Harald Ketzer, Business Development ESG & Consultant, at GrECo Risk Engineering GmbH examines the opportunities and challenges of CSRD and discusses how effective reporting can contribute to business transformation and resilience.
Can companies really become more sustainable by complying with new EU directives, or will it remain purely bureaucracy? The European Union’s Corporate Sustainability Reporting Directive (CSRD) sets new standards for sustainability reporting. It extends the scope of the existing Non-Financial Reporting Directive (NFRD) and obliges a larger number of companies to prepare detailed and standardised sustainability reports. But are companies really focusing on improving ESG performance or merely on compliance?
In this article we will examine the opportunities and challenges of CSRD and discusses how effective reporting can contribute to business transformation and resilience.
Compliance and auditability vs. improving the company’s ESG performance
The CSRD sets out extensive requirements for the disclosure of environmental, social and governance (ESG) data. Companies must not only disclose their sustainability performance, but also provide information on the risks and impacts of their activities on the environment and society as well as their impact on the business model.
The report must stand up to a critical review by an authorised auditor. The detailed reporting requirements and the need for a positive audit opinion often tempt companies to focus on simply complying with the guidelines rather than on the important issues at the heart of them. The opportunity to initiate a genuine change towards a sustainable orientation of the company and business model is often not initiated. The risk of not transforming the business model in time remains, and the actual benefits for the company, the environment and society are pushed into the background.
Focusing on opportunities – our preference
The CSRD is an excellent set of rules and offers the opportunity to promote sustainable business practices and achieve long-term benefits for companies and society. The process begins with an efficient materiality analysis that considers both the company’s impact on the environment and society, and the financial impact on the company. Once the material issues have been identified, the focus is on measurement using meaningful key figures and the definition of measures and targets.
The pursuit of these goals and the presentation of key figures help the company to consistently follow the transformation path and integrate ESG as an essential part of risk management.
A clearly structured CSRD report with comprehensible results strengthens stakeholder trust, improves the market position, and leads to a more sustainable economy in the long term. Through sustainable innovations and the adaptation of the business model, the company can achieve competitive advantages, improve its ESG risk profile, and increase its attractiveness in the financial, funding and insurance markets.
The contribution of climate and vulnerability analyses
A properly conducted climate risk and vulnerability analysis is crucial for the future viability of business models in an increasingly climate-vulnerable world. The analysis identifies and assesses potential risks and susceptibilities that could be caused by climate change and extreme weather events. This includes both location risks and climate-related risks to the business model.
An efficient climate risk and vulnerability analysis should fulfil several criteria:
Firstly, risk assessment and mitigation. This involves the identification and assessment of specific climate-related risks, including physical risks such as flooding, heatwaves, and storms, as well as transition risks due to the shift to a low-carbon economy. Companies should take proactive measures such as adapting operations, diversifying supply chains or investing in more resilient infrastructure.
Secondly, supporting strategic planning and adaptation of business strategies to become more resilient and sustainable in the long term. This can include developing new products and services, adapting business models, or tapping into new markets.
Thirdly, fulfilment of regulatory requirements: supporting the fulfilling of CSRD requirements to disclose climate-related risks and their management strategies. This strengthens the confidence of investors and other stakeholders.
Fourthly, boosting financial resilience and investor confidence through proactive risk management and long-term financial resilience. This facilitates access to capital, funding and insurance services and improves the company’s valuation.
And finally, competitive advantage and innovation: Early identification and management of climate risks enables competitive advantage, positioning as an industry pioneer and capitalising on market opportunities through the transition to a more sustainable economy.
Striking the right balance
The CSRD provides a valuable opportunity to not only ensure compliance, but also to realise real improvements in ESG performance. Companies that seize this opportunity can strengthen their market position and make a significant contribution to a more sustainable economy. Now is the time to shift the focus from mere reporting to actual transformation and resilience.
A properly conducted climate risk and vulnerability analysis contributes significantly to the sustainability of a business model. By identifying and mitigating risks, promoting strategic adaptation, and meeting regulatory requirements, it strengthens financial resilience and creates competitive advantage. In an increasingly climate-vulnerable world, the ability to manage and adapt to these risks will be critical to the long-term success and sustainability of organisations.
By striking the right balance between compliance and strategic sustainability, organisations can meet regulatory requirements and gain sustainable competitive advantage. The transformation towards sustainable business practices is a strategic opportunity that must be seized.
Harald Ketzer
Risk & ESG Consultant
T +43 664 888 44 707
