The Corporate Sustainability Reporting Directive (CSRD) has brought sustainability to the forefront of corporate priorities, making it no longer merely a regulatory requirement, but a strategic necessity. By aligning Environmental, Social, and Governance (ESG) initiatives with the CSRD’s framework, companies can meet regulatory demands, drive innovation, improve financial performance, and enhance resilience. This article explores how to integrate ESG more deeply into your strategy, ensuring that sustainability becomes a long-term asset for growth and competitive advantage.

This article is written by Iman Zalinyan ([email protected]) and Leene Timmermann ([email protected]). Iman and Leene are part of RSM Netherlands Business Consulting Services with a specific focus on Sustainability and Strategy.

Understanding the CSRD requirements regarding strategy

The CSRD imposes a transformative shift for companies, necessitating the integration of sustainability into core business strategy, as outlined in the European Sustainability Reporting Standards (ESRS 2). Businesses must now articulate how their models will incorporate sustainability, how this integration influences value creation, and how they address related risks and opportunities. 

Strategy and Business Model (SBM): ESRS 2 requires that organizations demonstrate how sustainability is embedded in their business strategy. This must be more than superficial; companies are expected to illustrate how sustainability guides key decisions, informs long-term objectives, and aligns with evolving societal expectations. 

Policies, Actions, Metrics, and Targets: Clear and measurable sustainability goals are central to CSRD compliance. Companies must set short-term and long-term targets, with predefined metrics monitoring progress. ESRS 2 provides the foundation for this, supported by the Materiality Disclosure Requirements (MDR-T), offering a roadmap for companies to follow. This standard ensures that the targets are directly aligned with material impacts and the broader business strategy, offering a cohesive framework for ongoing reporting.

Implementation and Accountability: A critical aspect of the CSRD is the requirement for companies to detail the practical implementation of their sustainability strategies. This includes how resources are allocated, how stakeholders are engaged, and which accountability mechanisms are in place. 

Aligning your ESG strategy with CSRD

While an ESG strategy can be created anytime, completing the double materiality assessment offers an excellent opportunity. Having determined material impacts, risks, and opportunities, companies can establish their current ESG status in a targeted manner using a gap assessment. This involves evaluating the current status of a company’s ESG efforts, determining how they measure against the ESRS 2 requirements, and identifying areas for improvement. During this assessment, companies identify gaps between their current practices and what is required under ESRS 2. For example, companies might assess the robustness of their data collection processes, the clarity of their materiality assessments, or the depth of their stakeholder engagement. This requires examining existing processes, available data, reporting capabilities, and the current integration of sustainability into the broader business strategy. 

Once the current ESG status is established, companies can decide their desired future ESG status. Given the broad spectrum of sustainability topics covered under the CSRD, prioritization is essential. This is, therefore, an excellent opportunity to determine which specific topics to prioritize and which disclosure requirements to focus on. For instance, climate change, diversity, or supply chain transparency may rank higher on the priority list based on business objectives or stakeholder feedback.

While full transparency is a hallmark of the CSRD, companies can phase certain disclosures. It is possible, for instance, to explain plans to develop action plans and targets regarding a material impact, instead of creating and disclosing such plans immediately. This flexibility allows organizations to build and enhance their reporting frameworks over time. Communicating plans and targets is acceptable if the company is committed to improving sustainability performance. Companies can use this opportunity to prioritize when addressing different topics and determine how thoroughly they wish to develop their applicable strategy. This prioritization strategy enables businesses to tackle material topics systematically, allocating resources efficiently.

Two key factors should guide this prioritization process:

  1. Stakeholder expectations: Understanding and incorporating the priorities of key stakeholders is vital. For example, investors may focus on carbon reduction initiatives, while employees might prioritize social equity measures. Concentrating on matters that stakeholders find particularly crucial improves perceptions of the reporting quality and signals to stakeholders that their interests are considered and valued. 
  2. Alignment with the core business strategy: Integrating the ESG strategy with the broader business strategy yields substantial benefits. This approach ensures that sustainability is not seen as a standalone initiative but as an enabler of long-term value creation. Aligning ESG with business strategy helps companies innovate and enhance competitiveness, particularly in markets where sustainability credentials are increasingly important.

Once priorities are set, implementation must be considered, and concrete steps taken. This includes developing policies, action plans, targets, and metrics to monitor them. An important aspect is setting clear timelines for either reaching the targets or first developing them. 

To ensure efficient monitoring and progress toward the ESG strategy's aims, it is essential to embed ESG considerations into corporate governance and decision-making processes. This involves assigning responsibilities at all levels—from the boardroom to operational teams—to ensure accountability and regular review of progress. Embedding ESG into the governance framework strengthens accountability and ensures that ESG efforts are continuously reviewed and aligned with the company’s evolving strategy.

Benefits of considering your ESG strategy in depth 

Delving deeper into your ESG strategy beyond the baseline of CSRD compliance offers a range of significant benefits that can drive both sustainability and financial performance. One of the benefits comes from thoroughly scanning the company’s operations, allowing you to identify potential synergies between ESG goals and cost savings. For instance, optimizing resource management could lower operational costs while developing innovative, sustainable products and creating new revenue streams aligned with shifting market trends. 

Other critical outcomes are enhanced risk management and resilience. By identifying and mitigating ESG-related risks, companies strengthen their ability to handle potential disruptions. Proactively addressing these risks, whether related to climate, regulatory changes, or social issues, builds resilience and ensures long-term business continuity. Prioritizing mitigation efforts empowers businesses to stay ahead of challenges, safeguarding their operations and reputation.

Forward thinking

Developing an ESG strategy ahead of the 2025 deadline offers companies a critical advantage. By focusing on building the data management systems they need, businesses can avoid unnecessary efforts and ensure that their resources are directed toward the most impactful areas. Strategically prioritizing key topics and disclosure requirements allows for a streamlined approach to CSRD compliance, minimizing wasted time and effort.

Moreover, integrating an ESG strategy with the core business strategy enables deeper insights into future opportunities and risks, enhancing both financial performance and sustainability. Aligning the monitoring of ESG and business goals not only simplifies and improves CSRD reporting, but also fosters more comprehensive assessments, ultimately driving better decision-making and long-term success.

RSM is a thought leader in the field of Sustainability and Strategy Consulting. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of regulatory obligations and practical applications in working with our customers. If you want to know more, please reach out to one of our consultants.