What is the Difference Between CSRD and ESRS?
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In today’s rapidly evolving business landscape, environmental, social, and governance (ESG) considerations have become integral to corporate operations and strategy. As societies place increasing importance on sustainability and responsible business practices, regulatory frameworks have emerged to guide and standardise sustainability reporting.
The EU is at the forefront of this movement, introducing two key initiatives: the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standard (ESRS), which are pivotal to the EU’s efforts to enhance sustainability reporting practices across member states. While interconnected, these two initiatives serve distinct purposes within the larger context of corporate sustainability transparency.
In this article, we delve into the objectives and implications of these two critical components of the EU’s sustainability framework, including the fundamental difference between CSRD and ESRS.
CSRD vs ESRS
Understanding the difference between CSRD and ESRS
While the CSRD and ESRS are interconnected, they serve distinct functions. In essence, the ESRS is a reporting standard that will be used to meet the requirements of the EU CSRD. So whilst the CSRD sets out reporting requirements and obligations, the ESRS provide the framework and methodology for reporting. Companies subject to the CSRD need to navigate these differences strategically to ensure accurate and timely reporting.
CSRD: Driving Consistency and Transparency
The CSRD, introduced to replace the Non-Financial Reporting Directive (NFRD), mandates that large and listed companies within the EU report on a comprehensive array of ESG indicators. This includes greenhouse gas emissions, employee well-being, and diversity and inclusion. The primary objectives of the CSRD are threefold:
- Enhancing Consistency and Comparability: The CSRD aims to standardise sustainability reporting, making it more uniform and facilitating comparisons between companies.
- Improving Quality and Reliability: By introducing mandatory disclosure standards, the CSRD seeks to ensure that sustainability information is high-quality, enabling stakeholders to make informed decisions.
- Promoting Sustainability Progress: The CSRD encourages companies to identify and address sustainability impacts, risks, and opportunities, fostering improved management of ESG concerns.
ESRS: Guiding Detailed Reporting
Complementing the CSRD is the ESRS, which delineates the specifics of how companies should report sustainability information to comply with the directive. The ESRS provides a structured framework for reporting, covering a range of environmental, social, and governance aspects and outlines how and what information and ESG metrics companies need to report to comply with the CSRD. Notable features of the ESRS include:
- Standardising Reporting: The ESRS is designed to ensure that sustainability reporting is accurate, consistent, and comparable across the EU. It aligns with existing reporting frameworks such as the Global Reporting Initiative (GRI) Standards and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
- Framework Structure: The ESRS comprises two overarching standards (ESRS 1 and 2) and ten topical standards (ESRS E1 to E10), addressing a spectrum of sustainability issues, from general principles to specific environmental, social, and governance matters.
Implementing the CSRD and ESRS: Challenges and Opportunities
Implementing the CSRD and adhering to the ESRS present a range of challenges and opportunities for companies. From defining the scope of reporting to collecting and analysing relevant data, businesses must carefully plan their sustainability reporting journey. Ensuring data accuracy, selecting appropriate reporting processes, and staying abreast of ESRS developments are essential steps.
Paving the Way for a Sustainable Future
The CSRD and ESRS represent a critical step in the EU’s journey toward a more sustainable business landscape. By harmonising reporting practices and elevating the quality of disclosed information, these initiatives empower stakeholders to make informed decisions, drive positive change, and contribute to a more equitable, sustainable future. As companies align with these frameworks, they not only comply with regulatory requirements but also position themselves as leaders in sustainability, capable of navigating the complex terrain of ESG considerations with confidence and purpose.
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