CSDDD is a due diligence legislation requiring companies to identify, prevent, reduce and end negative human rights and environmental impacts in their operations and value chains. Companies also need to report annually on impacts and actions. Read our blog on everything you need to know about CSDDD.
CSRD is a reporting directive requiring companies to perform a double materiality assessment and produce an annual report disclosing the impacts, risks, opportunities and action plans associated with their material environmental, social and governance (ESG) issues.
What are the key similarities and differences between CSDDD and CSRD?
Core focus
CSDDD focuses on doing — taking action to end adverse impacts. CSRD focuses on materiality andreporting — identifying and transparently disclosing impacts. But there is crossover. Like CSRD, CSDDD also requires annual reporting on adverse impacts and mitigation actions. And although CSRD is more focused on reporting than action, it does ask companies to disclose their climate plans in line with limiting global warming to 1.5°C.
Scope and timeline
Both apply to large companies operating in the EU. CSRD applies to more companies, including EU-listed SMEs, and is already in effect. CSDDD is narrower — only large companies with 1,000+ employees and a net turnover of €450+ million are in scope. Companies must comply with CSDDD by 2027 at the earliest.
Topic coverage
The topics covered by the legislations are broadly aligned. Both include human rights and environmental impacts and acknowledge their deeply interconnected nature. CSRD has the bigger picture in mind, covering issues related to governance, consumers and end-users. It also focuses on financial risks and opportunities, unlike CSDDD.
Value chain coverage
Both cover companies’ own operations as well as upstream and downstream operations — inside and outside Europe. But CSDDD has a smaller downstream scope, only covering certain operations such as distribution, transport and storage. CSRD goes further and covers end-users and product disposal.
Climate plans and reporting
Both ask for a climate transition plan aligned with limiting global warming to 1.5°C, and a publicly available annual report covering impacts and actions. CSRD’s reporting scope is more ambitious — see topic coverage above.
Prioritisation
Both require companies to prioritise impacts based on severity and likelihood. But CSRD’s double materiality assessment means companies don’t have to report on issues that are less relevant to them. CSDDD still requires companies to address lower priority impacts after addressing their higher priority issues.
Stakeholder engagement
Organisations need to continuously engage with internal and external stakeholders for both legislations. CSRD adopters must engage with stakeholders to perform the double materiality assessment and gather the necessary data. CSDDD requires stakeholder engagement throughout the due diligence process — from strategy-setting and training to providing a complaints procedure and monitoring due diligence measures.
Targeted SME support
Unlike CSRD, CSDDD adopters must try to avoid overly burdening business partners who are small and medium-sized enterprise (SMEs). This could include offering training to SME suppliers or upgrading management systems, and where necessary providing financial support.
Definitions
The definitions of impacts, risks and opportunities are aligned across the legislations. Impacts refer to potential and actual effects organisations have on the environment and society. Risks and opportunities refer to how sustainability issues could affect the organisation’s balance sheet.
What’s left to do if you already report to CSRD?
If you’re already on top of CSRD then you’re covered for CSDDD reporting and climate plan requirements. But there are some due diligence measures you’ll still need to carry out for CSDDD:
Create a policy that ensures risk-based due diligence.
Carry out in-depth assessments of individual suppliers in prioritised areas.
Take measures to prevent and mitigate potential adverse impacts, and minimise and end actual adverse impacts.
Provide a notification channel and complaints procedure.
Monitor the effectiveness of due diligence measures and update them accordingly.
Provide targeted and proportionate support for business partners who are SMEs, including non-discriminatory contractual assurances.
Context is ready to support you with all your CSRD and CSDDD needs — from devising strategies and conducting double materiality assessments, to writing policies and reports. If you would like to talk about your organisation’s needs, please get in touch via www.contextsustainability.com or helen.fisher@contexteurope.com.
Companies currently reporting toward Sustainability Accounting Standard Board (SASB) or Taskforce for Climate-related Financial Disclosures (TCFD) will need to transition to the new International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards for reporting years beginning on or after January 1, 2024.
Launched by the International Sustainability Standards Board (ISSB) in 2023, IFRS Sustainability Disclosure Standards (also known as the ISSB standards) provide investors with decision-useful, globally comparable sustainability-related information. Whether or not companies have previously reported to SASB and TCFD, those looking to voluntarily apply IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures) will benefit from a newly launched guide. It offers essential guidance as companies work toward full disclosure with the standard.
Our key takeaways from the guide include:
1. Voluntary application and investor expectations
IFRS S1 and IFRS S2 respond to investor need for transparent, comparable, and reliable data on climate and sustainability risks. While full compliance is encouraged, companies may implement the standards progressively. This flexibility allows companies to gradually build the necessary reporting systems and capabilities.
2. Clear communication on compliance
Companies will need to clarify the extent of their application by regularly updating and communicating their assessment of their progress toward compliance.
3. Transition reliefs and phased implementation
Recognizing that some companies may require time to converge on full disclosure, the ISSB has introduced transition reliefs. For example, companies may focus on climate-related disclosures in the first reporting year, with broader sustainability disclosures phased in later. Additionally, although IFRS S1 requires sustainability-related financial disclosures to be reported simultaneously with financial statements for the same period, companies may delay reporting sustainability information alongside financial statements and may defer certain disclosures, such as Scope 3 greenhouse gas emissions[i].
4. Proportionality mechanisms
To address varying levels of readiness, the ISSB has included proportionality mechanisms. These allow companies to report using “reasonable and supportable” data available at the time, without incurring excessive costs or efforts. Companies can apply qualitative approaches where quantitative data may be difficult to obtain initially, which is particularly helpful for first-time reporters or those with limited resources.
As companies transition to the ISSB standards, it’s important to note that many jurisdictions worldwide are either considering or have already mandated sustainability reporting aligned – either closely or partially – with the ISSB standards. At the time of this posting, jurisdictions that have adopted ISSB-aligned disclosure regulations include Bangladesh, Brazil, Costa Rica, Turkey, and Nigeria. Other jurisdictions such as New Zealand and the United Kingdom have adopted climate-related disclosure standards based on the TCFD recommendations. The UK government has also announced plans to create UK sustainability disclosure standards based on the ISSB standards.
No matter where you’re at in your disclosure journey Context can help. Whether its pulling together your first IFRS index, disclosing to CSRD, or creating a sustainability report that your stakeholders want to read, we can support you. Please reach out to myself (kyisin.aung@contextamerica.com) if you’d like to discuss your organization’s needs.
[i] Although the ISSB offers transition relief on Scope 3 emissions, California has enacted a new law (Senate Bill 219) requiring businesses to disclosure their climate-related financial risks and carbon emissions, including Scope 3. For companies operating in California, analyzing Scope 3 emissions will be a priority.
Businesses have long recognised that they can and should make a meaningful contribution to the UN Sustainable Development Goals (SDGs). And there’s a big prize on offer for solving major economic, environmental and social challenges and delivering on the goals — an estimated $12 trillion in business opportunities.
But in a growing number of cases, alignment is superficial, leading to accusations of SDG-washing — using the SDGs as a way to imply greater social and environmental impact. For example, the company mentions that it is partnering to deliver the SDGs (goal 17) because it has joined an industry body aimed at tackling deforestation, inequality, or another recognised sustainability challenge. Yet, it has not made any changes to its current sustainability strategy or ways of working.
Here are Context’s top tips for using the SDGs to drive meaningful change within your business.
1. Create a detailed map to guide your journey
For each of the 17 high-level goals, there are up to 12 targets — 169 targets in total. And for each target, there are between two and four indicators of progress. But many companies don’t look beyond the headline goals.
A comprehensive approach to SDG mapping requires companies to assess both their positive and negative impacts at the target level. It enables you to understand where the organisation can have the biggest impact, but also identify the trade-offs — where pursuing benefits in one area could cause harm in another. Building a new coal-fired power station improves access to affordable energy (goal 7), but also generates increased emissions slowing climate action (goal 13). A thorough evaluation also ensures no opportunities or risks are overlooked.
You will need to look at many of the same sources you use to identify and assess your company’s sustainability matters as part of any Double Materiality Assessment. Combining the two provides a rounded view of the company’s impacts, risks and opportunities.
2. Explore the full value chain
SDG mapping should cover the full value chain — not just the company’s own operations. A pharmaceutical company’s core focus on improving health and wellbeing (goal 3) may be undermined if new treatments can’t get to market. Looking upstream and downstream helps to identify the areas where partnership is essential for delivering on the aims of the SDGs (goal 17).
3. Adopt a less is more approach
With the exception of some multinational, portfolio businesses, few organisations can have an impact on all 17 SDGs. It is better to focus on just a few core goals without becoming blinkered to the company’s impacts — positive and negative — on other SDGs.
If impact is genuinely broader than just a few goals, you could reference linked goals where company actions create co-benefits. For example, providing better nutrition (goal 2) may help children to concentrate better in schools and enjoy the benefits of quality education (goal 4).
Transparency breeds trust. Stakeholders expect a company to explain its approach to prioritising the SDGs. That means showing the company has selected the areas where it can make the biggest impact and directly contribute to the target. A record of providing employee training does not represent a contribution to quality education (goal 4), though improving access in emerging markets to the textbooks the company produces might.
It also means acknowledging that the company can’t have a positive impact in all areas — and indeed in furthering one goal may generate trade-offs in another area.
4. Mind the gap
Companies should focus on the SDGs where they can have the greatest impact. But less scrupulous organisations have adopted the same approach with dubious motives.
Consider the soft drinks company that focuses on sustainable consumption and production (goal 12), but fails to address (or even acknowledge) its impact on good health and wellbeing (goal 3). Or how about the fossil fuel company that focuses on decent work and economic growth (goal 8), but overlooks climate action (goal 13).
These are deliberate instances of SDG-washing. But companies can face similar accusations when they fail to explain why they have chosen to put the focus on some areas and not others.
5. Integrate the SDGs into the core business
Some companies pepper their annual sustainability report with logos of the individual SDGs, but then the goals are not mentioned again until the following report. True impact only stems from integrating the goals and targets within the business.
Researchers at Stanford University have identified companies that have embedded the SDGs into everything they do. African technology company Safaricom has woven the goals into its statement of purpose, descriptions of team tasks and even personal objectives. This helps to explain how the finance team provides ‘transparency and visibility on our procurement practices and fighting corruption in all its forms (goal 16)’ or HR promotes decent work and good labour practices (goal 8).
Meanwhile, Danish biotechnology company Novozyme uses the SDGs as a lens to decide which new products to advance and which to shelve.
6. Measure and demonstrate progress
Impact is hard to measure, particularly in relation to systemic issues. Over 80% of business leaders have indicated that measurement challenges prevent progress towards the goals.
This is where comprehensive SDG mapping comes into its own. The Stanford researchers highlighted how Ramboll assessed revenues against its priority SDGs to identify which business units directly contributed to delivery of the goals and which didn’t. By shifting focus on to the business units with greatest impact, it was able to demonstrate progress towards the goals, while reducing negative impacts elsewhere.
7. Approach the SDGs as you would other reporting frameworks
Most companies mention their contribution to the SDGs in their annual sustainability reports, but rarely treat disclosures with the same level of thoroughness as other reporting frameworks such as the Global Reporting Initiative (GRI) or the IFRS’s International Sustainability Standards.
Greater visibility is needed. If a company says it is contributing to the SDGs, its commitment and actions should be clearly connected to the SDGs targets — and supported by robust data. The GRI’s business reporting database provides guidance on how the SDGs align with common reporting frameworks, enabling the SDGs to be integrated into wider reporting activities. Done well, it reassures stakeholders that companies are serious about their social and environmental impact and build trusts.
Referencing the company’s contribution to the SDGs in the CEO’s introduction to the annual sustainability report demonstrates that the commitment comes from the top of the organisation.
Context supports companies to map their impacts and understand their contribution to the SDGs and their material issues. This provides the foundation for robust sustainability strategy, reporting and communications – beyond the addition of a few SDG logos to your report. If you would like to talk about your organisation’s needs, please get in touch via www.contextsustainability.com or helen.fisher@contexteurope.com.
The CSDDD (CS3D) is a new EU human rights and environment due diligence legislation that applies to large companies operating in the EU. It requires processes be embedded in the business to identify, prevent, reduce, and end negative human rights and environmental impacts in their operations, subsidiaries, and value chains — both inside and outside Europe.
Is your company subject to CSDDD?
Two types of companies need to comply:
EU-based companies with 1,000+ employees and a global net turnover of €450+ million.
Non-EU-based companies with a net turnover of €450+ million in the EU.
Companies must comply by 2027, 2028, or 2029 depending on number of employees, global turnover amount, and whether they’re based in the EU or not.
What are the key steps to implementation?
1. Integrate due diligence into corporate policies
Make sure that due diligence is integrated into all relevant policies and risk management systems. You also need to have a specific policy that ensures risk-based due diligence.
2. Map your value chain and assess risks
It’s crucial to get an understanding of where your company’s actual and potential impacts lie. Start by mapping your value chain to identify areas with adverse impacts and risks, and prioritise them based on likelihood and severity. Then companies must carry out in-depth assessments of individual suppliers in prioritised areas.
3. Take measures to prevent, mitigate, and end adverse impacts
Preventing and ending adverse impacts on human rights and the environment is the core of the CSDDD. Companies should implement the following:
Human rights and environmental strategies.
Responsiblepurchasing practices — including assurances to comply with minimum standards, and supplier screening and assessments.
Corrective measures and termination of business relationship as a last resort.
Employee and supplier training.
Stakeholder engagement.
Targeted and proportionate support for business partners who are SMEs, including fair and non-discriminatory contractual assurances.
4. Provide a complaints procedure
Companies must provide a notification system which is accessible to potentially affected stakeholders and their representatives — including NGOs and human rights defenders, for example. The complaints procedure should be fair, publicly available, accessible, and transparent. Workers and their representatives must be informed of the procedure.
5. Monitor the effectiveness of due diligence measures
Periodically assessing your due diligence measures will help you see if they’re suitable and effective. Update your due diligence policy and measures as needed.
6. Publicly report impacts and due diligence processes
Compliance with CSRD means compliance with CSDDD reporting requirements. Companies must produce a publicly available annual statement on the potential and actual adverse impacts identified and due diligence measures taken.
7. Have a climate transition plan aligned with 1.5°C
Combat climate change with a transition plan aligned with limiting global warming to 1.5°C. If you’re complying with CSRD then your climate strategy is already ticked off the list.
What’s the connection to CSRD?
They are both new EU sustainability regulations covering social and environmental factors and applying to the operations and value chains of large companies. Both require public disclosure and a climate transition plan aligned with the Paris Agreement.
But while the CSDDD focuses on preventing and ending negative effects, the CSRD focuses on transparent disclosure.
For a more in-depth analysis of the overlap between CSRD and CSDDD, watch out for our upcoming blog on how they match up.
What can you do now to get started?
The first step is to familiarise yourselves with the CSDDD requirements to understand if, when and how you must comply. Assessing existing due diligence roles, policies and management systems will help you understand your gaps and establish any roles and responsibilities needed. The next step is to map your value chain to identify and prioritise risks based on likelihood and severity.
Once you understand where your biggest risks are, devise a plan to set up the necessary due diligence measures, engaging with both internal and external stakeholders. The strategy should include: in-depth supplier risk assessments, measures to prevent and mitigate impacts, grievance mechanisms, assessments to monitor due diligence processes, annual reporting, and a climate transition plan in line with the Paris Agreement.
Context is ready to support you with all your CSDDD needs — from value chain mapping and devising due diligence strategies, to writing policies and CSRD / CSDDD-aligned reports. If you would like to talk about your organisation’s needs, please get in touch via www.contextsustainability.com or helen.fisher@contexteurope.com.
Language is a powerful — but often overlooked — tool in sustainability. It is how we shape ideas and understand the world around us. It helps us to connect with each other and with nature. By naming the things we value, we demonstrate what is important to us and to society as a whole.
Of course, language is also how we communicate knowledge about the social and environmental challenges we face ‘in a way that empowers people to take necessary actions for more sustainable lifestyles’, notes John Canning of Kingston University. And yet language figures very little in our conversations about sustainability. Neither culture nor language are explicitly mentioned within the Sustainable Development Goals (SDGs), despite the UN considering both fundamental to achieving 14 of the 17 SDGs.
There are no words for climate change in many languages, including Yoruba, Igbo and Hausa which are widely spoken in Nigeria — even though these communities are already feeling the impact of extreme weather events. Talk of ‘climate change’ can feel distant and elitist in the face of day-to-day problems.
Even within Europe, we have examples of concepts that have struggled to cross borders. In early versions of the Brundtland definition of ‘sustainable development’ first adopted by the United Nations in 1987, the term was mistranslated into French as dévéloppement durable (robust and durable) rather than dévéloppement soutenable (sustainable over the longer term).
At Context, writing is central to the work we do for our clients. We appreciate that it is sometimes hard to fully convey the sentiment expressed in one language when translating to another without losing some of the nuance and subtlety of the message.
Why does all this matter?
Given the scale of the climate and nature crises, we need to mobilise as many people to take action as possible. We have previously highlighted research indicating English-speaking consumers lack understanding of key concepts, creating a business-consumer sustainability language barrier. That challenge is multiplied for companies trying to engage with multinational teams — or work with suppliers, customers and other stakeholders across the world.
Companies may also be missing out on opportunities to identify regional best practice that could be rolled out across the business. Research into linguistic injustice by Tatsuya Amano of the University of Queensland has revealed that non-native English speakers are 2.5 times more likely to have their scientific papers rejected by a journal because they find it harder to express their ideas and convey the originality of their research in English. In the corporate world, similar linguistic challenges may translate to a shyness to speak up about local initiatives.
As Erika Darics of the University of Groningen points out, ‘specific communication strategies influence attitudes and behaviours towards sustainability issues’. The English lexicon of sustainability is dominated by terms such as ‘reduction’ and ‘efficiency’, which focus on the things we have to lose in moving to a lower-carbon world. It makes the transition feel hard and unappealing. Other languages may offer a better vision for the kind of relationship with the world we could create — something we want to move towards. As change management specialists will attest, we need to create the desire for change before we can do things differently.
The new world could be one of ‘hiraeth’ (Welsh: deep yearning for and connection with the land around us) or ‘lagom’ (Swedish: having enough or just what we need). We don’t need to be fluent in Welsh or Swedish to familiarise ourselves with these words, just as we don’t need to learn German to recognise ‘Schadenfreude’ or Danish to appreciate ‘hygge’. Getting to grips with just a few words can open our eyes to inspiration from other cultures.
Similarly, being mindful of these issues can help us to be better communicators. It is about making a conscious effort to explain strategies and concepts in clear and simple terms that won’t get lost in translation. It helps us to be more inclusive.
There are also potential benefits for brands. Research across 13 countries found that a whopping 88% of respondents wanted brands to demonstrate understanding and appreciation of national identity — and 93% wanted brands to speak to them in their own language. Sadly, only 23% of those surveyed believed that brands truly delivered. Stepping up to the mark by offering ‘engaging, culturally relevant’ messaging and customer services could be an important competitive differentiator. For Maria Schnell, Chief Language Officer at RWS, a company that develops artificial intelligence-enabled translation tools, it means layering human insight and expertise over machine translation.
There is no easy formula for how to achieve communication that is culturally relevant. The answers will vary between one organisation and the next. Developing an awareness of the issues, a deep understanding of context and focusing on stakeholder needs is a good place to start.
Many companies operate, or conduct business with partners, in challenging contexts1 that can pose significant human rights risks. This is especially true for large multinationals with complex supply chains, where the threat of modern slavery and human rights violations are a very real concern.
Adopted in 2011, the United Nations Guiding Principles on Business and Human Rights (UNGPs) establish a globally recognized framework for business and human rights. The UNGPs rest on three pillars: 1) the state’s duty to protect human rights; 2) corporate responsibility to respect human rights; and 3) ensuring access to remedy for those affected by adverse impacts.
Operational grievance mechanisms (OGMs) are formal channels to receive complaints from stakeholders affected by a company’s business activities. By fostering two-way dialogue with these stakeholders companies can resolve grievances swiftly and fairly. Establishing effective grievance mechanisms, aligned with international best practice, should be a cornerstone of any company’s strategy to uphold human rights within its operations and supply chains.
While there is no one-size-fits-all approach to building an effective grievance mechanism, all companies should consider a set of criteria when developing their OGM:
Fit for purpose: OGMs work best when tailored to the operating context. This involves specifying how and where grievances can be lodged, whether through an individual, a form, or an online platform to encourage stakeholders to use the mechanism when needed.
Clarity: Clearly defined grievance procedures outline how complaints will be handled. Transparently communicating the steps involved in investigating grievances assures stakeholders of the legitimacy of the process.
Objectivity: All complaints must be investigated objectively and thoroughly. This requires appointing trained individuals who can handle investigations impartially, without bias.
Timeliness: Promptly acknowledging and addressing complaints is essential to maintain stakeholder trust in the grievance process. This involves setting clear timelines and milestones to provide feedback on investigation outcomes and resolutions to complainants.
Confidentiality: Ensuring confidentiality and respecting the privacy of the complainant are fundamental aspects to the grievance process. Stakeholders must be assured that their identities will not be disclosed without their consent, except where necessary for investigation purposes.
Documentation: Keeping accurate records of all complaints is crucial for accountability. This also enables to companies to identify trends, hotspots of concern, and proactively mitigate recurrences.
In May 2024, the European Union formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD), setting human rights standards for large companies operating within the EU. The legislation mandates companies to monitor, prevent, or remedy human rights damages throughout their operations and downstream and upstream value chains. Companies can be held liable for human rights violations they cause and will have to provide full compensation.
Context supports efforts to research, develop, and implement fit-for-purpose strategies unique to companies’ operating environment. If you’d to discuss your organization’s needs, please get in touch by e-mailing us at kyisin.aung@contextamerica.com
1 The UN Office of the High Commissioner for Human rights (OHCHR) defines challenging contexts as those with grave human rights situations due to conflict, political turmoil and/or systematic violations of human rights; those where national laws or regulations require businesses to take actions against internationally recognized rights; and those where states are not able to protect internally recognized rights.
