1. Changing Business Landscape

The increasing focus on sustainability is a significant trend in the business world. Stakeholders, including investors, customers, employees and the general public, are becoming more conscious of environmental, social, and governance (ESG) factors. This heightened awareness has led to greater demand for transparency and accountability from companies regarding their sustainability practices.

Several factors contribute to this shift:

To navigate this evolving landscape, company boards should consider the following:

• Strategic Planning: Incorporate sustainability considerations into overall business strategy. This includes setting clear sustainability goals and integrating them into the company’s mission and values.
• Risk Assessment: Conduct regular assessments of environmental, social, and governance risks. This involves identifying potential risks, evaluating their impact, and developing strategies to mitigate them.
• Reporting and Transparency: Enhance reporting mechanisms to provide transparent and accurate information on sustainability performance. This may involve adopting recognized reporting frameworks, such as the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB) standards.
• Stakeholder Engagement: Actively engage with stakeholders to understand their expectations and concerns related to sustainability. This can help build trust and demonstrate a commitment to responsible business practices.
• Compliance with Regulations: Stay informed about and comply with evolving sustainability regulations and standards. This includes understanding the impact of current and proposed legislation on the company’s operations.
• Innovation and Collaboration: Foster innovation within the organization to identify sustainable business practices. Collaboration with industry peers, NGOs, and other stakeholders can also lead to shared solutions and best practices.

By proactively addressing sustainability obligations and challenges, companies can not only meet the expectations of their stakeholders but also position themselves for long-term success in a changing business landscape.

2. External Pressures

The growing demand for accountability and transparency from companies regarding their societal and environmental impacts reflects a broader shift in stakeholder expectations. Various stakeholders, including customers, employees, communities, investors, policymakers, and regulators, are placing increased emphasis on ethical and sustainable business practices. Here are key points to consider regarding the impact on companies’ governance, business practices, operations, and reporting:

In summary, the evolving landscape of stakeholder expectations and regulatory frameworks is reshaping how companies approach governance, business practices, operations, and reporting. Embracing sustainability as a core business principle is not only a response to external pressures but also a strategic move that can enhance a company’s long-term resilience and reputation.

3. Long-Term Value Creation

Incorporating sustainability considerations into various aspects of a company’s operations is increasingly recognized as a pragmatic approach to ensuring long-term success and resilience. Here’s a breakdown of why this approach is crucial:

In summary, taking a pragmatic approach to sustainability is not just about meeting current expectations but is a strategic move to secure a company’s future existence. Businesses that embrace sustainability across their strategic decisions, operations, value chains, and company culture are more likely to thrive in the long term by creating value for stakeholders, staying competitive, and navigating the challenges of a rapidly changing business environment.

4. Strategy and Business Model Review

Board leadership will be instrumental in driving their business’ sustainability transition. They must align their company strategy with sustainability objectives, understand their stakeholders’ needs and expectations, and oversee ESG risks and opportunities. Integrating sustainability into a company’s strategy and business model. Here are some key points:

In conclusion, boards play a crucial role in leading the sustainability transition. Reviewing the strategy and business model requires a robust perspective on governance over sustainability, stressing the need for a strategic and holistic approach. It recognizes the diversity in how sustainability impacts businesses and underscores the importance of leadership at the board level in driving transformative change. This approach aligns well with the evolving landscape where sustainability is increasingly seen as a fundamental driver of long-term business success.

5. Sustainability Impacts and Risks

The importance of understanding and addressing sustainability impacts and risks for companies, particularly with a focus on the role of boards.  Here’s a breakdown of the key points:

In summary, it is clear that a proactive role of boards in understanding and addressing sustainability impacts and risks is needed. It recognizes the multifaceted nature of sustainability challenges and the need for a comprehensive approach that aligns with legal requirements and regulatory frameworks. Boards that are well-informed about these aspects are better positioned to lead their companies in navigating the complexities of the sustainability landscape.

6. Capitalizing Sustainability Opportunities

The importance of understanding and leveraging sustainability opportunities, particularly those related to Environmental, Social, and Governance (ESG) considerations. Here’s a breakdown of the key points:

In summary, understanding and capitalizing on sustainability opportunities go beyond compliance and risk mitigation. Companies that proactively address ESG considerations stand to gain various benefits, including operational efficiencies, increased market share, higher profitability, enhanced company value, and improved relationships with investors, talent, and customers. Recognizing and leveraging these opportunities can be a key driver of long-term success and resilience in a rapidly evolving business landscape.

7. Systemic Approach to Sustainability

The call for adopting a systemic approach to sustainability integration reflects the recognition that sustainability is not a standalone initiative but should be embedded throughout the entire business. Here are key points to consider:

By adopting a systemic approach to sustainability integration, companies can achieve the following:

• Holistic Decision-Making: Considering sustainability at every level of decision-making ensures that environmental, social, and governance factors are integral to the overall strategy, rather than being treated as separate considerations.
• Risk Mitigation: Integrating sustainability into the business helps identify and mitigate risks associated with environmental and social factors, contributing to the long-term resilience of the company.
• Stakeholder Trust: Consistent and connected sustainability practices build trust among stakeholders, including investors, customers, employees, and the wider community. This trust is essential for long-term relationships and positive brand perception.
• Innovation and Adaptability: A systemic approach encourages innovation and adaptability as companies respond to the dynamic landscape of sustainability challenges and opportunities. It enables organizations to stay ahead of regulatory changes and evolving stakeholder expectations.

In conclusion, adopting a systemic approach to sustainability integration involves a strategic and interconnected view of how sustainability is embedded throughout the business. It requires a commitment to consistency, ethical decision-making, and addressing challenges at the highest levels of leadership. This approach positions companies to navigate the complexities of sustainability in a comprehensive and impactful manner.

8. Monitoring Progress

Tools like a Sustainability Transformation Roadmap and a Dashboard, are crucial for guiding and monitoring a company’s sustainability journey. Let’s explore each tool in more detail:

Benefits of These Tools:

• Strategic Alignment: Both tools ensure that the company’s sustainability efforts are aligned with its overall strategic objectives.
• Real-Time Monitoring: The tools provide a mechanism for real-time monitoring, allowing for timely interventions and adjustments as needed.
• Communication and Transparency: Roadmaps and dashboards facilitate effective communication of sustainability progress to internal and external stakeholders, fostering transparency and trust.
• Strategic Decision Support: These tools offer valuable information for boards and senior management to make informed, strategic decisions regarding sustainability initiatives.

In conclusion, a Sustainability Transformation Roadmap and Dashboard are essential tools for companies committed to integrating sustainability into their core operations. These tools not only aid in monitoring progress but also provide valuable insights for strategic decision-making and communication with stakeholders.

9. Board Composition, Skills- and Mindset

The importance of governance in delivering on a company’s sustainability objectives is underscored below, particularly focusing on the role of the board. Let’s review the key points:

In summary, it underscores the integral role of governance, particularly the board, in achieving sustainability objectives. It recognizes that the composition of the board is a critical factor in ensuring that the company has the right leadership to navigate the sustainability landscape effectively. The emphasis on diversity, skills, and mindset aligns with best practices for addressing the multifaceted nature of sustainability challenges.

10. Effective Stakeholder Engagement

The importance of collaboration with stakeholders in the pursuit of sustainability. Here’s a breakdown of key points and considerations:

In summary, effective stakeholder engagement is a critical aspect of sustainable business practices. It involves not only gathering feedback but also actively involving stakeholders in decision-making processes. Boards play a central role in leading these efforts, balancing divergent needs, and ensuring that stakeholder engagement aligns with the company’s overall strategy and values.

11. Organization Culture and Purpose

The importance of integrating sustainability into corporate culture and aligning it with the company’s purpose and strategy. Below also addresses the crucial role of the board in fostering this integration. Here’s a breakdown of key points and considerations:

In summary, the board’s leadership role in driving a cultural shift towards sustainability is essential. It highlights the need for alignment between purpose, strategy, and culture and poses critical questions for organizations to reflect on as they navigate the integration of sustainability into their DNA.

12. Remuneration and ESG Performance

Aligning remuneration with Environmental, Social, and Governance (ESG) performance as a way to promote a culture that drives positive behavior and incentivizes sustainability. Here’s a breakdown of the key points:

The alignment of remuneration with ESG performance can have several benefits:

• Strategic Focus: Executives are likely to prioritize ESG initiatives when their remuneration is tied to specific ESG goals. This ensures that sustainability is not only considered but actively pursued as a strategic priority.
• Accountability: Linking remuneration to ESG performance enhances accountability. Executives are held accountable for the company’s sustainability performance, fostering a sense of responsibility for ESG outcomes.
• Shareholder Value: If ESG performance is linked to executive compensation, it signals to shareholders and investors that sustainability is a core value of the company. This alignment can positively impact shareholder perception and value.
• Employee Morale: Demonstrating a commitment to ESG through remuneration can positively influence employee morale. Employees may feel more engaged and motivated when they see that their company is taking tangible steps toward sustainability.

In conclusion, aligning remuneration with ESG performance is a strategic approach to drive sustainable behavior within an organization. By incorporating ESG-based KPIs into executive remuneration schemes, companies can reinforce their commitment to sustainability, foster a culture of responsibility, and actively drive transformation towards more sustainable business practices.

13. Board Committees and Sustainability

Aligning board committees with sustainability imperatives and ensuring that sustainability is fully integrated into the company. Here’s a breakdown of key points and considerations:

In summary, clearly there is a need for a collective and integrated approach to sustainability across all board committees. It highlights the board’s leadership role in driving sustainability and the necessity for collaboration, communication, and a systemic approach to ESG integration. The questions for reflection provide a practical framework for organizations to assess their progress and commitment to sustainability initiatives.

14. Clear Roles, Responsibilities and Accountability

Defining clear roles, responsibilities, and accountability for strong Environmental, Social, and Governance (ESG) governance within a company. Here’s a breakdown of the key points:

In summary, it underscores the necessity of clear and well-defined roles, responsibilities, and accountability for ESG governance. It emphasizes the board’s pivotal role in defining oversight, aligning ESG considerations with strategic decisions, and cites a specific model as an example of effective guidance for organizations in this regard. This approach aligns with best practices in corporate governance and risk management, emphasizing the importance of clarity and structure in addressing ESG challenges.

15. The Supervisory Board

The Supervisory Board plays a crucial role in ensuring sustainable long-term value creation, as described in the Dutch Corporate Governance Code. The Supervisory Board supervises the management and ensures that the company’s strategy is in line with the principles of sustainability and long-term value creation. Here are some aspects of the role of the Supervisory Board in this context:

By actively supervising these aspects, the Supervisory Board contributes to the creation of sustainable long-term value for the company and its stakeholders, in accordance with the principles of the Dutch Corporate Governance Code.

16. Role of Senior Management

The crucial role of senior management in identifying, analyzing, and reporting on the risks and opportunities related to the organization’s strategic objectives, with a specific focus on sustainability. Here’s a breakdown of key points:

In summary, senior management plays a central role in driving the sustainability agenda within an organization. Their responsibilities include identifying and analyzing risks and opportunities, monitoring strategy execution, overseeing reporting processes, and ensuring the integrity of both internal and external sustainability reporting. The text also underscores the critical role of boards in challenging and verifying the information presented by senior management to prevent the risk of green or social washing and maintain trust with stakeholders.

17. Risk Management in a Broader Perspective

The need for boards to broaden their approach to risk management, particularly in the context of ESG-related risks. Here’s a breakdown of the key points:

In summary, the evolving nature of risk management, urging boards to adapt to a changing landscape where ESG factors play a significant role. Boards are encouraged to proactively integrate ESG considerations into their risk management processes, recognizing the potential financial impacts and reputational risks associated with greenwashing. This aligns with a broader trend in which companies are increasingly recognizing the importance of holistic risk management that considers social and environmental dimensions alongside traditional financial factors.

18. ESG Integration in the Control Cycle

Integrating Environmental, Social, and Governance (ESG) considerations into the regular control cycle of an organization. Here’s a breakdown of key points:

In summary, there is a need for a robust governance framework to support ESG decision-making and reporting. Boards play a crucial role in overseeing the effectiveness of policies, procedures, and internal controls designed for ESG integration, ensuring they are comprehensive, fit for purpose, and aligned with the organization’s goals. This approach reflects the growing recognition of ESG factors as integral to overall organizational governance and performance.

19. Sustainability Reporting

The significance of sustainability information, disclosure, and assurance, particularly in the context of emerging legislation such as the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). Here’s a breakdown of key points:

In summary, it underscores the multifaceted role of sustainability information—from legal compliance to strategic decision-making. Boards are encouraged to recognize the strategic importance of reliable sustainability reporting, aligning it with the company’s overall strategy and ensuring compliance with evolving legislative requirements. The double materiality principle in the ESRS reflects a holistic approach, emphasizing both the impact on people and the environment and the financial implications of ESG issues.

Background on the European context and further exploration of the CSRD and ESRS

Sustainability goals need to be achieved. Ambitious goals. In the search for instruments to achieve these goals, the European Commission has developed a number of concrete guidelines for national governments and companies in the European Union.

One of the tools to achieve the ultimate goals is transparency: a sustainability report. If companies are transparent about their sustainability strategy, policies and performance in their sustainability report, other stakeholders can decide for themselves whether they want to do business with this company or whether they want to continue to do business with this company. The company is placed in its chain. She has to pay attention to her place and influence in that chain, but she is also judged by her chain. Banks, customers, suppliers, governments, consumers, non-governmental organisations and whoever is stakeholders in the organisations can make business decisions based on the information provided by the company in its sustainability report.

The CSRD in a broader perspective

On 21 April 2021, the European Commission published its proposal for a directive of the European Parliament and of the Council amending existing reporting guidelines. This draft guideline is called the Corporate Sustainability Reporting Directive (CSRD). This directive stipulates that from the reporting year 2024, groups of companies will include a sustainability report in their management report. As such, the CSRD, together with the Sustainability Financial Disclosure Regulation (SFDR) and the EU Taxonomy, is the central components of the sustainability reporting requirements underpinning the EU’s sustainable finance strategy.

With the introduction of the CSRD, the European Commission’s main aim is to achieve the goals set out in the European Green Deal. The European Commission sees transparency as a relevant tool to contribute to this. The introduction of the CSRD – as a successor and revision to the NFRD – is included in the work programme of the European Green Deal. The aim of the European Green Deal is to transform the EU into a modern, resource-efficient and competitive economy, with net zero greenhouse gas emissions by 2050.

To which companies does the CSRD apply?

The CSRD applies to large listed and non-listed companies in the EU, as well as to medium-sized listed companies. A special group are large non-EU companies with activities in the EU. The criteria for ‘large’ status are a balance sheet total of €25 million, turnover of €50 million and 250 employees. If a company meets two of these criteria two years in a row, it qualifies as large. In the EU, this is estimated to be 50,000 companies. For non-EU companies with activities within the EU, the turnover criterion is €150 million, and separate reporting criteria are still being developed for this group of companies – and for medium-sized listed companies.

Need for transparency

The CSRD asks companies to be transparent about the way in which they have embedded sustainability issues and challenges in their business operations. The European Commission uses the term ‘sustainability‘ and translates this into the three focus areas of Environment, Social and Governance (ESG). Companies must implement the required transparency by providing information about the way in which ESG is included in the governance structure, the strategy development process, the analysis of impact, risks and opportunities, the translation into policy, measures and goals and ultimately in the measurement and presentation of the outcomes.

Introduction of CSRD

Financial year	Who
2024	Companies covered by the NFRD
2025	All large companies in the EU
2026	Medium-sized listed companies
2028	Large corporations from outside the EU with activities within the EU

The CSRD was approved by the European Parliament on 10 November 2022 and by the European Council on 28 November 2022. At the end of 2023, the process was started to transpose the CSRD and the ESRS into national legislation by the member states of the European Union, anchoring this directive and standards in Dutch law in 2024.

The ESRS

The European Commission has asked the European Financial Reporting Advisory Group (EFRAG) to translate the provisions of the CSRD into reporting standards. This assignment has been rapidly converted by EFRAG into the first drafts of the European Sustainability Reporting Standards (ESRS). After an intensive process of drafting, consulting, adjusting and consulting, EFRAG presented the final set of reporting standards to the European Commission, after which the Commission approved the ESRS on 31 July 2023. This ESRS in particular is of great importance for companies that need or want to publish a sustainability report.

Twelve standards

The ESRS is a set of twelve standards, with ESRS 1 and 2 being the overarching (cross cutting) standards. They contain the requirements regarding the quality and design of the sustainability report (ESRS 1) and information on the governance structure, materiality analysis, the business model, the business activities and the sector in which the company operates (ESRS 2). In short: information about the company and its activities in the internal and external environment and the quality guarantees with regard to (reporting on) sustainability.

The ten thematic standards concern standards in the field of the environment (E-standards), people and society (S-standards) and Behaviour (G-standard). These standards all have the same structure. An important part of the information per sub-theme consists of information about the relevance of the sub-theme: the analysis of impact, risks and opportunities and their conversion into strategy, governance and policy. Of course, for each sub-theme, the final (quantitative) results for the reporting year are also requested. On the basis of these standards, EFRAG develops sector-specific standards, which provide more detail to the information that is relevant in a group of different sectors.

Double Materiality Analysis

In the materiality assessment, or materiality analysis, attention is paid to the relevance of a sustainability issue for the company’s environment. The environment of the company does not only refer to the immediate living environment, but also to the broader group of so-called affected stakeholders. These are the stakeholders who experience the influence of the company in their activities. This influence – if relevant – concerns the impact materiality. In addition, attention is paid to the relevance of a sustainability issue for the company itself; the impact of the environment (the relevant stakeholders) on the company’s activities. This is the so-called financial materiality.

The combined analysis of material themes is called the double materiality analysis . It is important to note that the results of this risk analysis with the corresponding consultation of the company’s stakeholders primarily influence the company’s strategy. The reporting on this follows the strategy and must be in accordance with the law (the reporting standards, or the ESRS). The final outcomes and the transparency achieved (and the reactions to them) in turn influence the strategy. In this way, this entire process contributes to the realisation of the goals that the European Commission has set for the EU. At the end of the day, that’s what this is all about.

Small and Medium-sized Enterprises (SMEs)

Companies that do not qualify as large (small and medium-sized enterprises) can reason that these regulations do not apply to them and that they therefore do not have to comply with them. Strictly speaking, that is true, but a very important theme that runs like a thick thread through all these regulations is the company in its value chain. Large companies – now stimulated by these regulations – will analyse their value chain with new impetus and map out where they can make an impact. Many non-large companies form a link in these value chains.

If so, this offers unique opportunities for these non-large companies. By making comparable analyses, by paying attention to impact, risks and opportunities, and by re-engaging with relevant stakeholders, companies can put themselves in the spotlight with their financiers, employees, suppliers, banks and customers. In this way, these companies can anticipate the questions that will come from their large customers, or questions that may already exist. By making changes to their processes, products, and services; In short, by positively changing or amplifying their impact, they can differentiate themselves from their competitors. Transparency is also a very useful tool for this group of non-large companies. Not a complete sustainability report that fully meets the requirements of the CSRD and ESRS, but information that meets the information demand of (large) customers and banks and that  is up to date.

20. Data Collection for Reporting Purposes

The importance of ensuring the collection of relevant, reliable, and high-quality information for sustainability disclosures. Here’s a breakdown of key points:

In summary, the need for a strategic and targeted approach to collecting sustainability information is clear. By identifying the company’s specific data needs and conducting a materiality assessment, organizations can streamline their reporting efforts, focusing on the issues that matter most to both the company and its stakeholders. This approach aligns with best practices in sustainability reporting, emphasizing relevance, accuracy, and efficiency in the information collection process.

21. ESG Performance Disclosure

The importance of disclosing Environmental, Social, and Governance (ESG) performance, aligning it with the objectives of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). Here’s a breakdown of key points:

In summary, it underscores the evolving landscape where sustainability reporting is becoming as rigorous and scrutinized as financial reporting. It highlights the interconnectedness of financial and sustainability performance and the need for companies to align these two aspects in their reporting. Boards are encouraged to play an active role in ensuring the quality and coherence of ESG disclosures, even if they are not directly involved in their setup. This aligns with the broader trend of increased transparency and accountability in corporate reporting.

22. Internal Audit’s Role

The role of Internal Audit in supporting the company’s sustainability efforts. Here’s a breakdown of key points:

In summary, it emphasis the strategic role of Internal Audit in providing assurance and insights into sustainability-related risks and controls. It underscores the need for internal auditors to integrate ESG considerations into their processes and align with the organization’s strategic objectives. Boards are encouraged to actively engage with Internal Audit to ensure that it effectively supports the company’s sustainability transition. This aligns with the broader trend of recognizing the importance of ESG factors in corporate governance and risk management.

23. External Sustainability Assurance Provider

The process of selecting an external sustainability assurance provider in the context of the Corporate Sustainability Reporting Directive (CSRD). Here’s a breakdown of key points:

In summary, the process of selecting an external sustainability assurance provider involves careful consideration of their independence, competencies, and knowledge. The governing body, with specific involvement from the audit committee, plays a pivotal role in overseeing this process to ensure the credibility and reliability of sustainability reporting. This aligns with the broader trend of enhancing transparency and accountability in the reporting of ESG-related information.