ESG Regulation: From Constraint to Strategic Transformation Lever

Some companies had already begun strategic reflections around their business model and impact. For them, the CSRD merely formalizes initiatives already underway. These are often players with a long-term vision, notably mid-sized companies (ETIs) or family groups, for whom the priority is to strengthen the company’s resilience. “The approach is more about risks and the company’s robustness, mainly seeking to seize financial opportunities and hedge risks, rather than solely aiming to reduce negative impacts,” observed Cindy David, Senior Manager in sustainability and performance consulting at I Care by BearingPoint.

From Regulatory Compliance to Strategic Reflection

For many other companies, however, the regulation has acted as a trigger. “The CSRD has pushed many companies to clarify what is material for them, leading to strategic discussions and the unlocking of budgets that would not have happened otherwise,” stated Jérémie Joos, ESG partner at KPMG. “It triggered the need, once an issue is deemed material, to be clear on objectives, strategy, and the means deployed.”

Even when the CSRD acts as a catalyst, it often initiates a transformation dynamic by revealing risks. “It does not have a magic effect on strategy shifts,” he qualified. “Companies that engage often do so because they face risks or events that push them to think in terms of resilience and impact.” The arrival of an investor questioning the company’s sustainability strategy or the growing pressure from certain clients, for example, can accelerate the process. “When clients require their suppliers to commit to meeting their own ESG targets, this cascades throughout the value chain,” illustrated Jérémie Joos.

Before the CSRD introduction, CSR policy structuring initiatives were mostly voluntary. Some opted for labels (B Corp, LUCIE, “Engagé RSE”), while others adopted a corporate purpose or became purpose-driven companies. Others structured their CSR policy based on double materiality analysis and stakeholder dialogue, recalled Martin Richer, founding CEO of Management & RSE and director of Sciences Po’s Executive Master Trajectoires Dirigeants. The directive changed the game by imposing what was previously a strategic choice: it generalizes the structuring exercise and pushes all concerned companies to clarify what is material to them.

“This is how the CSRD has been very useful: it enabled many companies to discover the benefits of a strategic reflection intertwined with sustainability, an exercise they had never really attempted before,” continued Martin Richer. “And it has indeed worked well. The CSRD sparked numerous discussions, especially around the concept of overall performance, and allowed moving beyond mere declarations to formulate real trajectories and objectives. For companies that embrace it, it becomes a lever for transformation.”

“Monetizing Compliance”

“The CSRD has brought a number of companies into topics that had never been addressed before. It really helped cast a wide net,” confirmed Delphine Gibassier, expert in sustainable accounting and extra-financial reporting at Dix Septembre. This momentum is also felt internally: “The phenomenon is quite massive. Few companies subject to the CSRD have not integrated at least one person in charge of CSR within their finance teams.”

Beyond risk management — better supply chain visibility, anticipation of geopolitical or climate uncertainties, diversification of sources — compliance can also open the door to strategic opportunities. Vincent Canu, head of France at osapiens, cited the European regulation on imported deforestation, which requires companies to trace certain commodities (coffee, cocoa, soy, timber, etc.) back to their place of production to ensure legal compliance and deforestation-free status. “Traceability becomes a differentiating argument for consumers concerned with product origin transparency,” he explained. By leveraging previously underutilized data, companies can structure higher value-added offerings. “This is a way to monetize compliance.”

Among CSRD’s contributions, structuring double materiality stands out as a particularly powerful lever. “It is a fundamental tool for strategy, not just reporting: it enables transforming business models and involves functions beyond CSR, such as sales,” emphasized Delphine Gibassier. However, the exercise requires time, data, and involvement of the entire value chain, knowing that a lack of data does not exclude the materiality of an issue.

Engaging All Stakeholders

This also implies engaging the board and executive committee. “Some leaders sometimes perceive CSR as emotion or activism. One must come with facts, science, and dare to challenge preconceived ideas,” insisted Jérémie Joos. This is especially relevant in an increasingly polarized context, notably in the U.S., where the Trump administration fueled an anti-ESG discourse.

This transformation is not limited to CSR departments. To develop sustainable offerings aligned with sometimes contradictory consumer expectations, all functions must be mobilized: marketing, sales, innovation, and R&D, as panelists recalled. “There is a real narrative challenge: showing that a more sustainable product can also be more desirable, higher performing, and more efficient,” noted Jérémie Joos. In an inflationary context where price remains a key criterion, it also means helping consumers better perceive sustainable benefits, including long-term economic ones.

“This is where the legislator plays a key role, by putting everyone on a level playing field through regulation,” added Vincent Canu. He emphasized the need not to penalize those choosing sustainability, and to integrate sustainability issues from product design, communication phases, or via mechanisms like bonus-malus or incentive taxation.

Regulation is all the more essential because, in some cases, companies have no immediate incentive to improve. Regarding climate, for example, Martin Richer mentioned the “tragedy of horizons,” theorized by Mark Carney, former governor of the Bank of England — the disconnect between the time horizons of economic or political decision-makers and climate impacts weakens their incentives to act (source: ECB). “A CEO can steer company strategy without ever seeing the consequences, due to a mandate that is not long enough,” he lamented. He also referred to the economic theory of the “free rider,” describing actors who benefit from others’ efforts without contributing themselves. “Pollution has no borders. Why invest heavily in decarbonization if my neighbor does not?”

Such logics justify imposing constraints, but also other levers of action, Martin Richer continued, illustrating: “France’s most effective public policy in recent decades is probably road safety. It was based on a mix of incentives, constraints, and education.”

The Data Challenge

However, companies must be able to concretely assess the effects of these transformations. The CSRD explicitly requires this, notably through ESRS E1, which obliges companies to anticipate potential financial impacts related to climate. This involves identifying physical risks (such as natural disasters) and transition risks (regulations, behavioral changes), then modeling their effects on revenues and costs.

But obtaining necessary data remains a challenge, especially beyond climate issues. “As soon as we move beyond carbon, data are scarcer, less accessible, or poorly structured,” regretted Delphine Gibassier. Some sectors develop sectoral double materiality analyses. “Such initiatives, even if macro-level, help companies that cannot undertake such work alone to progress.”

Access to quality information remains a central issue to rethink business models. “We lack data — and at the same time, we do not sufficiently organize their structuring,” added Delphine Gibassier, advocating for “the creation of a public, standardized, and accessible database.”

Data needs vary depending on the level of transformation targeted, according to Cindy David: “There are two stages in business model transformation. The first is reducing impacts without changing the core model. We optimize processes, reduce consumption… But to achieve net zero or rethink nature impacts, one must go further. This requires questioning the offering, sometimes accepting to sell less, but better… That is when the real transformation of the business model happens. In the first phase, data are needed for optimization; in the second, one no longer transforms processes but the core model. There, the goal shifts from risk hedging to opportunity capture.”

But in this second phase, it is no longer only about collecting indicators. “We enter a different logic: simulations, market studies, projections… One must test an idea, model an activity, assess its strategic and economic potential,” Cindy David added. “This work largely relies on assumptions, as reliable data are not always available.”

In this second transformation phase, not only operational functions but also strategic leadership must be mobilized. “Rethinking business models requires strong governance commitment, as well as time and managerial stability,” emphasized Cindy David, who stressed the importance of a solid governance framework, based on independent directors, long-term aligned stable shareholders, and the ability of employees to report weak signals from the field.

Transforming a model also requires engaging the ecosystem. Some companies explore cross-incentive mechanisms within their value chain. “For example, one of our clients created an internal fund to support low-environmental-impact R&D projects and offset additional costs for suppliers,” illustrated Jérémie Joos. This evolution highlights the need for cooperation at all levels to sustainably transform business models.