Concrete Measures to Advance ESG Effectiveness

Author of this issue: Dr. Maren Hartmann.

Dear Controlling & Finance Community,

Many companies have been extending and professionalizing their sustainability reporting due to increasing transparency requirements at EU level. In February, a proposal was published to delay and simplify European sustainability reporting regulations, known as the “Omnibus”-proposal.

The proposed changes to the Corporate Sustainability Reporting Directive (CSRD) are creating uncertainty. Although they aim to simplify the process, some stakeholders are concerned that they might affect the effectiveness of sustainability efforts in Europe.

With potential delays in reporting requirements, there is now a chance to refine and improve existing initiatives. This edition provides perspectives and outlines concrete next steps for addressing current uncertainties by focusing on improvement areas beyond reporting – such as automation, resilience, governance, and performance management. Collaboration between sustainability departments, controlling and further finance departments is key – especially when moving beyond reporting towards actively managing sustainability.

Enjoy reading.

Proposed ESG Reporting Simplifications at a Glance

On February 26, 2025, the EU proposed the Omnibus Package to simplify sustainability reporting. Though not yet finalized, the draft suggests streamlining major regulations like CSRD, EU Taxonomy, CBAM, and CSDDD to reduce complexity for companies. The proposal includes a 25 percent cut in data points to be reported and the removal of sector-specific standards. A “Stop the Clock” clause will delay some reporting duties once adopted in national legislations.

While large, capital market-oriented firms would stay on the current timeline (Wave 1), large non-listed companies with more than 1.000 employees and listed SMEs will potentially begin reporting in 2028 and 2029 – two years later than planned (Wave 2 & 3).

If adopted, these adjustments would ease compliance and give companies time to refine sustainability strategies, improve reporting workflows, and embed non-financial KPIs into performance management.

Unlocking ESG Potential beyond Reporting

With potentially simplified reporting, companies can reassess and refine their approach to sustainability. This shift allows organizations to transform ESG from a compliance task into a strategic, performance-driven discipline.

What companies should focus on largely depends on where they are on their reporting journey:

Wave 1 companies – most of which have already prepared their first reports – should focus on further embedding sustainability into performance management, risk management, and internal control systems, while enhancing reporting efficiency through automation and explore the use of AI.

Wave 2 & 3 companies should continue preparing for sustainability reporting with a focus on aligning efforts to strategic priorities, while holding off on finalizing their reports until the updated reporting standards are officially published.

We see four focus areas:

1. Strengthening ESG Strategy and Governance for Sustainable Success

There is now an opportunity to further refine the ESG strategy, clarify roles and build strong governance structures. A clear ESG Target Operating Model ensures alignment across sustainability, finance, legal, and digital teams. Strong governance strengthens information reliability and supports effective ESG implementation, potentially reducing future compliance costs.

2. Replacing Manual tasks with Smart ESG Software

Many organizations still rely on Excel and PowerPoint for data collection and reporting, creating inefficiencies, increasing the risk of errors, and limiting scalability. Moving manual processes towards more efficient, scalable solutions is key. An evaluation of which functionalities are needed (e.g., data collection, storage, disclosure) is the first step. In some cases, existing tools “can do the job” – in other cases selecting a performant ESG software that integrates with the existing BI architecture is a good option.

3. Stress-Testing Business Models Against ESG Risks

Companies should assess the resilience of their business models in light of ESG risks. Key risks, opportunities, and impacts that have been identified should not only be reported, but actively managed. Companies already mapping climate risks should turn insights into action to strengthen adaptability to climate change (e.g., regarding floods, heat, regulatory changes). Involving both sustainability and risk management teams, this not only makes the business more resilient but also appeals to investors focused on long-term value.

4. Elevating ESG Performance Management

Many organizations have already completed their materiality assessments – an exercise in which the key sustainability topics to be managed are identified, e.g., climate change, water, pollution, other environmental topics or social aspects. This lays the groundwork for setting strategic priorities. Integration of sustainability into corporate performance management is the next step to turn strategy into action.

A focused set of steering-relevant KPIs linked to the material topics needs to be defined. These KPIs then need to be embedded into core steering processes, such as mid-term planning or monthly review meetings – making sustainability an integral part of corporate performance management processes.

Where do companies stand today? Clear target-setting is crucial for effective performance management as it provides direction, measurable goals, and a framework for tracking progress. Yet, many companies have focused primarily on meeting disclosure requirements. Our recent CSRD benchmarking study, based on 100 published reports from various industries, shows that for some topics, companies are still reluctant to communicate their ambitions in the form of targets.

Key Findings:

For Climate Change (E1), Resource Use (E5) and Own Workforce (S1), the companies demonstrate a high degree of target-setting.

Target-setting for Pollution (E2), Water & Marine Resources (E3) and Biodiversity (E4) as well as Workers in the value chain (S2), Affected Communities (S3) and Consumers & End-Users (S4) remains limited, with just over half of companies addressing these areas.

One in three companies with Business Conduct (G1) as a material topic have defined governance-related targets.

How to start and what to focus on?

Below you will find a selection of key success factors we have identified as lessons learned from our project experience in effectively integrating ESG aspects into performance management systems.

Conclusion: From Compliance to Competitive Edge

The EU Omnibus Initiative, adopted on February 26, 2025, signals a shift in sustainability regulation by redefining scope and timeline. While reactions are mixed, it creates an opportunity to transform ESG into a strategic driver of long-term value. With simplified rules and delayed reporting, companies can shift from compliance to capability building - strengthening ESG foundations, choosing the right digital tools, and improving data quality. This time can also be used to assess ESG risks, develop targeted KPIs, and integrate them into performance management systems, positioning companies to lead and succeed in the future.

Upcoming Event Highlights

June 12th: From Cost to Value - Moderne Unternehmenssteuerung durch eine integrierte CPM Plattform - Schneller, effizienter & flexibler steuern / Zurich, Switzerland (held in German)

June 12th: CSRD, EU-Taxonomie & ESG-Steuerung – Mehr als nur Compliance? / Hamburg, Germany (held in German)

June 18th: Strategische Planung – Vom Ziel zur Wirkung / Free Online Event (held in German)

June, 26th: CSRD: Lessons Learned aus Welle 1 und Prioritäten für die Zukunft / Free Online Event (held in German)

June 27th: Virtuelles CFO-Panel Meeting - Juni 2025 / Free Online Event (held in German)

What's next on Issue #11?

In today's dynamic corporate landscape, transfer pricing must be legally compliant, economically sound, and fully integrated into corporate management.

In the upcoming edition, focusing on Integrated Transfer Pricing, we’ll explore how more than 100 companies are addressing this challenge – with insights from our brand-new Transfer Pricing Study 2025.

Stay tuned – the next edition drops on July 10th.