19 December 2025 — News
Op-ed by Iryna de Smedt, Policy Manager
Businesses depend on functioning natural and social systems for their continuity and competitiveness. Stable climate conditions, reliable access to raw materials, a skilled workforce, predictable regulatory environments, and strong consumer trust underpin functioning markets. Yet, some business models are significantly exposed to risks that weaken these underlying systems, or depend on practices that make those risks more acute.
Agricultural companies reliant on water-intensive crops are increasingly vulnerable as climate change drives more frequent and severe droughts. Fashion brands built on cheap labour risk supply chain breakdowns and lasting reputational damage. Mining firms that extract finite resources without robust environmental safeguards face mounting regulatory pressure and potential loss of their license to operate. These are not merely ethical concerns, they are concrete business risks that threaten continuity, resilience, and competitiveness.
Some business leaders and policymakers argue that with rising costs, inflation, global conflicts, and supply-chain volatility, cost control must take priority. Short-term pressures are real, yet they now compound deeper structural risks. The climate crisis, biodiversity loss, and social instability are no longer distant concerns. They are already reshaping supply chains, driving up costs, and exposing the limits of traditional business models.
Günther Thallinger, board member at Allianz SE which is one of the world’s largest insurers and asset managers, has warned that the climate crisis is destabilising global finance. This is a strategic risk assessment, not activist rhetoric. Climate and other sustainability impacts are translating directly into financial losses and steadily undermining system-wide resilience.
Environmental degradation, resource scarcity, geopolitical and social tensions, and climate instability are forcing industries to absorb risks once treated as externalities. Supply chains break down, cost structures shift, and insurance models struggle to keep pace. These pressures now hit profit margins, investor confidence, and shareholder value. Companies that postpone action will be outpaced, outpriced, and increasingly exposed.
This is where frameworks such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D) become valuable. The CSRD focuses on how companies identify, measure, and transparently report sustainability-related risks and impacts, while the CS3D addresses how companies prevent, mitigate, and remedy those risks and impacts across their operations and value chains. They enable companies to understand and manage sustainability risks that can disrupt operations, erode margins, or threaten long-term competitiveness, and plan accordingly.
By requiring companies to assess and manage environmental and social impacts, these frameworks pinpoint where the business is exposed, uncover inefficiencies, and reveal strategic opportunities. CSRD translates this understanding into decision-useful information for investors and stakeholders, while CS3D ensures that identified risks are actively addressed through governance, processes, and business conduct. Sustainability becomes part of day-to-day decision-making, informing investments, strengthening risk management, and shaping more resilient business models.
Clear, consistent reporting enables companies to explain their performance to investors, regulators, employees, customers, and other stakeholders in a credible and comparable way, thereby turning transparency into a source of trust and strategic insight rather than an administrative burden.
Nevertheless, many businesses still treat reporting and due diligence as narrow compliance exercises. In practice, CSRD embeds sustainability into reporting, financial planning, and risk management, while CS3D embeds it into operational decision-making and value-chain governance. When driven from the C-suite, they transform sustainability from a checkbox exercise into a strategic tool for protecting value, mitigating risk, and staying ahead in a rapidly changing market.
Concerns about regulatory complexity are legitimate and valid. Some argue that rising costs and economic pressures demand prioritising short-term survival over long-term transformation, framing mandatory sustainability reporting and due diligence as costly administrative burdens that divert resources from core operations, innovation, and competitiveness.
The EU’s Sustainability Omnibus Directive embodies this thinking, offering delays, reduced compliance requirements and exemptions to ease bureaucracy. Supporters claim that excessive regulation could trigger compliance fatigue, reduce risk-taking, and stifle growth. However, this argument is short-sighted: environmental and social disruptions are already material financial threats, and delaying action does not pause the climate emergency.
CSRD and CS3D may not be perfect and can benefit from genuine and well-designed burden reduction, but they establish the first common, structured framework that aligns competitiveness with sustainability, making clear that financial performance and responsible business practices are increasingly inseparable. Delays and exemptions give companies more time to adjust though they cannot remove the urgency to act now.
Even amid regulatory uncertainty, companies that take a proactive approach to sustainability gain a strategic edge. Acting now is not just about compliance. It builds resilience, protects margins, and positions businesses to compete and lead in a rapidly changing market.
When reporting is reduced to a box-ticking exercise, it risks becoming a burden and a cost. But when used strategically, it becomes a powerful driver of business value. Forward-looking companies increasingly recognise that sustainability is not only about avoiding risk, but is also a source of growth, innovation, and competitive advantage. Integrating sustainability into core decision-making enables businesses to reduce structural inefficiencies, strengthen customer trust, and attract capital that now favours credible, future-fit business models. 1
Sustainability is no longer a side project; it is central to survival. Executives must embed it into business models, KPIs, budgets, and strategy, making it a boardroom priority rather than a peripheral task. The double materiality assessment should be treated as a strategic exercise at board level, informing capital allocation, risk pricing, and long-term viability.
