what are esg and csrd criteria and what is the difference
By Oscar Geerts
Companies were in the past largely focused on their economic performance and sustainability, but stakeholders are getting more concerned, and rightfully so, about the non-financial impact and sustainability of organizations. To date, two major frameworks are in place that guide companies reporting on their non-financial performance, namely the ESG criteria and the CSRD.
The two may overlap but are quite distinct in their use. This article dives into what the terms are, and how they differ.
What are ESG criteria?
ESG stands for Environmental, Social and Governance and are criteria often voluntarily used. The ESG criteria have become increasingly important, firstly for investors. The criteria can, for example, be used to assess a company’s performance on these topics. Performing poorly on it, may result in commercial backlash with clients or customers.
When considering the criteria well and adhering to it in the company’s operations, it may give companies a commercial advantage as clients and customers develop sympathy for, or can relate themselves with practices of an organization, such as inclusive hiring, or zero plastic use.
What is the CSRD?
CSRD stands for Corporate Sustainability Reporting Directive and is a European Union regulation. It came into effect in January 2023 and will require large companies in the EU to report on their sustainability practices. This mandatory reporting is expected for the first time over the performance of 2024, to be reported in 2025.
The CSRD strengthens the non-financial reporting requirements and has become mandatory for companies operating at a certain size. A key principle in CSRD is the ‘double materiality’ approach. This approach requires companies to not only look at how sustainability issues affect the company’s financial performance, but it requires companies to also look at how they themselves impact the environment, society, and the economy. Though such assessments are not unique to CSRD, the directive is making this approach mandatory which is not always the case.
Where do ESG and CSRD come together?
Though having different backgrounds, there are certainly overlaps between the two concepts. Both concepts are driven by the necessity for companies to undertake responsible practices in their overall operations, managing non-financial risks and share how the company impacts the society and the environment. The elements in the ESG critieria are part of the CSRD requirments. ESG is voluntary and therefore not using a single standard on how to capture it but the CSRD is requiring companies to have standardized reporting to be done on non-financial performances, including on ESG criteria.
How do the two differ?
It was already mentioned before, but it is also the most significant difference between the two concepts; ESG is voluntary in principle and CSRD is mandatory. ESG can therefore also be self-selected where companies may disclose information about their CO2 emissions but will not say much on their labour conditions in the factory. unless both ESG criteria are mandatory in certain jurisdictions. In CSRD reporting, it is mandatory for companies to report on both topics, and of course on so much more.
More interestingly though, the CSRD requires for the company to report not only on the labour conditions of its own employees, but also to report on the labour conditions of suppliers to the company.
Job Booster and value chains
At Job Booster, we strive to offer young job seekers dignified work, allowing them to take control of their own lives and livelihoods. With the ever increasing globalization of value chains, we see that there is an increasing interest to find (supply) partners abroad that at least have recognized the importance of sustainable business practices, especially when it comes to labour. Job Booster’s country offices know well where potential suppliers can be found and can support businesses in improving their compliance with relevant ESG-criteria, or the CSRD.
