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Policy is a critical lever for driving sustainable change. Without legislation such as CSRD (Corporate Sustainability Reporting Directive), transforming traditional business to one that’s sustainable might take decades. Legislation has driven company action for years, this time around, however, failure to comply with CSRD can result in significant penalties including fines, sanctions or even prison sentences. The consequences of not complying will vary on a case-by-case basis but will be set by government.
Different nations enforce these regulations with varying degrees of strictness. For example in Germany, the harshest penalty could be as high as five per cent of the company’s annual revenue. France has introduced even stricter measures, with company directors potentially facing fines of approximately 75,000 euros and up to five years in prison. The message is clear: non-compliance will incur serious sanctions.
So, what are companies doing to prepare?
As you’d expect, a lot. It seems as soon as the bottom line is affected there’s a call to arms. Execs who turned a blind eye to sustainability now poke their heads around the CSO, or equivalent’s, door.
This is the power of legislation and it has shifted the dial. CSRD, EU Taxonomy, CSDDD (Corporate Sustainability Due Diligence Directive), European Green Deal and SFDR (Sustainable Finance Disclosure Regulation) are all playing their part in bringing sustainability to the table and creating action where previously there may have been little.
Some companies are already equipped to deal with the changing legislation. Those who have been compliant previously and gone above and beyond requirements, have foundations (for responding to legislation) already in place. However, companies of a certain size who haven’t previously committed to sustainability will have a lot of ground to make up, with huge costs associated.
How are sustainability teams changing?
The size of the business and its commitment to sustainability are consistently the two primary factors influencing decision-making regarding compliance. There are many nuances affecting how organisations deal with the legislation - below are three broad categories.
1. Small and medium-sized enterprises:
SMEs falling under the legislation often lack a dedicated full-time sustainability leader. Consequently, many are hiring for sustainability roles focused primarily on foundational compliance and reporting. Positions such as ESG Manager or Head/Director of ESG are common and work closely with finance teams. After establishing ESG foundations, these professionals typically develop further sustainability initiatives. Consulting services are also an option, albeit an expensive one.
2. Medium to large-sized companies:
Generally, these already have a sustainability team of up to several people. They will have commenced their net zero journey, developed a decarbonisation roadmap and will be looking at other sustainability elements such as waste, water, circularity and nature. This is where we’re seeing a big shift. It now falls on the current sustainability hire, or small team to shift their focus to compliance and reporting. I’ve spoken with plenty of Heads/Directors over the past month who have witnessed this shift.
3. Large companies:
Usually well equipped to tackle these changes, they tend to have a bigger budget so can hire specialists. In several cases, ESG reporting has moved into the finance function, sustainability still being a key internal stakeholder group. This shift enables the sustainability team to focus on their key task of building a future-fit sustainable company. In some cases, ESG has also been reporting into Legal or Communications & Public Affairs, especially in companies with significant brand considerations.
What are your options?
Consultancy – Many companies opt for consultancy services as a straightforward solution. Consultants provide in-house teams that can set up reporting systems, develop solutions, implement them, and then depart. However, this option can be costly, potentially three times more expensive than engaging an interim contractor.
Interim/Contractor – This is often a really good solution for when businesses know what they need to achieve, and they need someone to implement it from within. The interim person has previous experience, so can hit the ground running and will be a cost-effective solution compared to consultancy support (up to 50-70% cheaper). They may even work hand in hand with your consultancy partner but will save on overall cost compared to needing a team around the clock.
Permanent – If budget allows, hiring a permanent sustainability expert is the preferable option. Legislation will likely ramp up in the coming years. Having an in-house permanent expert is the more cost-effective and sustainable solution; helping integrate systems, conduct critical stakeholder engagement and programme management.
This is an unprecedented time for sustainability, with a surge in legislation. While there are both challenges and opportunities, it is clear the way we do business is evolving.
If you’re uncertain about navigating the next 12 months, feel free to get in touch. It’s a conversation Acre is having daily.
