Romeo Kaptijn
Senior Consultant
“We always encourage companies to think ahead.”
In our previous blog, we discussed the impact of the Corporate Sustainability Reporting Directive ( CSRD ) on business strategies. While some companies take a more compliance-driven approach, others embrace a strategic one. Today, together with Romeo Kaptijn how companies can shift from a focus on compliance to concrete, action-oriented sustainability. How can they not only comply with regulations but also create value for sustainable growth and long-term success? What challenges and questions arise in this process, and how can these be turned into opportunities?
Have you noticed any changes recently in the way companies are approaching the CSRD, and what is your perspective on this?
There is now an abundance of tools and new consulting firms focused on the CSRD. This is understandable, given the clear market demand. However, what we still see is that many of these firms focus primarily on regulatory compliance through checklists. We call this “compliance-driven.” But as one of our clients recently put it so aptly: “We shouldn’t just check boxes — we should set the bar high.” That is exactly our vision. Although the CSRD does not prescribe minimum standards and, technically speaking, you comply with the regulations simply by reporting, we always encourage companies to think beyond that.
What drives companies to go beyond minimum compliance?
The scope and specific content of reports vary considerably by sector. Sectors such as energy and food are under close scrutiny, resulting in a higher minimum benchmark for transparency. For companies that rely on external financing, we recommend comprehensive reporting. Financial institutions are placing increasing emphasis on sustainability performance and information, as evidenced by initiatives such as green loans that offer discounts to companies investing in sustainability.
On the other hand, we often work with family-owned businesses that rely on internal capital and are less dependent on external financing. We see a strong desire among them to leave something of value for future generations. Their approach is less focused on merely complying with requirements and more on developing a sustainable long-term vision driven by intrinsic motivation. This approach is also ideally suited for other companies that want to use the CSRD to sharpen their strategic focus.
Suppose your company wants to take a strategic approach… What does that entail, and how in-depth should your analysis be?
It starts with a materiality analysis, which helps you identify the most important sustainability issues for your company. A common question in this context is how far back you need to “dig” into your supply chain. You need to take a value chain perspective, but does that really mean going all the way back to the raw materials? Our answer is that you need to be familiar with the hotspots. Know which high-risk countries and products you’re involved with, and what opportunities and risks exist. You don’t need to go all the way back to your first supplier; instead, focus on the most important ones. Often, this comes down to common sense: consider expenses, high-risk areas, or known sustainability risks in your industry. Map out your value chain and realize that you can turn every risk into an opportunity. For example, if there is a risk of underpayment in your supply chain, you can set up programs to ensure farmers receive a living wage.
Also keep in mind that the CSRD is “merely” an initial exploration. The upcoming CSDDD (Corporate Sustainability Due Diligence Directive) goes further than the CSRD and requires you to take a much more specific and detailed approach. For now, the CSRD doesn’t require you to go that deep; instead, you should identify the most important risks and opportunities.
How do you then “put a price tag” on the most important sustainability risks and opportunities?
In the case of dual materiality, you need to assess the financial impact of risks and opportunities: low, medium, or high. This involves questions such as: What does it cost to reduce CO₂ emissions by 20%? What are the total costs for training and development? You then rank the financial impacts.
However, we still rarely see this kind of detailed financial analysis at companies. While financial risk management is often better established within an organization, this is frequently lacking when it comes to sustainability risks. As a result, consultants often have to rely on estimates and assumptions. An important realization for companies is that their risk teams will need to take a broader view of sustainability risks and opportunities within areas such as financing, markets, innovation, insurance, and raw materials. It is crucial that companies learn to put a price tag on these risks and opportunities. This is how you gain real insight and prepare for future requirements.
Once you’ve identified the hotspots, how do you know how to report on them? I don’t think the CSRD necessarily provides guidelines on that.
That’s right, some reporting requirements aren’t entirely clear and are open to interpretation. Suppose you’re required to report on your most significant material and product flows — the guidelines don’t specify how to determine which ones those are. Is it factor A, B, or C? And how do you define the scope? That’s why companies often come to us with questions like, “Do I have to report on everything? Pens, bricks — you name it?”
The challenge is to gather sufficient information for the auditor and stakeholders. This requires critical thinking, but also leaves room for interpretation. Above all, the CSRD requires a clear description of your methodology. We help companies develop and formulate such a methodology. Ultimately, you may end up reporting specific quantities in metric tons or kilograms in a simple table, but the groundwork lies in the analysis and scoping. Only in this way can you produce a clear and accountable report that can also be approved by an auditor.
I think a lot of companies worry that all those reports will become too much — that they’ll have to report on every little detail. Do you recognize this concern?
Yes, that’s a common concern. Companies often fear that they’ll have to report on everything, but that’s not the case. By focusing on the topics that emerge as significant from the materiality analysis, you can report effectively and efficiently without getting bogged down in unnecessary details. These themes are further broken down into subtopics. Take, for example, reporting on the workforce, which includes subtopics such as safety, training, and development. In the materiality analysis, you identify which subtopics are relevant and which are not. So you don’t need to report on the number of incidents if safety isn’t a key issue for your company. This breakdown helps lighten the reporting burden and focus on what really matters.
Conclusion
The shift from a compliance-driven approach to a strategic and action-oriented approach to sustainability under the CSRD presents both challenges and opportunities. Companies that look beyond minimum compliance and integrate sustainability into their core strategies will not only meet regulatory requirements but also create value for their stakeholders and society at large. Through a thorough materiality analysis, the identification of risks and opportunities, and targeted reporting, companies can lay a solid foundation for sustainable growth and long-term success.
Want to learn more about CSRD? Romeo is here to help!
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