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ESG, EU Taxonomy, CSRD, CSDDD - The most important directives at a glance

The transition to a more sustainable economy requires a clear understanding of what sustainability means in corporate governance and how it can be measured and reported. There are many guidelines for this, such as the CSRD, EU Taxonomy, GRI, CSDDD or SBTi. In order to maintain an overview and understand the differences between the various guidelines, this article highlights the role of Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) as cornerstones of modern corporate ethics and guides you through the extensive jungle of mandatory and voluntary reporting standards. 

CSR and ESG as core concepts

Corporate Social Responsibility (CSR) stands for the voluntary responsibility of a company towards society and the environment. CSR activities can include environmental protection, social commitment and ethical business practices and aim to ensure that companies fulfill their moral obligations and responsibilities to society.

CSR at a glance

What is ESG?

Environmental, Social and Governance (ESG ) focuses on three key areas of sustainability: environmental, social and governance. These are specific criteria used by investors, regulators and other stakeholders to assess the impact of companies on society and the environment, as well as their management practices. ESG criteria are increasingly serving as important factors in investment decisions to identify risks and opportunities related to sustainability aspects.

The difference between CSR and ESG

CSR and ESG differ in their objectives and approach. While Corporate Social Responsibility is based on voluntary measures that emphasize social and ecological responsibility, Environmental, Social, Governance provides a framework for the systematic assessment of these aspects in relation to risk management and value enhancement. CSR is therefore action-oriented, while ESG is evaluation- and strategy-oriented.

The concepts of CSR and ESG provide a solid starting point for companies to structure and measure their sustainability efforts. But responsibility goes beyond this. With the introduction of mandatory reporting standards such as the CSRD, politicians are emphasizing the need for companies to not only evaluate their sustainability performance internally, but also to communicate it externally in a transparent and comprehensible manner. This development shows how essential it has become to place responsible business practices at the heart of corporate strategy.

Mandatory reporting standards CSRD, ESRS, EU taxonomy, LkSG and CSDDD

To ensure that companies act sustainably and integrate ESG into their business strategy, there are various reporting standards that are mandatory.

Corporate Sustainability Reporting Directive (CSRD)

As a successor to the Non-Financial Reporting Directive (NFRD), the Corporate Sustainability Reporting Directive obliges large companies and all listed companies in the EU (SMEs) to report in detail on their environmental and social impacts. A key component of the CSRD is the introduction of the double materiality analysis, which obliges companies to consider their material environmental and social impacts as well as the financial impacts of the environment and society on the company. The CSRD promotes standardized and comparable reporting by prescribing the type and content of sustainability reports through the use of ESRS (European Sustainability Reporting Standards).

European Sustainability Reporting Standards (ESRS)

The European Sustainability Reporting Standards provide companies with clear guidelines for sustainability reporting and are intended to improve transparency and comparability. The ESRS standards comprise 82 disclosures with 127 key figures, over 50 percent of which are mandatory for companies. The data points include, for example, energy consumption and greenhouse gas emissions (carbon footprint), waste management, supply chain, water consumption, social impact and employee involvement.

Overview of the ESRS standards

EU taxonomy

The EU taxonomy is a classification system that determines which economic activities can be considered environmentally sustainable. It serves as a guide for investors, companies and policymakers to support EU environmental goals such as climate protection and pollution reduction. The taxonomy sets out detailed criteria for the sustainability of activities in order to prevent "greenwashing" and promote the financing of truly green projects. This system is central to the EU's strategy to promote sustainable finance and achieve the climate goals of the Paris Agreement. The EU Taxonomy Regulation is closely linked to the CSRD, as companies reporting under CSRD must also demonstrate how and to what extent their activities comply with the EU Taxonomy.

Supply Chain Due Diligence Act (LkSG)

The Supply Chain Due Diligence Act is a German law that aims to ensure compliance with human rights standards and environmental protection measures along global supply chains. Companies are obliged to identify risks of human rights violations and environmental damage, take preventive measures, report on their activities and implement remedial measures in the event of violations. The LkSG primarily applies to companies of a certain size based in Germany and aims to strengthen the responsibility of German companies for their supply chains.

Corporate Sustainability Due Diligence Directive (CSDDD)

The Corporate Sustainability Due Diligence Directive, in comparison to the German LkSG, is a European Union directive that obliges companies to exercise due diligence with regard to respect for human rights and environmental protection throughout their supply chain and business activities. The CSDDD aims to harmonize the efforts of EU member states by creating uniform requirements for companies' human rights and environmental due diligence obligations. The directive is intended to apply throughout Europe, cover the entire value chain and increase the accountability of companies for their impact on society and the environment.

Voluntary reporting standards GRI, GHG and DNK

In addition to the aforementioned mandatory reporting standards, there are also voluntary standards that enable companies to further intensify and individualize their efforts. 

Global Reporting Initiative (GRI)

The Global Reporting Initiative provides a flexible framework for comprehensive reporting on economic, environmental and social performance. The GRI standard is recognized worldwide and is used voluntarily by companies to make their sustainability performance transparent.

GRI Standards at a glance

Greenhouse Gas Protocol (GHG)

The Greenhouse Gas Protocol is the most widely used method for measuring and reporting emissions. The GHG Protocol divides emissions into Scope 1, 2 and 3, allowing companies to monitor their direct and indirect emissions and develop strategies to reduce them.

German Sustainability Code (DNK)

The German Sustainability Code offers a less complex framework for sustainability reporting and is particularly accessible to SMEs. It covers key aspects of sustainability and promotes the transparency of corporate performance.

Further directives: Green Claims Directive and SBTi

Having highlighted the importance of mandatory and voluntary reporting standards, it is also important to look at other relevant directives. Initiatives such as the Green Claims Directive, the SBTi and the GHG Protocol broaden the spectrum of sustainability efforts by companies. They address specific aspects of sustainability practice and reporting, from avoiding misleading environmental claims to setting science-based targets for climate protection.

Green Claims Directive

The Green Claims Directive is an EU directive that aims to combat misleading environmental claims (so-called "greenwashing") by establishing strict criteria for the use of environmental claims. Companies must be able to clearly substantiate their environmental claims in order to increase consumer confidence and ensure fair competition.

Science Based Targets Initiative (SBTi)

The Science Based Targets Initiative provides companies with a science-based framework to set and implement their climate targets. The SBTi supports companies in developing emission reduction targets in line with the Paris climate goals in order to limit the global temperature increase to well below 2°C.

Validation process of the Science Based Targets Initiative

CSRD, EU taxonomy, SBTi etc. lead to improved sustainability performance

The variety of standards and guidelines described illustrates the comprehensive landscape of sustainability reporting that companies are confronted with. By understanding and applying these guidelines, companies can not only meet regulatory requirements, but also improve their sustainability performance and contribute to the global sustainability agenda. The challenge is to integrate these standards in a meaningful way and see reporting as an opportunity to improve their own sustainability performance.

With Planted, we support your company with this challenge. Whether ESG, CSRD, CSDDD or EU taxonomy - with the help of our software solution and a strong partner network with over 30 sustainability experts, we will find the right solution for your company. Simply book a free consultation now.

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How-to: Strategic sustainability for companies