EU Corporate Sustainability Policy: A coherent strategy or competing burdens?

The EU has been working on corporate sustainability which is crucial to achieve its sustainability goals as part of the European Green Deal. The framework isn’t perfect and needs improvement, but in my opinion, it would be unfair to say that these policies are incoherent. In this post, I discuss how the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) actually complement each other, providing a more cohesive framework that helps companies manage risks and meet stakeholder expectations more effectively.

Understanding the two Corporate Sustainability Directives

In today's business world, transparency is no longer optional—it is a necessity. As consumers and investors demand more accountability, the EU's CSRD is raising the bar by broadening the reporting requirements for companies. It aims to ensure that companies not only provide details about their environmental and social impacts, but also how these impacts influence their operations with the double materiality perspective. This improved framework seeks to give stakeholders (such as investors, financial institutions and consumers) more reliable and comparable data, helping their decision making to be more sustainable.

The CSDDD, adopted on 1 June 2024, is the EU’s latest effort to get companies to take human rights and environmental issues more seriously across their entire supply chains. It pushes businesses to identify and fix any harmful impacts they might be causing. With a deadline of 26 July 2026 to be implemented into national laws, this Directive is about making sure companies step up to act more responsibly and ensure that their practices are genuinely sustainable.

Let’s take a closer look at the CSRD and CSDDD and see if these two Directives are aligned, strengthening each other to push companies toward real action on sustainability. It’s no longer just about reporting—it’s about ensuring companies follow through on their commitments.

Do the Directives operate in isolation, or do they complement each other in enforcing corporate sustainability?

The CRSD and CDDDD do complement each other. The detailed reporting required by these directives, with the help of the European Sustainability Reporting Standards, pushes companies to provide in-depth information about their practices. But it doesn’t stop there. The due diligence requirements actually compel businesses to take meaningful action on environmental and social issues, ensuring they do more than just report their impacts—they must address them as well.

The CSDDD is expected to make supply chains more transparent by requiring companies to collect and share detailed information about how they and their supply chains operate. It also aims that companies are responsible for their actions and their impact on human rights and the environment. The information collected is important for the CSRD, which relies on accurate sustainability reports. By requiring companies to provide relevant data, the CSDDD plays a key role in supporting the CSRD's goal of improving corporate sustainability reporting.

The CSDDD requires companies to incorporate due diligence into their regular policies and risk management practices. This means that companies need to continuously check for and address social and environmental risks related to their activities. By identifying these risks early, companies can take steps to prevent or minimize their negative impacts. This proactive approach is also important for creating trustworthy sustainability reports in line with the CSRD.

The CSDDD also contains articles regarding reporting. The reporting requirements under this directive depend on whether companies have already been meeting earlier reporting rules. This approach shows how these new directives on reporting and due diligence work together: they build on existing efforts.

Why Does Due Diligence Matter for Sustainability Reporting?

The CSDDD is important for making the CSRD work well. Without the CSDDD, sustainability reports run the risk of greenwashing or whitewashing a company’s sustainability conduct. The due diligence process makes sure that what companies report about sustainability is in fact happening. As a key step, the CSDDD highlights the changing responsibilities of company boards to look closely at both the actual and potential impacts of their activities. The changing roles of company boards is important for the double materiality approach, as they involve assessing both how business activities affect sustainability and how sustainability issues impact business operations. By requiring these detailed evaluations, the CSDDD ensures that companies' sustainability reports are detailed and trustworthy. This contributes to ensuring      that these reports align business practices with environmental and social goals of the EU, such as promoting fair labour practices to protect workers' rights. In addition, prior compliance with the CRSD makes it easier to determine the potential and actual impacts of their activities.

The CSDDD enforces legal obligations through penalties for non-compliance, developing more obligations compared to the CSRD. The sanctions in the CSRD are more about emphasizing reputational impacts through public disclosure of non-compliance. The CSDDD, on the other hand, specifies the designation of supervisory authorities in each Member State. These authorities will have to oversee these requirements and initiate investigations. They might also possibly order the company to cease infringements, impose penalties and adopt interim measures. CSDDD also emphasizes the civil liability of companies, granting individuals a right to full compensation for any harm caused by non-compliance. Lastly, it introduces a notification mechanism and complaints procedure. These provisions aim to ensure that companies are legally bound to uphold sustainability practices, going beyond mere accountability on paper. They strengthen the effectiveness and enforcement of the CSRD by addressing the missing element—sanctions.

Bridging Transparency and Accountability for Corporate Sustainability

The enforcement of the CSRD and the CSDDD together is important to achieve real progress in corporate sustainability accountability. While the CSRD encourages transparency, the legal obligations introduced by the CSDDD play a crucial role in ensuring that companies not only report about their sustainable practices but also implement them. Even though the sanctions in the CSRD will not directly punish inadequate reporting, the threat of legal consequences under the CSDDD provides a necessary push for companies to take their reporting obligations more seriously.

To truly drive corporate sustainability and accountability, the combined enforcement of the CSRD and CSDDD is not just a regulatory step—it's a necessary shift towards ensuring that transparency translates into tangible, lasting change across businesses in the EU.