What is the relationship between CSRD and CO₂ Performance Ladder 4.0?

In 2024, sustainability can no longer be ignored as a strategic must for businesses. But where some measures were innovative at first, now they are mainstream. Both the market and legislators are trying to respond to this with new ideas and concepts. The same applies for the European Union (EU) and the CO₂ Performance Ladder. The EU announced the Corporate Sustainability Reporting Directive (CSRD) a little while ago, and a new version (4.0) of the CO₂ Performance Ladder is appearing. Where to start?

To what extent does one align with the other? To what extent do the CSRD and CO₂ Performance Ladder 4.0 really drive sustainability? In this article, we answer the most frequently asked questions for CRSD-regulated companies.

The CSRD in brief

For nearly 50,000 (large) companies the EU, it will become mandatory in phases: CSRD reporting. This EU legislation requires organisations to report on the three aspects of sustainability - environment, social and governance - in a publicly available sustainability report. How do these three aspects affect the organisation? What impact does the organisation have on the environment? From the sustainability report, which should be attached to the management report, stakeholders and other interested parties should be able to see how sustainable the organisation is. CSRD stems from the European Green Deal.

The rules with which the sustainability report must comply are in turn set out in the so-called ESRS: European Sustainability Reporting Standards. The first set of 12 ESRS have already been published, and these apply to all CSRD-regulated companies (they are also called 'sector agnostic' ESRS). In addition, there will be sector-specific ESRS.

Connecting CO₂ Performance Ladder 4.0 to the CSRD

By meeting the requirements of CO₂ Performance Ladder version 4.0, an organisation covers one part of the ESRS requirements, namely ESRS E1, climate change (see figure). During the development of CO₂ Performance Ladder 4.0, the CSRD was taken into account. As a result, CO₂ Performance Ladder 4.0 uses the same preconditions as CSRD as far as possible. Thus, the footprint produced by the organisation based on the requirements of the CO₂ Performance Ladder can be used on a one-to-one basis for CSRD reporting because the same scope classification is used, all greenhouse gases (i.e. not only CO₂) are included and the use of tank-to-wheel emissions is allowed. Of course, it is important that the organisation maintains the same organisational boundaries for both the Ladder and the CSRD.

But: the CO₂ Performance Ladder focuses only on the organisation's impact on the climate, whereas the CSRD also wants to know the impact of the climate on the organisation. So to fully comply with E1, organisations still have to flesh out that second part itself. CSRD's dual impact measurement is also known as 'dual materiality'. The CO₂ Performance Ladder thus measures 'single materiality'. 

Practical interpretation of requirements

Although the ESRS is a further elaboration of the CSRD requirements, this does not make it a tool in itself. ESRS 'E1 Climate', for instance, states that an organisation must map out its CO₂ emissions, draw up an energy balance, report on the amount of energy per euro of turnover and draw up a climate transition plan. How the organisation can do this and obtain the necessary, correct data however, is up to the organisation itself to decide. The CO₂ Performance Ladder by contrast, does provide this practical interpretation.

Not just as a one-off either: because the CO₂ Performance Ladder implements a CO₂ management system, the organisation can rely on it again and again to support the annual CSRD sustainability report.

CO₂ Performance Ladder 4.0 more ambitious than CSRD

The requirements of CO₂ Performance Ladder 4.0 go further or are more detailed than those of CSRD.

For example, CO₂ Performance Ladder 4.0 only considers electricity truly green if it is produced and used in the same country, whereas the CSRD does not require this.

Also, organisations that want to climb to the higher levels of CO₂ Performance Ladder 4.0 must ensure they set short-term goals, worked out in a plan of action with concrete measures, in addition to the medium- and long-term goals demanded by both the Ladder and CSRD.

What’s more, the CO₂ Performance Ladder expects the organisation to take concrete steps to raise CO₂ awareness among employees, communicate internally and externally, cooperate with supply chain and sector partners and ensure innovation. Organisations are not required to take such steps for CSRD reporting.

CSRD reports, Ladder 4.0 steers

That the CO₂ Performance Ladder goes further than the CSRD, besides the examples mentioned, comes down to the nature of the instruments: the CSRD report makes transparent what the impact of the organisation is, but those who implement CO₂ Performance Ladder 4.0 also aim to continually reduce the climate impact of their activities. Ladder organisations always apply the 'plan do check act cycle', and thereby continue to improve.

Following on from this: the efforts an organisation makes for CO₂ Performance Ladder 4.0 must actually reduce its climate impact. While we may assume that this is also the intention of CSRD, the efforts made for a CSRD report need not technically lead to CO₂ reduction. This is because the auditor auditing the CSRD sustainability report only ensures that all the data in the annual report is correct. As to whether the measures also effectively contribute to reduced CO₂ emissions, the auditor does not comment. The auditor for the CO₂ Performance Ladder, on the other hand, does. They also test the effectiveness of the Ladder by talking to employees, visiting project sites and interrogating the chosen level of ambition.

Although the efforts for CO₂ Performance Ladder 4.0 go beyond what is necessary for CSRD reporting, this does not diminish its usefulness as a basis for E1 of CSRD reporting. However, the quality of the data will be more detailed and the result of the more far-reaching efforts will also be visible in the report.

Award advantage

Last but not least, there is the use of the Ladder in procurement. At least 300 contracting authorities in the Netherlands, Belgium and Ireland (with others to follow) grant an award advantage on the tender to organisations that have the ambition to obtain (or already have) a CO₂ Performance Ladder certificate. The CSRD coming into effect won’t change that. There is no reason to believe that contracting authorities will stop using the Ladder with the introduction of the CSRD, as a large proportion of organisations bidding for contracts are likely not covered by the CSRD. So procuring authorities who want to work with sustainable suppliers will still need a means of ensuring this. That is also true if the client's sustainable ambition goes beyond CSRD reporting, regardless of whether large, CSRD-compliant companies will react.

CSRD and CO2 Performance Ladder 4.0?

Organisations asking themselves whether CO₂ Performance Ladder 4.0 is a suitable tool for them should principally consider whether they can make a lot of sustainability gains around climate change (E1 of CSRD). If much more can be achieved on another theme - say the impact on local communities in a production process (S3) - a management system other than CO₂ Performance Ladder 4.0 might be more useful. But organisations looking for a means of implementing E1, those wanting to be able to make progress annually, organisations that are ambitious about effectively saving CO₂ and those seeking award advantage in tenders, are likely to benefit from a CO₂ Performance Ladder 4.0 certificate.

>> Want to know more about CO₂ Performance Ladder version 4.0? Also take a look at our previously published articles:

• '"We want the CO₂ Performance Ladder to make a difference", a more ambitious Handbook 4.0 in the making
• 'Handbook 4.0 focuses on the long term: organisations climate neutral by 2050 at the latest'
• 'Who do these emissions belong to? Focus on the most impact with Handbook 4.0'
• 'Handbook 4.0: how better data monitoring leads to more insight and less CO₂'