The European CSRD (Corporate Sustainability Reporting Directive) came into effect in January 2024 and will gradually apply to an increasing number of companies.

While complying with the CSRD is a significant undertaking—hence the ongoing simplification efforts—it would be a mistake to view it solely as a reporting obligation. In fact, the directive provides a framework for highlighting crucial questions about the future of your company in a rapidly changing world.

Let’s explore how to make the most of the CSRD to best prepare your company for the future, whether or not you are formally subject to this directive.

Context

It is essential to place the CSRD within its broader context.

The primary objective of this regulation is to direct investments toward sustainable initiatives. Sustainability, in this case, has a dual meaning: environmental sustainability and the long-term viability of the company itself. This is the well-known concept of double materiality.

All the information included in your company’s CSRD report is primarily intended for your financial partners, both current and future. However, since this information is publicly accessible, it can also be consulted by any stakeholder interested in your company’s future—customers, suppliers, current and prospective employees, and more.

The goal is to provide a comprehensive set of data that enables investors, both present and future, to assess whether investing in your business is a sound decision.

Until recently, investment decisions were primarily based on financial health (as reflected in financial reports). However, today, additional factors are critical to this assessment, particularly:

• Are the company’s activities compatible with the environment in which it operates? Or does the company contribute to environmental degradation—an unsustainable situation in the long run?
• Is the company equipped to survive in a future shaped by existing environmental damage and upcoming changes?

There is no doubt that these questions matter not only to financial investors but also to those who invest their time, passion, and energy into the company—its founders and leaders.

The fundamental questions addressed by the CSRD

Do you have a transition plan, and is it fit for the future ?

The transition of your organization—in other words, its transformation—is driven by two key imperatives:

• First, the need to rapidly reduce our collective environmental impact. Your organization is not exempt from this reality. 

Reducing your environmental footprint, particularly your greenhouse gas emissions, is a major and ambitious objective that will profoundly impact your organization. This effort must be carefully thought out and strategically planned.

This reduction must happen at an accelerated pace. The climate emergency is real. The goal of achieving carbon neutrality by 2050 is not just another political target—it is essential to maintaining a livable planet.

Beyond a certain level of cumulative emissions—and the corresponding level of warming—adaptation will become extremely difficult, if not impossible, with profound consequences for society as a whole.

It would be naive to assume that the economy of a world that fails to meet this imperative could resemble anything like what we know today.

Reducing your organization’s emissions is not just about protecting the planet and its inhabitants; it is also about ensuring the long-term viability of your business.

• Secondly, your organization must navigate a world profoundly affected by climate change and societal transition.

The effects of climate change and environmental degradation are already being felt worldwide, including in our regions, posing physical climate risks to your infrastructure and to the critical systems within your value chain.

Beyond physical risks, transition risks could also significantly impact your organization.

How would your business be affected by new regulatory or legal requirements, or by future restrictions ?

How will your customers’ consumption habits evolve ? Will you remain competitive if your rivals introduce more sustainable alternatives ?

How will your industry and market change, and what impact will this have on you ?

Do you face a reputational risk ? Could your industry, sector, or products become stigmatized ?

Will you still be able to attract top talent in the future ?

Your transition plan must account for the rapidly changing environment in which you operate.

This means establishing a clear emissions reduction trajectory, identifying key levers for decarbonization, allocating the necessary resources, and continuously tracking progress and results.

It’s clear that an organization without a transition plan aligned with these challenges risks becoming one whose long-term viability is questioned by potential investors.

Is your strategy and business model aligned with your transition plan? Are they still relevant in a sustainable economy?

The relevance of your organization’s strategy and business model is a key consideration in the CSRD framework—and for good reason.

Experience shows that the initial actions identified in a greenhouse gas emissions reduction plan—often limited to the company’s existing business model—typically achieve only about a 20% reduction. While this is a step in the right direction, it falls far short of what is needed.

To reach the necessary reduction targets, mitigate both physical and transition risks, and reduce impacts on other planetary boundaries, companies often need to reconsider whether their business model itself is fit for the future.

Assessing—and if necessary, rethinking—your business model, product and service offerings is a complex challenge that requires deep, sometimes disruptive, strategic reflection.

However, this step is crucial to ensuring that your organization remains resilient and viable in an era of profound transformation—what is often called a VUCA world (Volatile, Uncertain, Complex, and Ambiguous).

How dependent is your business on fossil fuels ?

Like it or not—despite what Donald Trump and other skeptics may claim—achieving carbon neutrality within a timeframe that preserves a habitable planet requires a drastic, if not complete, reduction in fossil fuel use (coal, oil, and gas).

Beyond the environmental concerns, companies must also prepare for a world where fossil resources are becoming scarcer and increasingly expensive.

In Europe, this issue is particularly pressing. Our already limited fossil fuel reserves are rapidly declining, making the European economy especially vulnerable due to its reliance on foreign powers—many of which are becoming less and less friendly.

This highlights what is known as the double carbon constraint, a key concept in the energy transition.

The questions raised by the CSRD are therefore highly relevant in assessing your organization’s vulnerability:

• How much fossil fuel does your business consume, and what percentage does it represent in your overall energy use ?
• What share of your revenue depends on clients operating in fossil fuel-related sectors (and who are therefore themselves exposed and vulnerable) ?

What risks does your organization face, and how do they impact its financial performance ?

The question of your organization’s resilience is crucial.

Are some of your infrastructures and activities exposed to climate risks and transition risks ? To what extent are they exposed ?
What portion of your capital and revenue do these represent ? What would be the financial consequences for your organization if these infrastructures/activities were severely affected ?

Do you have assets that are particularly difficult to decarbonize or even incompatible with a low-carbon economy ? Could they be considered stranded assets

If so, to what extent ? And again, what would the financial impact be on your organization?

What about your customers ? What percentage of your revenue is tied to activities that have a significant environmental impact, thus facing high transition risks ?

What are the benefits for your company ?

Of course, the transition should not be viewed solely as a problem.

For those who approach it with clarity, vision, and creativity, the transition offers numerous opportunities.

Leveraging your company’s strengths to support society’s transition is a path to prosperity.

The CSRD provides the opportunity to highlight these opportunities. It also emphasizes the savings generated by your emissions reduction and adaptation efforts.

What are the other social and environmental impacts you need to address ?

The CSRD goes beyond just climate issues. The directive also addresses social issues and other environmental concerns, such as biodiversity, pollution, water and marine resources use, and resource management.

The results of your double materiality analysis will help identify the material issues specific to your organization that need to be assessed.

In conclusion

Without downplaying the significant effort required to bring your company into compliance with the CSRD, it would be a missed opportunity to view this task solely as a tedious and unnecessary additional reporting exercise.

The points raised in the CSRD are critical areas of reflection for the long-term sustainability of your organization.

Even if your company is not formally subject to the CSRD, it would benefit from embracing the spirit of the directive to strengthen its positioning and ensure its resilience.

It is hoped that the ongoing efforts to simplify the directive (which are likely necessary in some cases) do not dilute its substance, as the questions raised by the CSRD are highly relevant for all organizations today.