Europe's retreat is deceptive: while the EU is loosening its ESG reporting requirements, global pressure for sustainability is increasing. Trickle-down effects, international standards and rising stakeholder demands will sooner or later force even non-reporting companies to take action. Those who focus on sustainability now will secure competitive advantages. Those who wait run the risk of being left behind in the long term and losing market access.
As a result of the European Commission's omnibus proposal, work is currently underway to simplify the European Sustainability Reporting Standards (ESRS). However, it remains unclear whether the threshold for the number of employees required for companies to comply with the Corporate Sustainability Reporting Directive (CSRD) will be raised from 250 to 500, 1,000 or even 3,000. At the same time, there is talk of raising the turnover threshold from €50 million to €450 million. Many companies that will most likely no longer be subject to CSRD reporting requirements are wondering why they should still bother with ESG. The answer is obvious: ESG risks continue to exist, even without regulation. At the same time, numerous stakeholders such as customers, applicants, employees and the financial market are demanding ESG information. Those who address these challenges, manage them and minimise risks will benefit from tangible economic advantages and ensure the long-term survival of their company. And last but not least, more and more countries outside Europe are requiring companies to report on sustainability.
Contrary to apparent ESG fatigue, regulation is on the rise worldwide
While Europe is shifting down a gear in ESG reporting, the International Financial Reporting Standards (IFRS) S1 and S2 of the International Sustainability Standards Board (ISSB) are gaining importance worldwide. In 2025, Mexico and Japan will join the list of countries adopting IFRS S1 and S2 as part of their national implementation of mandatory sustainability reporting. This means that countries working towards adopting these standards or that have already implemented them cover more than 60% of global GDP. The international approach follows the "Climate First" principle, but is by no means limited to climate issues. Basically, ESG is becoming a must-have internationally. As the WEF's latest Global Risk Report 2025 shows, this is long overdue. According to the report, environmental risks remain among the greatest threats in the coming decade – ahead of risks related to misinformation and disinformation, artificial intelligence, as well as cyber espionage and warfare.
For the 900 decision-makers from politics, business and science worldwide who were surveyed, the message is clear: companies that ignore ESG are blindly heading into a highly dynamic risk cluster. But how can these risks be managed so that European companies do not miss out on important economic developments again? The first step is to use data to create transparency in order to understand how risks can be minimised.
Various stakeholders are calling for greater transparency
Regardless of their own reporting obligations, companies are confronted with ESG requirements from various stakeholders. First of all, there is the so-called "trickle-down effect". Large companies subject to CSRD reporting requirements demand detailed ESG data from their suppliers, which they need for reporting on their own supply chain. At the same time, companies are increasingly demanding a certain level of ESG performance from their customers and linking the awarding of contracts to ESG ratings. As these assessments are carried out annually and the requirements for ratings such as EcoVadis are increasing from year to year, there is constant pressure to improve. After all, no customer wants to commission a supplier with EcoVadis bronze when competitors can boast silver or gold.
Regulations such as the SFDR in the financial sector are not directly affected by the EU omnibus's proposals for simplification. This means that ESG data from companies will continue to be required in order to integrate sustainability risks into the investment process. With regard to the management of physical climate risks, the European Central Bank has also recently reiterated the importance of reliable climate data for the risk assessment of financing. Companies with convincing sustainability strategies also benefit from access to special financing instruments such as green bonds, which in turn can have a positive impact on their reputation.
Finally, companies that operate sustainably also benefit when it comes to attracting talent. Shorter recruitment processes, more qualified applicants and greater loyalty reduce costs and increase productivity. Younger generations in particular prefer employers who take social responsibility seriously and communicate this transparently. Companies that can demonstrate their sustainability strategy with data successfully position themselves as "employers of choice" and strengthen employee loyalty in the long term.
Practical advantages of ESG management
All this sounds like a lot of effort, especially for small and medium-sized enterprises whose resources for dealing with sustainability matters are very limited. However, it is worth investing a certain amount of time and resources here, especially as the initially higher cost of establishing ESG management decreases significantly in subsequent years.
A data-driven and well-thought-out ESG strategy leads to operational improvements: measures to save energy and other resources reduce costs, sustainable supply chains mitigate procurement risks, and better working conditions reduce employee turnover.
In many industries, ESG criteria are increasingly becoming a distinguishing feature. Companies that operate sustainably stand out from their competitors and tap into new customer groups. In B2B relationships in particular, sustainability is becoming a selection criterion in tenders.
Given the growing importance of environmental and sustainability risks, strategically anchored ESG management is no longer a "nice-to-have" but a prerequisite for sustainable business. Organisations that ignore ESG aspects operate in an increasingly dynamic and unpredictable risk environment. Strategically anchored ESG management thus forms the basis for effective risk management. It creates transparency about potential environmental and sustainability risks, enables informed decisions and strengthens resilience to external influences.
Making ESG easy – a pragmatic introduction for companies not subject to reporting requirements
Our recommendation is: "Think big, start small!" For companies that want to start with ESG but at the same time have to manage their resources carefully, we recommend:
- Establish organisational foundations: Define processes for integrating ESG into your organisation and appoint responsible persons.
- Focus instead of a sweeping approach: Instead of tackling various ESG issues at once, companies should first systematically gain an overview: Which sustainability issues are actually relevant and what are the requirements of internal and external stakeholders? A materiality assessment can be helpful here.
- Make ESG measurable and act in a targeted manner: Define precise goals for your material ESG matters and develop targeted measures. Establish meaningful key performance indicators (KPIs) that you can use to continuously measure your progress. An indispensable basis for this is the implementation of robust data collection processes that are consistently applied in all areas of the company.
Voluntary data collection, for example within the framework of the VSME standard, meets the most important requirements of customers who are still subject to CSRD reporting obligations and prepares them for possible future ESRS obligations. The focus should be on the strategic use of data to initiate transformation processes within the company on the one hand and to establish lean, stakeholder-oriented sustainability communication on the other.
"ESG is not rocket science – it just needs the right approach. While others are still discussing regulation, you should already be working on making your company fit for the future."
Steven Rohles, Consultant for Sustainability Communication & ESG
Conclusion: ESG is not a luxury, but a survival strategy
Developing an ESG strategy and setting up data collection will undoubtedly cost your company time and resources. However, the question is no longer whether you can afford ESG, but whether you can afford not to. In a world where sustainability is becoming a standard matter in all business relationships, your ESG activities will determine your market share, your ability to recruit and retain staff, and your effective management of environmental and climate risks – and thus ultimately the survival of your company.
Those who act now will be ahead of the game. Those who wait will pay for it later and risk the future of their company.
