ESG vs B Corp: Which Satisfies CSRD Requirements?

B Corp consultant Bruno Scott and sustainability consultant Victoria Tully contributed to this article. Edited by Haley Walden

Corporate Sustainability Reporting Directive (CSRD) mandates are starting in the EU in 2024, and will soon trickle down to small and medium-sized enterprises (SMEs). It’s time to refine your sustainability plan and get compliance practices in place as this rolls out.

Most likely, you’re aware of ESG reporting requirements and practices. You might also be wondering whether achieving B Corp certification for your company will satisfy CSRD requirements. However, deciding which direction is a better allocation of your resources and/or ROI isn’t necessarily straightforward.

So which is “better,” ESG reporting or B Corp certification?

The short answer is that ESG reporting and B Corp certification aren’t mutually exclusive. Working on your B Corp certification, or even just taking the B Impact Assessment, will help you get your organization prepared to begin ESG reporting.

Let’s dig a little deeper, shall we?

If your business isn’t EU-based and you’re not a part of an EU-based company’s supply chain, you can skip down to the ESG vs B Corp comparison.

According to sustainability consultant Victoria Tully:

“The CSRD Mandate primarily targets EU-based businesses, yet its reach extends beyond borders, particularly in the realms of Scopes 1, 2, and 3. Although non-EU businesses may not face direct obligations, their involvement in supply chains with EU entities can’t be overlooked. Thus, understanding the mandate’s implications is crucial for businesses engaging in EU supply chains.”

In other words, if your business supplies to another business in the EU, these may be areas of CSRD your business must comply with.

CSRD Mandates: What’s Coming 

From our research, we see that CSRD will have significant implications for companies in Europe, including SMEs. Before we dig into the ESG reporting vs B Corp certification question, let’s look at what’s coming down the pipeline.

All Member States in the EU are required to be CSRD compliant by July 6, 2024. From January 1, 2024, onward, CSRD Article 4 applies. When fiscal year 2025 rolls around, organizations will need to repeat their exact ESG reporting sequence.

CSRD Mandates in Europe Starting in 2024

We’ve researched the CSRD mandates and how they may intersect with B Corp certification, including insights into the comparison between ESG reporting and B Corp certification. Here’s what we found.

Scope and Requirements
The CSRD extends sustainability reporting requirements to a wider range of companies, including large undertakings, SMEs classified as public interest undertakings, and non-EU groups with EU subsidiaries.

CSRD requires entities to disclose various sustainability-related information within their management records, including:

  • The company’s business strategy and model
  • Sustainability targets
  • Governance and oversight arrangements
  • Due diligence approaches to sustainability-related issues

Double Materiality Approach
In addition, companies need to adopt a double materiality perspective. This includes reporting on the company’s impact on sustainability-related issues. Companies must also report on how sustainability efforts impact their bottom line.

Digitalization and Standardization
CSRD aims to digitize and standardize all company reporting, creating a baseline standard for all affected companies to operate from. Reports must be prepared as XHTML documents, in compliance with the European Single Electronic Format Regulation. These reports must also be tagged in accordance with the European Sustainability Reporting Standards’ (ESRS) digital categorization requirements.

Overall, the goal of these new standards is to enhance the efficiency, transparency, and accessibility of data. In that way, CSRD is similar to B Corp certification.

Timeline for Implementation
It will take time for CSRD to roll out. The rules will begin to apply between 2024 and 2028. Depending on the type of company, there will be tiered phases of the rollout.

Starting in 2025, the largest public-interest businesses with 500 or more employees will begin reporting. Large businesses with fewer than 500 employees will begin reporting in 2026. Finally, reporting requirements for SMEs listed in a market regulated by the EU will begin in 2027.

The European Commission estimates that roughly 50,000 companies will be affected by the upcoming CSRD requirements. Smaller companies will need to be aware of potential trickle-down effects, too, even if they’re not required to report. 

According to Victoria Tully, “While not all companies need to report on CSRD, they still need to be aware and compliant. Companies required to report will also put pressure on their suppliers (who are usually the smaller companies) for key KPIs.” 

In other words, all companies doing business with businesses in the EU should have a basic understanding of the standards they may be asked to comply with themselves. 

Will B Corp Certification Meet CSRD Requirements? 

So, will having a B Corp certification help your company meet CSRD requirements? Not completely. 

Overall, there are similarities between the two, but B Corp certification is a completely different framework. Because it has a slightly different focus from the CSRD requirements, it doesn’t qualify. 

At the end of the day, though, CSRD, ESG, and B Corp have overlapping requirements. CSRD is, essentially, forcing companies to prioritize sustainability and get compliant. As B Corp rolls out updated standards in 2024, it will be interesting to see whether the two align more closely. 

ESG vs. B Corp

The ESG reporting vs B Corp certification comparison is a complex one. Each option has its distinct focus, benefits, and requirements. 

In a nutshell, ESG reporting is crucial for complying with emerging regulations and appealing to investors who are focused on sustainability. 

On the other hand, companies that pursue B Corp certification aim to demonstrate a broader commitment to societal and environmental goals. B Corp status appeals to an expanding group of conscious consumers, talent and members of the workforce, and investors alike. 

An additional value-add: Multinational corporations are increasingly working exclusively with sustainable suppliers, which adds extra value to the B Corp certification. More data is becoming available to show B Corp’s impact on bottom-line financial performance, too. 

However, there is an overlap between ESG reporting and B Corp certification. Let’s take a closer look.  

ESG Reporting

Over the years, ESG reporting has become increasingly vital due to regulatory changes and investor demands. Its focus is primarily on a company’s practices in the areas of environmental, social, and governance (in other words, ESG). ESG reporting has become integral to regulatory filings and annual reports for thousands of companies. 

However, ESG metrics have evolved. They aim to standardize sustainability performance standards around the world. The World Economic Forum (WEF), supported by organizations like Deloitte, has been instrumental in identifying the critical ESG themes and metrics for enterprise value creation. 

In the European context, the CSRD outlines specific standards for ESG reporting. The European Sustainability Reporting Standards (ESRS) include detailed requirements for disclosures on various factors like the circular economy, workforce conditions, and business conduct. It’s part of a broader movement towards increased sustainability transparency. 

The ESRS has created a set of data points to assist in further understanding these requirements. You can view that here

B Corp Certification

Companies with B Corp certification use the B Impact Assessment tool (BIA) to measure their impact holistically in the following areas: the environment, governance, workers, customers, and the community. 

Businesses that are B Corp certified also place equity, inclusivity, and a regenerative economy as top priorities. These companies must continue to meet high standards of performance and transparency after they earn their certification. 

Guided by B Global Network’s Theory of Change, B Lab is dedicated to inspiring companies to move toward a stakeholder-driven economy. Rather than focusing primarily on shareholders, B Lab is driving a broader, more holistic focus on stakeholder outcomes. 

This high level of accountability has helped B Corp-certified companies gain greater stakeholder and consumer confidence. 

Like ESG, the B Corp certification is also evolving. B Lab’s Standards Advisory Council continually works to update standards that address both emerging issues and stakeholder concerns. They conduct ongoing reviews of performance requirements to ensure they reflect current best practices in sustainable and responsible business. 

Read more about the B Corp certification here

Here’s a visual breakdown of how ESG overlaps with the B Corp framework. 

ESGCorresponds with B Corp Framework Categories
E (Environmental)Environmental (same)
S (Social)Community, Workers, Customers
G (Governance)Governance (same)

As you can see, two of the three categories overlap. For certain industries and companies, ESG reporting may be far more granular.

In the social category, the B Corp advantage is clearest. It specifically isolates three different groups whose performance must be verified: community, workers, and customers.

Conclusion: So, Which is Better, ESG Reporting or B Corp Certification?

Short answer: it depends.

The choice between ESG reporting and B Corp certification comes down to:

  • Your company’s specific goals
  • Stakeholder expectations
  • The regulatory environment

Both ESG reporting and B Corp certification are important for different reasons. Companies need to weigh the benefits of each based on their specific circumstances, market demands, and regulatory environment.

While ESG reporting is aligned with regulatory requirements and investor expectations, B Corp certification can enhance a company’s brand value and appeal to a broader range of stakeholders interested in comprehensive social and environmental performance.

So, which should you choose? The key is to take the next step forward.

Here are some options to consider.

1. Assemble Your Team 

Assemble your leadership team to work out your version 1.0. What categories can you begin collecting baseline data for?

Start small and build as you go. Perhaps you’ll begin by documenting your:

  • Water and energy consumption
  • Volume of waste
  • Intended and unintended implications of your supply chain
  • Greenhouse gas emissions via transportation (auto, airplane)

According to Victoria Tully, one area that often gets overlooked when it comes to environmental issues is the lack of a human component. She says it’s not just about looking at the intended vs unintended aspects of the supply chain. It’s also about looking at issues like a company’s work culture or due diligence policies.

2. Check Out Reporting Tools and Platforms 

Explore available reporting tools and platforms that can give you a clearer vision of what you must do next. Check out the following tools to get started.

3. Take the B Impact Assessment

If your company has already begun ESG reporting, or at least planning or collecting data in preparation to do so, you might consider giving the B Impact Assessment a go. The BIA will help you get a clear picture of how you measure up against other companies. Plus, you’ll get an idea of how close your organization is to certification.

And there’s good news: You can use the BIA whether or not you plan to pursue B Corp certification.

According to B Corp consultant Bruno Scott, “While there are almost 8,500* certified B Corps globally, there are over 250,000 active users of the BIA. Depending on the needs of your company, you can use it as a blueprint and guide without ever needing to complete certification.”

4. Work On Your B Corp Certification 

Alternatively, you might consider working on your B Corp certification, either internally or with the help of a consultant. By becoming a B Corp, your company will automatically make strides toward ESG reporting, since there’s such an overlap.

On the other hand, why not do both? You can reach out to Bruno Scott, a B Corp consultant, for assistance. Alternatively, take a look at our guide to B Corp certification here.

5. Get Help 

It’s helpful to discuss your concerns about sustainability reporting, as well as talk through the opportunity to choose ESG reporting or B Corp certification. Schedule a complimentary consult with The Jillian Group to discuss whether B Corp or ESG makes more sense for your organization.

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* As of May 2024