Competitiveness through sustainability: the role of the CSRD

Sustainability and CSRD reporting requirement

The topic of sustainability and sustainability reporting in particular is currently on everyone's mind. Previously often communicated voluntarily, regulations such as the Corporate Sustainability Reporting Directive (CSRD) are now establishing the topic in accounting law and demanding a new level of professionalism from everyone involved.

Many companies are in the midst of implementing the new requirements and see the compliance obligations associated with the reporting obligation as a priority. CSRD is far more than just a regulation on sustainability. If implemented correctly, sustainability can become a clear driver for the profit and loss account (P&L) and establish itself as a decisive pillar for competitiveness - making the topic an inevitable task for management as part of the corporate strategy.

The CSRD comprises a comprehensive assessment of the company's own business model as part of the so-called double materiality assessment, including risks and opportunities from various sustainability areas. The aim is to establish a comprehensive sustainability management system with which the company can position itself for the future, mitigate risks and actively exploit opportunities.

Sustainability as a competitive advantage and revenue driver

Having been popular for many years, sustainability communication in the sales process has gained a high level of professionalism in recent years. In many sectors, this has turned voluntary additional information into a mandatory award criterion.

Customer requests for sustainability disclosures and ratings

Suppliers to large OEMs or retail chains are therefore facing increasing (sometimes mandatory) customer requests for sustainability ratings (Ecovadis, CDP). In some sectors, for example automotive or metal processing, it is already no longer possible to participate in tenders without a sustainability rating.

In addition to sustainability information at company level, the focus is increasingly shifting to information at product level. Major customers of purchased parts such as BMW, Porsche and Bosch are requesting product carbon footprints from their suppliers as part of their own carbon footprinting. A study by McKinsey & Company sees supplier queries and the optimization of emissions at purchased part level as decarbonization drivers for OEMs. Experts therefore anticipate increasing pressure on suppliers.

New markets due to changing demands

Many companies with large product portfolios are currently also experiencing changing requirements from large customer markets that require a reprioritization of their product strategy. Automotive suppliers, for example, are already experiencing increased demand for less carbon intensive materials and products in the interior sector.

A clear view of the competitive sustainability performance of your own product portfolio compared to available alternatives helps you to recognize risks and identify new sales markets at an early stage. With rapidly changing sales markets, sustainability performance becomes a strategic issue in your own competitiveness and topline planning.

Tenders in public sector

Anyone involved in public procurement, e.g. in the building sector, but also for large orders for ministries, is currently experiencing a strong tightening of sustainability criteria in the purchasing process.
Originally a hygiene factor, performance in ratings and at product level is now also coming to the fore and making the difference in public procurement.

Sustainability as a cost driver

In addition to the relevance to revenue, the topic of sustainability is of course also associated with costs. There are major differences between companies here. Establishing and empowering a sustainability function within your own company and introducing efficient standard processes are the key to working cost-efficiently in the medium term.

Costs for sustainability management, compliance and reporting

A study conducted by the VDMA in collaboration with the Institut für Mittelstandsforschung (IfM) Bonn concludes that compliance and bureaucratic costs account for between 1-3% of annual turnover for the sample companies examined. Companies also report increasing costs due to customer inquiries in the area of sustainability, some of which overlap greatly in terms of content despite their different forms.

The increasing number of regulatory requirements and customer inquiries in the area of sustainability call for clear responsibilities and standard processes. Many inquiries are duplicated in terms of content, which is why work according to common sustainability standards (such as the GHG Protocol and ISO 14064 in carbon accounting) helps to reuse results. Clean data management helps to make it easier to repeat recurring data collection processes and save time and effort in all departments and locations involved.

Impact of sustainability performance on the cost of capital

In addition to direct costs such as the personnel costs of all those involved in sustainability, companies with borrowed capital in their financing mix are increasingly faced with sustainability requests from their own banks. Originally only pursued by major banks and corporations, a trend is increasingly establishing itself in medium-sized banks such as Sparkasse or LBBW to link loan conditions to sustainability performance. With the introduction of the EU Taxonomy as a reporting requirement for many SMEs, experts assume that it will no longer be possible to separate the capital costs of borrowed capital from sustainability performance in a few years' time.

Impact of sustainability on risk management and insurance costs

Many manufacturing companies are already suffering from the consequences of climate change: whether due to disrupted supply chains, raw material prices or flooding of their own production facilities - sustainability and, in particular, the risk management required under CSRD in relation to sustainability issues are already influencing the ability to plan business models and the valuation of physical assets such as their own buildings.

In response to this new reality, manufacturing companies, for example, are already finding it difficult to insure themselves against production interruptions at the usual conditions if their production is exposed to climate risk, e.g. due to their location near a river. Good risk management and an understanding of the impact of sustainability aspects on a company's insurability help to identify, evaluate and mitigate potential additional costs at an early stage.

Summary of sustainability as a P&L indicator

The CSRD is generally understood as a reporting obligation. However, if implemented well, the implementation of comprehensive sustainability management required by it is also an investment in the future viability of a company. Sustainability already affects all areas of P&L and is therefore clearly an issue for the management.

The aim is to minimize the costs associated with implementation through lean standard processes and to use the resources freed up to invest in sustainable competitiveness.

"As a company preparing for CSRD reporting, Tanso's software has been an invaluable asset, particularly during the initial reporting phase. Its integrated project management and comprehensive overview of all key data points have greatly streamlined the process, enhancing both the quality and transparency of our reporting."

Eduard Schmidt

Sustainability Manager at Technotrans

Successfully implementing CSRD guidelines with Tanso

Tanso offers a fully integrated solution for all steps of CSRD reporting - from conducting and documenting the dual materiality analysis to ESRS data collection, data-based sustainability management and reporting. The software was developed in cooperation with auditors and ensures the highest compliance standards.