The recent addition of ESRS capabilities to our software has triggered a wave of curiosity among our users. One question keeps popping up: "What's the difference between CSRD and ESRS?" It's a great question, and one we aim to answer today.
We'll delve into the nuances of each, highlighting their similarities, differences, and how they intersect to shape the future of sustainability reporting. So, let's embark on this journey to demystify CSRD and ESRS, and uncover how they work together to drive transparency and accountability in the corporate sustainability landscape.
How They Are Similar and Connected
- Common Goal: Both CSRD and ESRS aim to improve the quality, comparability, and transparency of sustainability reporting by companies. They ultimately serve the broader objective of driving sustainable investments and practices within the EU.
- Mandated by the EU: Both are EU-mandated frameworks and instruments. The CSRD is the legal directive that sets the reporting requirements, while the ESRS is the set of standards developed to help companies fulfill those requirements.
- Interdependence: The CSRD mandates that companies subject to it use the ESRS to prepare their sustainability reports. In other words, compliance with CSRD requires following the ESRS guidelines.
Major Differences
- Nature: CSRD is a legal directive that outlines who needs to report, what they need to report on, and when they need to report. It establishes the high-level requirements and principles for sustainability reporting. ESRS, on the other hand, is a technical standard that provides the detailed how of reporting. It defines specific metrics, disclosure requirements, and reporting formats.
- Scope: CSRD sets the scope of application, defining the types of companies and organizations that are subject to the reporting requirements. The ESRS provides detailed guidance on the specific topics that need to be reported on within that scope.
Is it possible to report on ESRS but not be fully compliant with CSRD?
Technically, a company could prepare a report using the ESRS framework but still fall short of full CSRD compliance. Here's why:
- Double Materiality: CSRD requires companies to conduct a 'double materiality assessment' to identify sustainability issues that are material both to the company's financial performance and to its impact on people and the environment. A company could report on ESRS topics but fail to adequately demonstrate double materiality in its report, leading to non-compliance.
- Other CSRD Requirements: CSRD has additional requirements beyond just using the ESRS, such as the need for external assurance of the report and its inclusion in the management report. A company might report on ESRS but not meet these other aspects of CSRD, again resulting in non-compliance. https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2023/csrd-corporate-sustainability-reporting-directive-faqs
In conclusion, while the ESRS provides a crucial framework for CSRD compliance, it's essential to remember that it's just one piece of the puzzle. Navigating the complexities of CSRD requires a holistic approach, ensuring alignment with all aspects of the directive.
Important Considerations:
- CSRD Implementation Timeline: The clock is ticking, with the first set of companies needing to begin compiling data in 2024 and the first report due in 2025.
- Ongoing Updates: The ESRS is a dynamic framework, with additional sector-specific standards expected to be introduced over time. Staying abreast of these changes is crucial to maintaining compliance.
At diginex, we understand the challenges and opportunities that CSRD presents. Our diginexESG software, with ESRS built-in, streamlines the reporting process, while our diginexAdvisory team offers expert guidance to ensure your organization not only achieves compliance but also leverages CSRD to embed sustainability into your core strategy, creating long-term value.
Remember, CSRD is not just a regulatory hurdle but a strategic opportunity. Let Diginex help you navigate this journey, ensuring compliance while unlocking the potential for sustainable growth and success.
