Part 1 – Addressing the Key Differences between ESG and CSRD
Becoming the First Climate-Neutral and Fully Circular Continent
Starting in 2025, companies will be mandated to report on ESG (Environment Social Governmental) factors under the European Corporate Sustainability Reporting Directive (CSRD), which will come into effect as part of the European Green Deal. The CSRD succeeds the Non-Financial Reporting Directive (NFRD).
ESG information must be included in annual reports and verified by an external party. This initiative aims to help Europe achieve its goal of becoming the first climate-neutral and fully circular continent.
The CSRD will apply from January 1, 2024, to companies already covered by the NFRD, and from 2025, it will extend to large companies not currently under the NFRD’s scope.
Initially, the CSRD reporting requirement will apply only to large organisations meeting at least two of the following criteria: more than €50 million in turnover, €25 million in total assets, and/or 250 employees (FTE). Medium-sized and small companies will be exempt until 2026.
Key Differences between ESG and CSRD
The key differences between ESG (Environmental, Social, and Governance) and CSRD (Corporate Sustainability Reporting Directive) in the context of FoodTech are primarily related to their scope, regulatory nature, and implementation requirements. Here’s a detailed comparison:
1. Definition and Scope
ESG (Environmental, Social, and Governance):
- Scope: ESG refers to a broad set of criteria used by companies to measure and report their environmental, social, and governance performance.
- Voluntary Nature: While increasingly expected by investors and stakeholders, ESG reporting is generally voluntary (though this is changing in some regions).
- Focus Areas:
- Environmental: Sustainability, carbon footprint, energy use, waste management, biodiversity.
- Social: Labor practices, community engagement, human rights, diversity and inclusion.
- Governance: Corporate governance structures, ethical practices, transparency, risk management.
CSRD (Corporate Sustainability Reporting Directive):
- Scope: CSRD is a European Union directive that mandates standardised sustainability reporting for large companies and certain SMEs (Small and Medium-sized Enterprises).
- Regulatory Nature: CSRD is legally binding for companies within its jurisdiction.
- Focus Areas: Covers comprehensive sustainability topics, including detailed ESG factors, with a strong emphasis on providing standardised and comparable data.
2. Regulatory Framework and Compliance
ESG:
- Frameworks and Standards: Companies may use various frameworks like GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board), TCFD (Task Force on Climate-related Financial Disclosures), or create bespoke reports.
- Compliance: Typically voluntary, though influenced by market expectations, investor demands, and certain national regulations.
CSRD:
- Directive Requirements: Companies must follow specific guidelines and standards set by the EU, ensuring uniformity and comparability in reporting.
- Enforcement: Mandatory for large EU companies and non-EU companies with significant EU presence, with phased implementation starting from 2024.
- Assurance: Requires third-party assurance to ensure accuracy and reliability of reported data.
3. Implementation and Reporting Requirements
ESG:
- Flexibility: Companies have flexibility in choosing how and what to report, often tailoring reports to specific stakeholders or strategic goals.
- Depth of Reporting: Can vary significantly between companies, with no standardised depth or breadth of information required.
CSRD:
- standardisation: Requires detailed and standardised reporting aligned with the European Sustainability Reporting Standards (ESRS).
- Granularity: Emphasises detailed disclosure on sustainability risks, opportunities, and impacts, with specific metrics and qualitative information.
- Digitalisation: Encourages digital format submissions to facilitate access and comparison.
4. Stakeholder Focus
ESG:
- Investor-Centric: Primarily driven by investor interest in sustainability performance, though also relevant to customers, employees, and other stakeholders.
- Market Influence: Strongly influenced by market trends and evolving stakeholder expectations.
CSRD:
- Regulatory and Stakeholder Focus: Driven by regulatory requirements with a focus on transparency for a broad range of stakeholders including investors, regulators, and the public.
- Policy Alignment: Aligned with EU policy objectives such as the European Green Deal and climate neutrality goals.
5. Impact on FoodTech Industry
ESG:
- Innovation and Differentiation: Encourages FoodTech companies to innovate in sustainability practices, enhancing brand reputation and market differentiation.
- Voluntary Best Practices: Allows companies to adopt best practices at their own pace, potentially leading to varied levels of sustainability performance.
CSRD:
- Compliance and standardisation: Mandates standardised sustainability reporting, which may drive widespread adoption of best practices across the FoodTech industry.
- Transparency and Accountability: Increases accountability and transparency, leading to more informed decision-making by stakeholders and potential regulatory scrutiny.
In summary, while ESG encompasses a broad and flexible approach to sustainability reporting often driven by market and investor pressures, CSRD represents a specific regulatory requirement within the EU that mandates standardised, detailed, and comparable sustainability reporting.
For FoodTech companies, adhering to CSRD will mean more rigorous reporting and compliance efforts, whereas ESG offers a broader, albeit less standardised, framework for demonstrating sustainability leadership.
Both ESG and CSRD offer great opportunities for making a difference in the area of marketing for companies in the food industry. These opportunities are addressed in part 2 of this blog and can be found here.
