By John Spear, Managing Director of epi Consulting
Europe’s introduction of corporate sustainability standards is reshaping the way businesses operate, report, and measure their impact on the environment and society. While businesses have long paid lip service to sustainability, two new directives – the Corporate Sustainability Reporting Directive (C.S.R.D.) and the Corporate Sustainability Due Diligence Directive (C.S.D.D.D.) – promise to enforce transparency and accountability in ways we haven’t seen before. Taken together, they’re Europe’s answer to growing concerns around corporate social responsibility. If you’re a company operating within Europe, or simply doing business in Europe, these new standards will affect you. But what, exactly, do these directives entail, and how do they differ from one another?
The C.S.R.D.
The C.S.R.D. came into force in 2023 as an expansion of Europe’s previous guidelines, the Non-Financial Reporting Directive (N.F.R.D.). Under the N.F.R.D., large companies were asked to report non-financial data, covering their environmental and social impact. But with the C.S.R.D., the European Union has introduced strict new standards to close the loopholes and ensure rigorous reporting.
Starting in January 2025, large companies in the E.U., as well as non-E.U. firms with substantial E.U. operations, will need to disclose detailed, auditable information on their environmental, social, and governance (ESG) performance. The aim is to give the public, investors, and regulators a clearer, fuller picture of a company’s effect on the planet and its people.
But it isn’t just an exercise in filling out paperwork. Each report must be verified and audited. And unlike the previous guidelines, companies will be required to adhere to standards set by the E.U. itself, which limits the room for selective reporting or ‘greenwashing.’ If a company pollutes excessively, disregards workers’ rights, or ignores principles of good governance, then this will now show up in a clear, verifiable format for all to see. The C.S.R.D. is, fundamentally, a transparency mechanism, intended to empower stakeholders with factual insights into corporate practices.
The C.S.D.D.D.
The C.S.D.D.D., passed in April 2024, goes one step further. While the C.S.R.D. asks companies to disclose their impact, the C.S.D.D.D. asks them to act on it. This directive requires companies to identify, assess, and address any risks to human rights and the environment across their supply chains. The directive envisions an ethical marketplace, where companies actively prevent and mitigate harm rather than simply report it.
By 2027, when the C.S.D.D.D. is fully enforced, companies will have to show ongoing efforts to tackle issues such as worker exploitation, pollution, and resource depletion. This means they must put in place and manage due diligence processes for every layer of their supply chains, from sourcing to production to distribution. This directive is a call not just transparency, but responsibility. Companies will have to identify any human rights or environmental risks associated with their activities and take proactive steps to address them.
Crucially, the C.S.D.D.D. applies not only to companies headquartered in the E.U. but also to non-E.U. companies that sell goods or services in the bloc. This global scope effectively entails raising the ethical standards of international commerce.
How they differ
Although both directives share a common goal – to hold corporations accountable for their impact on people and the planet – their approaches differ. The C.S.R.D. is about transparency, mandating companies to disclose their ESG data in a structured, verifiable way. In contrast, the C.S.D.D.D is about action, demanding that companies actively manage and mitigate any risks in their operations and along their supply chains.
Moreover, the C.S.R.D. will take effect sooner: companies are expected to comply by January 2025. The C.S.D.D.D., on the other hand, gives companies a bit more time to prepare for full implementation by 2027. The C.S.R.D. also focuses on reporting and auditing; it’s designed to make a company’s impact plain to see for investors, regulators, and the public. The C.S.D.D.D. requires more foundational operational changes. It pushes companies to align their entire supply chains with certain ethical and environmental standards.
Under the C.S.R.D., any failure to comply could be costly. There will be penalties for incomplete or inaccurate reporting. But C.S.D.D.D. could expose companies to even greater legal liabilities if they fail to prevent harm across their supply chains, for example, especially if that involves human rights abuses.
So the C.S.R.D. and C.S.D.D.D. represent a dual-pronged sustainability plan. Together, they lay the groundwork for a business landscape where transparency and accountability are not optional extras, not ‘nice-to-haves’, but mandatory. Europe, then, is moving towards a future in which companies must not only report honestly on what effect they have on others, but also make sure those effects are as positive as possible.
