Case study: Regulation watch (EU/US/Global) — a sector comparison with benchmark KPIs

In 2024, European companies spent an estimated €14.2 billion on sustainability compliance activities, yet a McKinsey analysis revealed that 67% of corporate sustainability disclosures still fail to meet the baseline data quality standards required by the Corporate Sustainability Reporting Directive (CSRD). This disconnect between regulatory intention and implementation reality exemplifies what practitioners increasingly call "measurement theater"—the superficial appearance of compliance without substantive environmental improvement. As the EU's regulatory framework matures and global standards converge, organizations face a critical inflection point: adapt measurement practices to deliver genuine accountability, or risk both regulatory penalties and stakeholder trust erosion.

Why It Matters

The 2024-2025 regulatory landscape represents the most significant transformation in corporate sustainability accountability since the Paris Agreement. The European Union has positioned itself as the global architect of mandatory sustainability disclosure, with the CSRD now requiring approximately 50,000 companies to report against European Sustainability Reporting Standards (ESRS)—a tenfold increase from previous directives. This regulatory expansion occurs alongside the EU's Carbon Border Adjustment Mechanism (CBAM), which entered its transitional phase in October 2023 and will become fully operational by 2026, imposing carbon costs on imports from sectors including cement, iron, steel, aluminum, fertilizers, and electricity.

The stakes are substantial. Non-compliance with CSRD carries penalties of up to 10% of annual turnover in some member states, while CBAM miscalculations could result in significant tariff exposures. Beyond punitive measures, the regulatory environment directly influences capital allocation: sustainable finance flows in Europe reached €487 billion in 2024, with investors increasingly conditioning access to capital on verified ESG performance metrics.

Critically, the European regulatory framework no longer operates in isolation. The International Sustainability Standards Board (ISSB) released its inaugural standards—IFRS S1 and IFRS S2—in June 2023, establishing a global baseline that the EU's ESRS intentionally exceeds. Meanwhile, the U.S. Securities and Exchange Commission's climate disclosure rule, though facing legal challenges, signals regulatory convergence across major economies. For multinational enterprises, this creates both complexity and opportunity: organizations that build robust measurement infrastructure for EU compliance will find themselves well-positioned for emerging requirements in other jurisdictions.

The European context presents unique challenges. Supply chain due diligence requirements under the Corporate Sustainability Due Diligence Directive (CSDDD) extend accountability beyond organizational boundaries, requiring companies to identify, prevent, and mitigate adverse human rights and environmental impacts throughout their value chains. This upstream and downstream visibility demands data quality standards that most organizations have not yet achieved, creating an urgent implementation gap.

Key Concepts

Regulatory Compliance Architecture Compliance in the sustainability context extends beyond meeting minimum legal requirements. It encompasses the systematic integration of regulatory obligations into enterprise risk management, operational processes, and strategic planning. Effective compliance architecture requires real-time monitoring of evolving requirements across jurisdictions, automated data collection and validation systems, and governance structures that assign clear accountability for disclosure accuracy. The EU's double materiality principle—requiring assessment of both how sustainability issues affect the company and how the company affects society and environment—demands particularly sophisticated compliance frameworks.

Right-to-Repair and Circular Economy Mandates The EU's Right to Repair Directive, adopted in 2024, requires manufacturers to provide repair services, spare parts, and repair information for consumer goods. This regulatory intervention directly impacts product design, supply chain configuration, and business model economics. Companies must now track repairability scores, spare parts availability timelines, and consumer repair accessibility metrics. The directive exemplifies how sustainability regulation increasingly mandates specific operational capabilities rather than merely disclosure practices.

Sustainability Standards Alignment The standards landscape includes multiple overlapping frameworks: ESRS for EU reporting, ISSB standards for global baseline disclosure, sector-specific standards from organizations like the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), and verification standards including AA1000 and ISO 14064. Strategic alignment requires mapping these standards against each other to identify common data requirements, prioritize collection efforts, and minimize redundant reporting burdens. Organizations achieving >85% data element alignment across frameworks typically reduce compliance costs by 25-40%.

Scope 3 Emissions Accountability Scope 3 emissions—indirect emissions occurring in an organization's value chain—typically represent 70-90% of total corporate carbon footprints. EU regulatory requirements now mandate comprehensive Scope 3 disclosure across 15 categories defined by the Greenhouse Gas Protocol. Data quality challenges are acute: primary data from suppliers often covers <30% of Scope 3 categories, forcing reliance on spend-based estimates with uncertainty ranges exceeding ±40%. Achieving measurement integrity requires systematic supplier engagement, standardized data exchange protocols, and transparent uncertainty quantification.

Unit Economics of Compliance Sustainable compliance must be evaluated through unit economics: the cost per verified data point, cost per ton of emissions accurately measured, and return on investment from compliance infrastructure. Organizations that treat compliance as pure cost center typically spend €150-300 per data point collected. Those integrating compliance with operational improvement reduce costs to €40-80 per data point while capturing efficiency gains that offset compliance investment. The unit economics perspective transforms compliance from burden to value creation opportunity.

What's Working and What Isn't

What's Working

Centralized ESG Data Platforms with Automated Validation Organizations deploying enterprise-wide ESG data management platforms with built-in validation logic report 60% reductions in disclosure preparation time and 75% fewer material misstatements in external audits. Siemens AG's implementation of an integrated sustainability data platform reduced its CSRD preparation cycle from 14 months to 5 months while improving data completeness from 72% to 94%. The platform automatically flags anomalies, enforces data governance policies, and maintains audit trails that satisfy assurance provider requirements.

Supplier Data Exchange Consortia Industry-specific consortia enabling standardized sustainability data exchange have dramatically improved Scope 3 measurement quality. The Catena-X automotive data ecosystem, comprising BMW, Mercedes-Benz, Volkswagen, and over 1,200 suppliers, reduced primary data coverage gaps from 85% to 35% within 18 months. Standardized data formats and shared verification protocols enable participants to achieve measurement accuracy within ±15%, compared to ±45% for spend-based estimates. Similar consortia are emerging in chemicals (Together for Sustainability), textiles (Sustainable Apparel Coalition), and food (Consumer Goods Forum).

Integrated Assurance and Continuous Improvement Cycles Leading organizations have shifted from annual disclosure exercises to continuous monitoring with quarterly internal assurance reviews. Unilever's implementation of monthly sustainability KPI dashboards with exception-based escalation protocols identified 23% of its emissions reduction opportunities that annual reporting had missed. The approach integrates assurance activities into operational rhythms, reducing year-end audit burden while improving data quality through repeated validation cycles.

Regulatory Technology Investment with Clear ROI Targets Companies that set explicit return-on-investment targets for compliance technology investments outperform those treating technology as discretionary cost. Schneider Electric's €12 million investment in sustainability data infrastructure delivered €31 million in compliance cost avoidance and operational efficiency gains within 30 months—a 2.6x return. The investment included automated data collection from 600+ global sites, machine learning-based anomaly detection, and scenario modeling capabilities that inform strategic planning beyond compliance requirements.

What Isn't Working

Manual Data Collection and Spreadsheet-Based Reporting Despite regulatory intensification, 58% of European companies still rely primarily on spreadsheet-based sustainability data management. This approach produces error rates averaging 12-18% in disclosed metrics, creates unacceptable audit risk, and consumes disproportionate staff time. A 2024 Deloitte analysis found that organizations using spreadsheet-based approaches spend 340% more labor hours per disclosure than those with automated systems, while producing lower-quality outputs.

Superficial Supplier Engagement on Scope 3 Many organizations send annual supplier surveys requesting emissions data without providing methodology guidance, data templates, or capacity-building support. Response rates for such surveys average 23%, with usable data received from <15% of suppliers by spend. This "checkbox" approach to supplier engagement fails to generate the granular, verified data that regulators and investors increasingly demand. It perpetuates measurement theater by producing disclosure-ready numbers of limited accuracy or comparability.

Siloed Compliance Functions without Operational Integration Organizations that maintain sustainability reporting as a standalone function disconnected from operations, finance, and strategy consistently underperform on data quality metrics. These structures create information asymmetries, duplicative data collection, and delays in identifying compliance gaps. A 2025 analysis by the European Financial Reporting Advisory Group (EFRAG) found that companies with integrated sustainability governance achieved 40% higher data completeness scores than those with siloed structures.

Overreliance on Estimated and Proxy Data While estimation methodologies are necessary for data gaps, excessive reliance on proxy data undermines disclosure credibility. The European Commission's 2024 technical assessment found that 43% of reported Scope 3 emissions across CSRD-reporting companies derived from spend-based estimates with inadequate uncertainty disclosure. As assurance requirements tighten, organizations dependent on proxy data face increasing audit qualifications and stakeholder scrutiny.

Key Players

Established Leaders

SAP has integrated sustainability management into its core ERP platform, enabling automatic capture of emissions data from transactional records. Its SAP Sustainability Control Tower provides consolidated visibility across environmental, social, and governance metrics.

Siemens AG operates one of Europe's most sophisticated internal carbon pricing and sustainability tracking systems, with real-time emissions monitoring across 180+ manufacturing facilities and comprehensive Scope 3 engagement programs.

BASF SE pioneered transparent product carbon footprint methodologies and provides downstream customers with verified emissions data for over 45,000 products, setting industry benchmarks for value chain collaboration.

Schneider Electric consistently ranks among global sustainability leaders, with comprehensive disclosure across ESRS categories and demonstrated integration of sustainability metrics into executive compensation structures.

Nestlé has implemented satellite-based monitoring for agricultural supply chain traceability, achieving primary data coverage for 78% of priority commodities including palm oil, soy, and cocoa.

Emerging Startups

Normative (Stockholm) provides automated carbon accounting software that integrates with enterprise financial systems to generate audit-ready emissions calculations, serving clients including H&M and Klarna.

Plan A (Berlin) offers an end-to-end decarbonization platform with CSRD-aligned reporting modules, automated supplier data collection, and scenario planning capabilities.

Persefoni (Tempe/London) delivers carbon management and accounting software meeting SEC and CSRD requirements, with particular strength in financial services sector applications.

Sweep (Paris) focuses on enterprise carbon management with collaborative features enabling supply chain data sharing and joint reduction target setting across organizational boundaries.

Greenly (Paris) provides SME-focused carbon accounting and reduction planning tools, addressing the critical gap of small supplier capability building that constrains large enterprise Scope 3 measurement.

Key Investors & Funders

EQT Partners has deployed over €2 billion through its sustainability-focused funds, with significant investments in climate technology and regulatory compliance infrastructure companies.

European Investment Bank operates the EU's largest climate finance program, providing concessional lending for sustainability technology implementation including compliance infrastructure.

Breakthrough Energy Ventures (Bill Gates) invests in companies addressing measurement and verification challenges for carbon accounting, recognizing data infrastructure as foundational to climate action.

Generation Investment Management (Al Gore) focuses on sustainable investment with particular attention to companies demonstrating robust ESG data governance and transparency practices.

Balderton Capital has backed multiple European sustainability technology companies including Plan A, recognizing the regulatory compliance opportunity as a durable investment thesis.

Examples

1. Volkswagen Group's Integrated Scope 3 Data Platform

Volkswagen confronted Scope 3 measurement challenges when 87% of its carbon footprint lay in supply chain and product use emissions. In 2023, the company launched a comprehensive supplier data exchange initiative through Catena-X, requiring tier-1 suppliers representing 85% of procurement spend to provide product carbon footprint data using standardized methodologies. Within 18 months, primary data coverage increased from 12% to 67% of purchased components by emissions weight. The initiative reduced Scope 3 uncertainty ranges from ±52% to ±18%, enabling defensible reduction targets and credible progress tracking. Compliance preparation time decreased 45%, and supplier engagement identified €340 million in joint decarbonization opportunities through material substitution and logistics optimization.

2. Inditex's Right-to-Repair Compliance Transformation

Spanish fashion retailer Inditex restructured its product development and after-sales infrastructure to meet EU Right to Repair requirements. The company established repair service availability in 89% of European markets, created spare parts inventories covering 95% of product categories, and implemented repairability scoring that influenced design decisions for 2025 collections. The initiative required €45 million in infrastructure investment but generated €28 million in first-year customer retention value through enhanced brand perception. Repair service uptake exceeded projections by 40%, demonstrating consumer demand that regulatory compliance unlocked. The company now tracks repair rate, spare parts availability lead time, and repairability score as standard product KPIs.

3. DSM-Firmenich's Multi-Standard Alignment Strategy

The specialty chemicals company DSM-Firmenich, operating across EU, US, and Asian markets, developed an integrated data architecture enabling simultaneous compliance with ESRS, ISSB, and emerging SEC requirements. By mapping 847 discrete data requirements across standards, the company identified 73% overlap, enabling single-source data collection for most metrics. The architecture reduced total compliance labor by 38% compared to jurisdiction-by-jurisdiction approaches and ensured consistency across disclosures that investors compare globally. Critically, the company published a transparency report documenting its methodology alignment, winning recognition from institutional investors seeking comparable cross-jurisdictional data.

Action Checklist

FAQ

Q: How should organizations prioritize between CSRD, ISSB, and potential SEC disclosure requirements?

A: European-domiciled companies should treat ESRS/CSRD as the primary compliance framework since it imposes the most comprehensive requirements. However, strategic organizations build data architectures that satisfy all three standards simultaneously by identifying common data elements—which represent approximately 70-75% of total requirements. Start with the ESRS requirement set, then map ISSB and SEC requirements against it to identify incremental data needs. This approach minimizes duplicate collection efforts while ensuring global disclosure readiness. For multinationals with significant US operations, maintain flexibility to accommodate SEC requirements as legal challenges resolve.

Q: What constitutes adequate data quality for Scope 3 emissions under CSRD assurance requirements?

A: Limited assurance—the initial standard for CSRD sustainability statements—requires reasonable procedures to identify material misstatements, though not the certainty of full audit. Practically, this means organizations must document their methodology transparently, use recognized emission factors from authoritative sources (DEFRA, EPA, ecoinvent), and quantify uncertainty ranges. Primary supplier data should be prioritized for emissions-intensive categories; for remaining categories, spend-based estimates using current emission factors are acceptable if accompanied by uncertainty disclosure and improvement plans. Assurance providers will increasingly expect year-over-year improvement in primary data coverage, particularly for Category 1 (purchased goods and services) and Category 11 (use of sold products) which typically represent 60-80% of Scope 3 totals.

Q: How can smaller suppliers build the capacity to provide the sustainability data that large customers now require?

A: SME suppliers should leverage industry consortia and standardized tools rather than building bespoke systems. Platforms like Normative, Greenly, and the SME Climate Hub provide accessible methodologies and calculation tools. Large customers can support suppliers by funding capacity building, sharing methodology guidance, and accepting consortium-verified data rather than proprietary formats. The emerging pattern involves "anchor companies" within supply networks investing in shared data infrastructure that benefits all participants. Suppliers should prioritize building capabilities for their largest customers' highest-priority data needs first—typically purchased goods emissions and supplier due diligence questionnaires.

Q: What are the warning signs of measurement theater in sustainability disclosure?

A: Key indicators include: (1) heavy reliance on spend-based emission estimates without documented improvement plans for primary data collection; (2) year-over-year consistency in reported figures that ignore operational changes; (3) absence of uncertainty quantification or confidence intervals; (4) sustainability reports prepared entirely by external consultants without internal capability building; (5) disclosed targets lacking interim milestones, accountable owners, or specific initiatives; (6) limited or no third-party assurance of quantitative claims; and (7) disconnect between disclosed metrics and operational decision-making. Organizations serious about substantive sustainability integrate measurement into management systems rather than treating it as an annual reporting exercise.

Q: How will regulatory enforcement evolve for sustainability disclosures in the 2025-2027 period?

A: Enforcement will intensify progressively. Initial CSRD compliance cycles (2024-2025 reporting years) will likely see regulatory focus on completeness—whether required disclosures are present—rather than accuracy deep-dives. By 2026-2027, as assurance requirements strengthen from limited to reasonable assurance for major companies, regulators will scrutinize methodology robustness and data verification. The European Securities and Markets Authority (ESMA) will play a coordinating role in enforcement consistency across member states. Greenwashing litigation, already increasing significantly, will provide additional enforcement pressure beyond regulatory action. Organizations should use the current window to remediate data quality gaps before scrutiny intensifies.

Sources

European Commission. (2024). Corporate Sustainability Reporting Directive Implementation Report. Brussels: Publications Office of the European Union.
European Financial Reporting Advisory Group. (2024). ESRS Data Quality Benchmarking Study. Brussels: EFRAG.
International Sustainability Standards Board. (2023). IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. London: IFRS Foundation.
McKinsey & Company. (2024). The State of Corporate Sustainability Disclosure: Progress and Gaps. McKinsey Sustainability Practice.
Deloitte. (2024). Sustainability Reporting Maturity Assessment: European Corporate Benchmarks. Deloitte Touche Tohmatsu Limited.
European Securities and Markets Authority. (2025). Supervision of Sustainability Reporting: Enforcement Priorities. Paris: ESMA.
GHG Protocol. (2024). Scope 3 Calculation Guidance: Emission Factor Updates and Methodology Refinements. World Resources Institute and World Business Council for Sustainable Development.