Keeping up with legislation change is never easy, especially when it comes to sustainability directives. In recent years, the European Union has seen an increased focus on sustainability and nature related regulations, with two key directives driving discussions in board rooms around the EU: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). The first question most ask when encountering CSDDD for the first time is: Is there a relationship between CSRD and CSDDD? The short answer is yes, they are related but address different aspects of corporate sustainability in the European Union.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The CSRD focuses on the disclosure and reporting of sustainability-related information by companies. The core objective is to ensure that companies provide meaningful, consistent, and comparable information on their environmental, social, and governance (ESG) performance. It expands the scope of the previous Non-Financial Reporting Directive (NFRD) and applies to a wider range of companies, including large EU companies, listed companies, as well as non-EU companies with significant operations in the EU. 

Under the CSRD, companies are required to report on their sustainability risks, impacts, and governance structures. This includes detailed reporting on climate change, human rights, diversity, anti-corruption, and other ESG issues. The CSRD aims to promote transparency and accountability in corporate sustainability practices, empowering stakeholders such as investors, consumers, and regulators to assess companies’ sustainability performance with reliable, comparable data.

What is the Corporate Sustainability Due Diligence Directive (CSDDD)?

The CSDDD, on the other hand, focuses on due diligence obligations for companies to identify, prevent, and mitigate adverse sustainability impacts throughout their operations and supply chains. It aims to hold companies accountable for their impact on human rights and the environment across their entire value chains-both upstream (e.g., suppliers) and downstream (e.g., customers). 

While the CSRD focuses on transparency and reporting, the CSDDD emphasises proactive risk management. Companies must identify and address potential ESG risks in their business operations and supply chains. The CSDDD applies to large EU companies and non-EU companies with significant EU market presence, similar to the CSRD, and it targets sectors with higher risks, such as mining, agriculture, textiles, and high-impact industries. 

To comply with the CSDDD, companies are required to integrate ESG considerations into their governance, policies, and operations. This includes conducting human rights and environmental impact assessments across their supply chains, implementing effective grievance mechanisms, and taking steps to remedy any adverse impacts identified. These measures ensure that companies actively manage their responsibilities toward human rights and environmental sustainability.

The Relationship between CSRD and CSDDD

While both directives aim to improve corporate responsibility and transparency, they tackle different aspects of corporate sustainability. 

• CSRD focuses on reporting and transparency: It requires companies to disclose how they manage and mitigate ESG risks and impacts.
• CSDDD focuses on due diligence and accountability: It requires companies to actively manage and prevent ESG risks, particularly those related to human rights and environmental harm across their operations and supply chains.

Together, they form a comprehensive framework for corporate sustainability in the EU, combining transparency (CSRD) with accountability (CSDDD). In practice, the CSRD can help companies gather data and demonstrate their efforts to manage ESG risks across their supply chains, which will be essential for meeting the requirements of the CSDDD. For instance, CSRD-compliant sustainability reports can showcase how companies address human rights, environmental harm, and ESG challenges in their operations and supply chains.

Key Considerations for CSRD and CSDDD Compliance

While the relationship between the CSRD and CSDDD is hopefully somewhat more clear, companies should also consider other important factors to ensure compliance and implementation:

Best Practices for Compliance: Companies can benefit from looking at case studies and industry best practices for implementing these directives. Insights from businesses that have successfully embedded ESG due diligence into their operations or created transparent sustainability reporting frameworks can serve as valuable models for others.

Sector-Specific Challenges: Both directives apply to sectors with higher ESG risks, such as agriculture, mining, textiles, and chemicals. Companies in these industries face unique challenges, from ensuring safe working conditions in supply chains to mitigating significant environmental impacts. Understanding and addressing sector-specific requirements will be essential for compliance.

Remedy and Accountability Mechanisms: A significant aspect of the CSDDD involves establishing effective mechanisms to remedy adverse impacts, such as human rights violations or environmental harm. Companies should establish clear processes for handling grievances, conducting impact assessments, and demonstrating how they address identified risks. These mechanisms must align with international frameworks like the UN Guiding Principles on Business and Human Rights.

Integration of ESG into Governance: Both directives require ESG considerations to be embedded in governance and decision-making processes. Under the CSDDD, boards of directors and senior management must take responsibility for due diligence, while the CSRD mandates clear reporting on governance structures. Practical guidance on aligning governance with sustainability goals will be critical for businesses.

National vs. EU Regulations: The interplay between EU-wide directives and national regulations can create complexities for companies operating in multiple member states. Understanding how local regulations will align with and complement the CSRD and CSDDD is essential to avoid compliance gaps.

Enforcement and Penalties: Regulatory enforcement of the directives includes penalties for non-compliance, audits, and detailed reporting requirements. However, the specifics of enforcement, such as the role of national regulators or EU-wide oversight, remain an evolving area that companies need to monitor closely.

By addressing these critical issues, companies can not only ensure compliance but also build more resilient and sustainable business operations, meeting both regulatory and stakeholder expectations. At Senus, we specialise in helping businesses navigate complex sustainability frameworks by offering verified environmental data and actionable insights on natural datasets. Contact us today to learn how we can support your sustainability journey.