Some of the actions will result in simplification, for example the postponing deadlines and the streamlining of the ESRSs (a public consultation on these was recently launched by EFRAG). This means that around 80% of the companies were left out of scope of the CSRD, leading them to question the future of ESG corporate initiatives, and the related EU policy.Companies which have been investing and preparing for the CSRD, but will now likely be outside of its scope need to understand that their time and resources investment is still valid. What they are doing is important, and they should continue their journey towards sustainability as a strategic proactive choice rather than one which is imposed on them by policy makers.
Sustainability remains a strategic imperative for businesses for multiple reasons:
- Risk management
- Access to capital and investment
- Value chain demands
- Reputation and loyalty
- Responsibilities
Risk management
Collecting and reporting ESG data can help identify and mitigate financial, operational, and reputational risks, and encourage innovation when it comes to mitigating these risks. Also, more sustainable companies might benefit from reduced interest rate when borrowing money, and reduced insurance costs.
Access to capital and investment
Some investors incorporate ESG factors into their decision-making. Research, including a comprehensive review by the NYU Stern Centre for Sustainable Business, indicates a positive correlation between sustainability and financial performance. It must be said, however, that such findings are often limited by inconsistent terminology and a not-always-common understanding of what sustainability is. This is why standards are important.
Value chain demands
Suppliers and clients will continue to request sustainability-related information irrespective of whether a company falls under the scope of the CSRD.
Reputation and loyalty
More and more consumers are ready to pay for products and services delivered by socially responsible companies (unfortunately this is also the main motivation behind greenwashing). Transparent and verified ESG commitments build trust and credibility.
Responsibilities
Finally, and most importantly: It is the right thing to do because businesses need to take responsibility for their impacts.
Even outside the regulatory landscape, businesses have options when it comes to effectively managing and communicating, their sustainability performance, should they choose to do so.
- Voluntary reporting standard for SMEs (VSME): Given the reduction in scope of the ESRSs, there is going to be increasing attention given by the European Commission to these voluntary standards, which will actually now be relevant not just to SMEs but to all companies that fall outside the scope of the CSRD, presumably all companies and groups with less than a 1,000 employees.
- Management systems and other reporting frameworks: Well-established, international recognised frameworks like ISO14001 and the Global Reporting Initiative (GRI) provide businesses with a systematic, measurable reporting structure.
These and other options for incorporating an effective sustainability strategy into your business will be discussed at this year's edition of Terra which will be held on 30 September 2025. The shift in the EU’s ESG policies should not be seen as a way for businesses to abandon their sustainability journeys, which is unfortunately a potential risk. Instead it should become an opportunity to redefine their approach by making sustainability central to their strategy.
This article was written by Mark Azzopardi, Managing Director of Working Town
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