For businesses, this has meant quickly adapting to a surge in new legislation and reporting of regulations.
In the wake of these changes, business leaders will need to connect the dots on how environmental, social, and governance (ESG) legislation will impact their industry and company and gain the skills to adapt.
What does this mean for their business strategy and functions, from finance to the supply chain? And how can ESG create opportunities for long-term value creation?
Find out what business leaders need to know about the EU’s sustainability agenda and how they can best prepare themselves with this new reality.
EU sustainability legislation business leaders need to know about
As part of the European Green Deal, the EU has announced legislation designed to speed up decarbonization and increase transparency of company ESG targets and actions.
Starting to come into effect from January 2024, the Corporate Sustainability Reporting Directive (CSRD) calls for businesses to share detailed sustainability reporting. To increase accountability, companies will need to show how their business model impacts sustainability in publicly available reports.
Also on the horizon is the Corporate Sustainability Due Diligence Directive (CSDDD), which works alongside the CSRD.
The directive necessitates companies to set up due diligence processes to prevent any negative societal and environmental impacts of their supply chain and operations.
As head of environment, social, and governance (ESG) at investment firm Ackermans & van Haaren (AvH) in Belgium, Bart Vercauteren is well-versed in how new reporting standards are impacting companies.
In his role, Bart engages in ESG considerations with different portfolio companies to see how organizations can implement these standards in line with corporate strategy.
To help him think more closely about sustainability from a business case perspective and frame ESG within business strategy and investment discussions, Bart is studying the European Executive MBA (EEMBA) program at Vlerick Business School alongside his role.
The 15-month EEMBA explores European business strategy with a particular lens of sustainability. Alongside online courses that cover the regular MBA curriculum, students also take part in six immersion modules, travelling to Paris, Copenhagen, Dublin, Madrid, and Vlerick’s campus in Brussels—the home of EU headquarters.
Students learn about the EU sustainability agenda and how it applies to business strategy and key business functions from finance to operations to the supply chain. During these trips to European cities, students get the chance to visit companies to see and hear first-hand how they are adapting to the new reality of sustainability legislation.
"We can see how companies are embracing sustainability as an opportunity to create new strategies, products, and business models for long-term value," says Bart.
It is imperative that companies are aware of new regulations and take the time to reflect on how implementing these new measures can be beneficial for their business model.
“As there has been so much new regulation, implementation can become a tick the box exercise. As an investor, we ask ‘how can you use that legislation to bring your ESG program to the next level and how does it align with your corporate strategy?” says Bart.
The new legislation is in many ways very valuable for investors as it allows them to review the level of ESG that is already being implemented within companies.
“We’re not afraid to invest in companies that are at different levels of their sustainability transition but we need to understand the level of transition that still needs to be done,” says Bart.
The impact of sustainability reporting for companies
One major outcome of the sustainability reporting requirements is that it will reduce and eventually prevent greenwashing.
A 2022 Google Cloud poll revealed 80% of CEOs felt they were doing a good job with their company’s environmental sustainability. However, when asked whether they had overstated their sustainability performance in the past, 58% of those same executives admitted that was probably the case.
“Until now, companies have been able to choose what elements of sustainability they want to focus on but now everything is transparent so they will not be able to hide anymore,” says Xavier Baeten, professor of management in reward and sustainability at Vlerick Business School.
Xavier teaches a class on the role of business in society and sustainability in the European Executive MBA program.
While this new reality may initially seem daunting for business leaders, and adapting to new regulations may pose some challenges, EU legislation offers an opportunity, believes Xavier (pictured).
The class teaches students how to create closer engagement with stakeholders, set realistic but ambitious ESG targets, and increase transparency in ESG performance reporting.
“It’s important for companies to ensure they are reporting on the relevant things to abide by regulation but from a strategic perspective, this also gives the company direction,” he says.
Business leaders in the European Executive MBA program learn how to foster business growth while abiding by legislation and acting sustainably. Topics addressed in the immersion modules include Purposeful and Resilient Organizations, Innovative and Sustainable Venturing, Sustainable Supply Chains, Business and its Role in Society, and EU Horizons.
During the Sustainable Finance course in Paris, the class visited impact investment fund Telos Impact and asset manager La Financière de l'Echiquier.
Having switched from consulting into a career in investment, Bart wanted to upgrade his financial acumen. The EEMBA program has helped him to further improve his financial knowledge and provided him with new perspectives and tools on how to assess investment opportunities with both a financial and sustainable framework, he says.
“The course has really helped me to speak the language of investors,” he adds.
Companies across different industries will have different priorities when adopting sustainable strategies and meeting reporting standards. For one, the primary focus may be on talent development, diversity and inclusion whereas another may be focusing on energy consumption and carbon emissions.
In his career in investment, Bart invests in companies across industries. He says a huge benefit of studying the EEMBA program is the chance to network with professionals from diverse backgrounds and hear their unique perspectives.
“Every leader faces their own sector specific challenges but there is a big openness to learn from each other. Regarding regulation, everyone is in the same boat and looking for solutions, so you really see that willingness to help each other,” he says.
How can business leaders prepare?
With even more proposals underway within the EU that will necessitate businesses to act, leaders will need to prepare for future regulatory changes.
Xavier outlines the key steps leaders should take to mitigate any challenges. The first step is engaging with stakeholders.
“Open up a dialogue around sustainability, explaining what’s important. The United Nations Sustainable Development Goals are a good starting point here,” he says.
Next, it’s important to think about what aspects of sustainability are most relevant to the company’s business model and goals. Every company will be different.
To do this, business leaders need to understand each aspect of business—from finance to the supply chain—through the lens of ESG.
“ESG needs to be strategically aligned with your corporate strategy, not just something that is done on the sidelines,” says Bart.
Finally, leaders need to commit to their key pillars of sustainability and set concrete goals, says Xavier.
“Target setting should not just be top down. EU reporting standards are one of the best opportunities we’ve ever had to bring sustainability into the culture of a company,” says Xavier.
Enrolling in a program such as the Vlerick EEMBA that can both broaden your professional network and help you get up to speed with changing ESG and sustainability regulations can help you make an impact in the business sustainability space.
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