respecting human rights and protecting the environment and climate.
Under the CSDDD, companies within its scope must identify actual and potential impacts associated with their activities, subsidiaries, or business partners’ activities. When analysing their activities, the company should pinpoint the areas where adverse effects are most likely to occur. For instance, information gathered through the complaint procedure or obtained directly from business partners should be used for the evaluation.
The aim of CSRD
The purpose of the CSRD is to increase transparency on how companies work with sustainability-related issues and to help companies consider sustainability on a long-term time horizon. CSRD expands the reporting detail compared with the requirements defined under the NFRD.
Companies must report sustainability information according to the European Sustainability Reporting Standards (ESRS), which cover governance, impacts on strategy and financial planning, processes for identifying and assessing impacts, and metrics and targets for managing sustainability risks and opportunities. CSRD also defines a requirement that the sustainability information needs to be externally verified under limited assurance.
What is the scope of CSDDD?
The scope of the CSRD directive is significantly bigger than that of the CSRD. Under CSRD, companies from large to listed SMEs must compile a sustainability report. Under CSDDD, the pool of companies required to comply is much smaller. It is important to understand that even though SMEs do not fall under the directive, they will also be affected through the value chain.
An EU Member State company falls within the scope of the CSDDD when one of the following conditions is met:
a) the company has an average of more than 1000 employees and a global net turnover of EUR 450 million or more in the most recent financial year;
(b) the company itself does not meet the thresholds mentioned in (a), but it is the ultimate parent company of a group that has reached those thresholds;
(c) companies or the ultimate parent company of a particular group that has concluded franchise or licensing agreements with more than EUR 22.5 million royalties and a global net turnover of over EUR 80 million.
The CSDDD will also cover Non-EU companies if they meet any of the following criteria:
(a) the company has an average of more than 1000 employees and a global net turnover of EUR 450 million in the year preceding the last financial year in the European Union;
(b) the company is the ultimate parent company of a group whose consolidated net turnover in the European Union reaches the threshold defined in (a)
(c) a company has joined a group or is the ultimate parent company of a company that has concluded franchise or licence agreements in the Union with royalties over EUR 22,5 million in the year preceding the last financial year and with a net turnover in the Union over EUR 80 million in the year preceding the previous financial year.
The CSDDD applies to companies that meet the scope criteria for two consecutive financial years.
What is the difference between CSRD and CSDDD?
The CSDDD mandates companies to be responsible and have due diligence rules. CSRD ensures that companies report about their responsibility and practices.
CSDDD mandates companies incorporate due diligence into their strategy and management. Every company within the scope must ensure that the due diligence obligation is incorporated into relevant policies and risk management systems and formulate a policy for the risk-based due diligence obligation in cooperation with its employees.
The CSRD mandates companies to adhere to specific ESRS reporting standards. Above all, the CSRD is a reporting framework for companies operating in the EU
Power of digitalisation for compliant CSRD Reporting
CSRD reporting mandates a digital approach from the beginning, rendering manual efforts obsolete. Compliance with CSRD will require electronically tagged information and submission to the ESAP via the National Contact Point. ESAP is set to open in January 2028. Achieving CSRD requirements without specialised software is challenging. Enter Ecobio Manager: Your solution for seamless electronic tagging and ESAP delivery.
Ecobio Manager is a thorough solution for CSRD sustainability reporting. It encompasses double materiality assessment, taxonomy classification, data collection, sustainability statement preparation, assurance, and streamlined delivery to publication. Designed by sustainability experts, Ecobio Manager ensures compliance with CSRD and ESRS standards, streamlining the reporting process.
