Interview: practitioners on regulation watch (eu/us/global)

By 2025, more than 50,000 European companies will face mandatory sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD)—a fivefold increase from the 11,700 entities previously covered under the Non-Financial Reporting Directive. This regulatory expansion represents the most significant shift in corporate disclosure requirements since the introduction of financial auditing standards, yet practitioners across procurement, compliance, and sustainability functions consistently report that the hidden trade-offs embedded within these emerging standards remain poorly understood. The European Union's regulatory architecture—spanning CSRD, the Carbon Border Adjustment Mechanism (CBAM), the EU Taxonomy, and forthcoming due diligence directives—is fundamentally reshaping buyer requirements across global supply chains. This article synthesizes insights from sustainability practitioners navigating these evolving standards, examining what is genuinely working, where critical gaps persist, and how organizations can position themselves to manage the complex trade-offs that define this regulatory moment.

Why It Matters

The European regulatory landscape has moved decisively from voluntary frameworks to binding legal obligations, creating ripple effects that extend far beyond EU borders. According to the European Commission's impact assessment, CSRD-mandated disclosures will generate approximately €3.6 billion in annual compliance costs across the EU economy—yet practitioners interviewed for this analysis consistently argue that focusing solely on compliance costs misses the strategic implications.

The CSRD requires companies to report under European Sustainability Reporting Standards (ESRS), which mandate disclosure across environmental, social, and governance dimensions with unprecedented granularity. For procurement professionals, this translates into concrete buyer requirements: suppliers must now provide verified data on Scope 3 emissions, demonstrate alignment with EU Taxonomy criteria for sustainable activities, and increasingly prove additionality in their decarbonization investments. The 2024 ESRS implementation saw 68% of large European buyers revising their supplier qualification criteria to incorporate sustainability metrics, according to EcoVadis's annual supply chain survey.

The Carbon Border Adjustment Mechanism adds another layer of complexity. CBAM's transitional phase, operational since October 2023, requires importers to report embedded emissions in covered goods including iron, steel, aluminium, cement, fertilizers, electricity, and hydrogen. By 2026, importers must purchase CBAM certificates corresponding to the carbon price difference between the EU and country of origin. The European Environment Agency estimates that CBAM will affect €48 billion in annual imports, fundamentally altering procurement economics for carbon-intensive materials.

The strategic significance extends to capital markets. The EU Taxonomy Regulation requires financial market participants to disclose the proportion of their investments aligned with taxonomy criteria. As of 2024, Morningstar data indicates that €4.2 trillion in European fund assets reference taxonomy alignment in their disclosures. This capital allocation pressure flows through to operating companies: practitioners report that taxonomy-aligned revenue percentages increasingly feature in investor due diligence and credit rating assessments.

For non-European companies, the extraterritorial reach of these regulations demands attention. CSRD applies to non-EU companies generating >€150 million in EU revenue with significant EU operations or subsidiaries. The Corporate Sustainability Due Diligence Directive (CS3D), entering force in 2027, will require companies to conduct human rights and environmental due diligence across their value chains—including non-EU suppliers. The practical implication: European buyer requirements are becoming global supply chain standards.

Key Concepts

Resilience in the regulatory context refers to both climate resilience and business model resilience. ESRS E1 (Climate Change) requires companies to disclose their climate-related risks, adaptation measures, and transition plans aligned with 1.5°C pathways. Practitioners emphasize that regulators increasingly interpret resilience beyond physical risk management to encompass strategic repositioning. Companies must demonstrate how their business models remain viable under various climate scenarios, including scenarios where carbon costs substantially increase or demand for carbon-intensive products declines. The double materiality principle underlying ESRS requires assessment of both how sustainability factors affect the company (financial materiality) and how the company affects sustainability outcomes (impact materiality).

Additionality has emerged as a critical concept in sustainable procurement and carbon market participation. Under emerging standards, buyers increasingly require proof that claimed emissions reductions or sustainability improvements would not have occurred without specific interventions. For renewable energy procurement, this means demonstrating that power purchase agreements support new generation capacity rather than merely claiming credit for existing renewable production. The Science Based Targets initiative's Scope 2 guidance and emerging EU standards for green electricity claims both incorporate additionality requirements. Practitioners report that additionality verification represents one of the most contentious implementation challenges, as methodologies remain contested and verification costs are substantial.

Certification mechanisms provide third-party validation of sustainability claims, but the certification landscape itself requires navigation. The EU's proposed Green Claims Directive, expected to enter force by 2026, will mandate verification of environmental claims by accredited bodies and restrict generic claims like "climate neutral" or "eco-friendly" without substantiation. ISO 14064 for greenhouse gas verification, ISAE 3000 for sustainability assurance, and sector-specific schemes like the Initiative for Responsible Mining Assurance (IRMA) or Roundtable on Sustainable Palm Oil (RSPO) each carry different levels of regulatory recognition. Practitioners advise mapping certification requirements to specific regulatory obligations rather than assuming one certification addresses all needs.

Scope 3 emissions—indirect emissions occurring across a company's value chain—represent the frontier of emissions accounting and the source of significant implementation challenges. ESRS E1 requires disclosure of material Scope 3 categories, and practitioners report that buyer requirements increasingly specify primary data collection rather than spend-based estimates. The GHG Protocol's Scope 3 guidance identifies 15 categories spanning purchased goods, transportation, use-phase emissions, and end-of-life treatment. For most companies, Scope 3 represents 70-90% of total emissions, making this the decisive arena for supply chain decarbonization. Yet data availability, calculation methodologies, and assurance requirements remain in flux.

Carbon Intensity metrics express emissions relative to output measures—tonnes CO2e per million euros revenue, per unit produced, or per kilometer traveled. Regulators and buyers increasingly favor intensity metrics alongside absolute emissions because they enable comparison across different scales of operation and track decarbonization progress independent of production volume changes. CBAM's emission intensity calculations for covered goods exemplify this approach. Practitioners caution that intensity metric selection significantly affects reported performance: carbon intensity per revenue may improve through price increases rather than emissions reductions, while physical intensity metrics better reflect operational efficiency.

What's Working and What Isn't

What's Working

Standardization Reducing Reporting Fragmentation: The consolidation around ESRS and the International Sustainability Standards Board (ISSB) standards is reducing the fragmentation that previously characterized sustainability reporting. Practitioners report that the shift from navigating multiple voluntary frameworks (GRI, SASB, CDP, TCFD) toward aligned mandatory standards reduces duplicative reporting burden. The European Financial Reporting Advisory Group's (EFRAG) interoperability guidance mapping ESRS to ISSB standards enables companies to satisfy multiple jurisdictional requirements through coordinated disclosures. Major corporations including Unilever, Nestlé, and BASF have publicly documented 20-40% reductions in sustainability reporting workload through framework consolidation.

Digital Product Passports Enabling Supply Chain Transparency: The EU's Digital Product Passport (DPP) initiative, rolling out sector-by-sector beginning with batteries in 2027, is creating infrastructure for verified sustainability data sharing. Early pilot programs in the textile and electronics sectors demonstrate that DPP architecture—combining unique product identifiers with blockchain-secured data records—enables buyers to access verified information on material composition, carbon footprint, and circular economy parameters. The Catena-X automotive data ecosystem, now encompassing 200+ participating organizations, provides a template for industry-specific implementation that practitioners cite as genuinely functional.

Transition Plan Disclosure Driving Strategic Coherence: CSRD's requirement for climate transition plans aligned with 1.5°C pathways is forcing internal strategic coherence that many practitioners describe as genuinely valuable beyond compliance. Organizations must articulate how current capital expenditure, research and development priorities, and commercial strategy connect to stated climate commitments. The UK Transition Plan Taskforce framework, increasingly referenced by European regulators, provides structured guidance that practitioners report enables meaningful board-level engagement with climate strategy rather than treating sustainability as a communications exercise.

Taxonomy-Aligned Revenue Enabling Green Finance Access: Companies successfully demonstrating taxonomy-aligned activities report improved access to green finance instruments. European Investment Bank data indicates that taxonomy-aligned borrowers accessed €28 billion in preferential-rate sustainability-linked financing during 2024, with interest rate differentials ranging from 15-50 basis points compared to conventional facilities. This financial incentive is driving substantive investment in taxonomy-aligned activities beyond mere reporting.

What Isn't Working

Scope 3 Data Collection Remains Fundamentally Broken: Despite regulatory requirements and buyer pressure, practitioners universally identify Scope 3 data collection as dysfunctional. Supplier capacity constraints, confidentiality concerns, and methodological inconsistencies mean that reported Scope 3 figures frequently rely on industry-average emission factors rather than primary data. A 2024 CDP analysis found that only 38% of responding companies used primary supplier data for material Scope 3 categories, with the remainder relying on estimates. The disconnect between regulatory expectations and operational reality creates compliance risk and undermines the decision-relevance of reported data.

SME Capacity Gap Creating Supply Chain Bottlenecks: While CSRD directly applies to large companies, the data requirements cascade to small and medium enterprises through supply chain requests. European SME associations report that sustainability reporting demands from large buyers increased 340% between 2022 and 2024, yet SME capacity to respond remains severely constrained. The European Commission's simplified VSME (Voluntary SME Standard) intended to address this gap has seen limited adoption, with only 12% of surveyed SMEs aware of its existence according to a 2024 BusinessEurope study.

Assurance Market Capacity Insufficient for Regulatory Timeline: CSRD mandates limited assurance for sustainability reports from 2025 and reasonable assurance by 2028, yet assurance provider capacity lags dramatically behind demand. The Fédération des Experts Comptables Européens estimates that Europe requires 75,000 additional qualified sustainability assurance professionals by 2027—a gap that current training pipelines cannot address. Practitioners report that assurance costs have increased 60-100% since 2023, with engagement availability becoming a competitive constraint.

Greenwashing Enforcement Remains Inconsistent: While the EU Green Claims Directive establishes verification requirements, enforcement capacity varies dramatically across member states. Practitioners report that companies making substantively similar claims face markedly different regulatory scrutiny depending on their jurisdiction of incorporation. This inconsistency undermines the credibility of verified claims and creates competitive distortions that reward aggressive interpretation of requirements.

Key Players

Established Leaders

EFRAG (European Financial Reporting Advisory Group) serves as the technical body developing ESRS implementation guidance and sector-specific standards. Their sustainability reporting board includes representatives from civil society, business, and accounting professions, providing authoritative interpretation of disclosure requirements.

European Environment Agency (EEA) provides the emissions data, environmental indicators, and methodological guidance underlying CBAM implementation and taxonomy environmental thresholds. Their annual reports on European decarbonization progress inform regulatory baseline setting.

CDP (formerly Carbon Disclosure Project) operates the dominant platform for corporate environmental disclosure, with 23,000+ companies disclosing through their system in 2024. CDP questionnaires increasingly align with ESRS requirements, and CDP scores feature prominently in buyer qualification processes.

EcoVadis provides sustainability ratings covering 130,000+ companies globally, with particular strength in supply chain due diligence for European buyers. Their scorecards translate complex sustainability data into procurement-compatible formats.

Bureau Veritas leads the third-party verification market for sustainability claims, operating accredited certification programs across carbon accounting, supply chain due diligence, and taxonomy alignment assessment.

Emerging Startups

Normative (Stockholm) provides automated carbon accounting software integrating with enterprise resource planning systems to generate Scope 1, 2, and 3 inventories with audit-ready documentation. Their platform serves 1,500+ European companies including H&M and Telia.

Plan A (Berlin) offers decarbonization management software combining emissions measurement with scenario modeling and target-setting aligned with Science Based Targets initiative requirements. They raised €27 million in Series B funding in 2024.

Sweep (Paris) provides enterprise carbon management platform used by major European corporations including L'Oréal and Crédit Agricole, focusing on value chain emissions and CSRD-compliant reporting.

Circulor (London) delivers supply chain traceability solutions using blockchain technology to verify provenance and sustainability attributes of raw materials, particularly for battery supply chains subject to EU Battery Regulation requirements.

Persefoni (Europe operations) expands from its US base to serve European clients requiring integrated carbon accounting across ESRS, ISSB, and SEC disclosure frameworks.

Key Investors & Funders

European Investment Bank operates the largest climate finance operation globally, with €49 billion in climate and environmental sustainability financing during 2024, increasingly conditioned on taxonomy alignment.

Horizon Europe allocates €95.5 billion for 2021-2027, including dedicated funding for sustainable supply chain innovation, circular economy pilots, and digital sustainability infrastructure.

Breakthrough Energy Ventures (European arm) invests in climate technology companies developing solutions for hard-to-abate sectors, with portfolio companies increasingly serving European regulatory compliance needs.

SYSTEMIQ operates both as advisory firm and investment vehicle, deploying capital toward systems-change initiatives aligned with EU regulatory trajectory.

Eurazeo manages €35 billion with explicit sustainability integration, making direct private equity and venture investments in companies positioned to benefit from European regulatory evolution.

Examples

IKEA's Scope 3 Data Transformation: IKEA implemented a comprehensive supplier engagement program covering their 1,600+ tier-one suppliers to collect primary emissions data aligned with ESRS requirements. By 2024, primary data coverage reached 78% of purchased goods emissions, up from 23% in 2021. The program required deploying standardized calculation tools to suppliers, funding capacity building for SME suppliers, and integrating emissions data into procurement scorecards with weighted purchasing preferences. IKEA reports that suppliers providing verified primary data receive 15% preferential treatment in contract renewal decisions. The investment exceeded €45 million over three years but positioned IKEA ahead of regulatory requirements and enabled identification of 340,000 tonnes CO2e in supply chain reduction opportunities.

Siemens CBAM Preparation Initiative: Siemens established a dedicated CBAM compliance program across their European procurement operations covering €2.1 billion in annual imports of CBAM-covered materials. The program required mapping 12,000+ supplier relationships to identify CBAM-relevant material flows, implementing embedded emissions calculation capabilities for direct imports, and negotiating data-sharing agreements with non-EU suppliers. Siemens reports achieving 94% coverage of required emissions declarations during the transitional phase and developed internal carbon cost modeling projecting €120-180 million in annual CBAM certificate costs when definitive obligations apply in 2026. The preparation investment—approximately €8 million—enabled strategic sourcing adjustments shifting €340 million toward lower-carbon suppliers before certificate costs materialize.

Ørsted's Additionality-Verified Renewable Procurement: Danish energy company Ørsted pioneered additionality verification in corporate renewable procurement, developing methodology subsequently adopted in emerging EU standards. Their approach requires power purchase agreements to support projects reaching financial close after the PPA signing date, with third-party verification of project additionality. By 2024, Ørsted's methodology influenced the European Commission's proposal for green electricity claim substantiation under the Green Claims Directive. The company documented that additionality-verified procurement increased costs by 8-12% compared to unbundled renewable energy certificates but provided defensible claims for Scope 2 market-based accounting and aligned with Science Based Targets initiative requirements for beyond-value-chain mitigation.

Action Checklist

• Conduct a regulatory mapping exercise identifying which EU regulations (CSRD, CBAM, Taxonomy, CS3D, Green Claims Directive) apply to your organization based on size, sector, and EU revenue thresholds.

• Assess current data infrastructure against ESRS disclosure requirements, identifying gaps in Scope 3 primary data collection, taxonomy alignment calculation, and transition plan documentation.

• Engage legal counsel to evaluate extraterritorial application of EU regulations to non-EU operations and supply chain relationships.

• Develop a supplier engagement strategy prioritizing data collection from material suppliers, including capacity-building support for SME suppliers lacking sustainability reporting capabilities.

• Evaluate assurance provider capacity and secure engagement letters early, given market constraints on qualified sustainability assurance professionals.

• Establish internal carbon pricing mechanisms reflecting projected CBAM certificate costs to inform procurement decisions before 2026 definitive obligations.

• Map certification requirements to specific regulatory obligations, avoiding assumption that single certifications address multiple compliance needs.

• Integrate taxonomy alignment metrics into capital expenditure decision processes to optimize eligible green finance access.

• Build internal expertise on double materiality assessment methodology to satisfy ESRS impact materiality requirements beyond traditional financial risk frameworks.

• Monitor regulatory developments through official EU sources (Official Journal, European Commission consultations) rather than relying solely on intermediary interpretation.

FAQ

Q: How do CSRD requirements affect non-European companies? A: CSRD applies to non-EU companies meeting specific thresholds: >€150 million net EU turnover for two consecutive years, plus either an EU-listed subsidiary, an EU subsidiary meeting large undertaking criteria, or an EU branch generating >€40 million net turnover. Affected non-EU companies must report at consolidated group level under ESRS or equivalent standards by 2028. Practitioners advise non-EU multinationals to assess their EU footprint against these thresholds immediately, as compliance timelines require multi-year preparation. Even companies below thresholds face indirect exposure through European buyer data requests cascading through supply chains.

Q: What distinguishes "limited" from "reasonable" assurance under CSRD? A: Limited assurance requires the assurance provider to conclude whether anything came to their attention causing them to believe the sustainability information is materially misstated—a lower evidence threshold than reasonable assurance. Reasonable assurance (required from 2028) demands positive confirmation that information is free from material misstatement, requiring more extensive testing procedures. Practically, reasonable assurance increases assurance costs by 40-80% and requires more robust internal controls, data trails, and documentation. Organizations should use the 2025-2028 transition period to strengthen internal controls progressively rather than attempting rapid escalation when reasonable assurance becomes mandatory.

Q: How should organizations handle conflicting requirements across EU, US, and other jurisdictions? A: Practitioners recommend building disclosure infrastructure around the most demanding applicable requirements—typically ESRS—with interoperability layers mapping to other frameworks. EFRAG's interoperability guidance demonstrates how ESRS disclosures satisfy ISSB requirements with limited additional information. Organizations facing SEC climate disclosure requirements should note that SEC rules differ substantively from ESRS, particularly regarding materiality (SEC uses financial materiality only versus ESRS double materiality) and Scope 3 disclosure triggers. Maintaining parallel data streams for distinct regulatory requirements rather than attempting single-disclosure approaches reduces regulatory risk while leveraging common data foundations.

Q: What constitutes valid additionality evidence for renewable energy claims? A: Emerging standards require demonstrating that renewable energy procurement supports new generation capacity that would not have been built absent the procurement commitment. Valid additionality evidence typically includes: power purchase agreement dates preceding project financial close; independent verification of project financing structure showing PPA as enabling condition; temporal and geographic matching demonstrating consumption occurs when and where renewable generation produces electricity. The Science Based Targets initiative's market-based accounting guidance and emerging EU green electricity claim requirements both emphasize these elements. Unbundled renewable energy certificates from existing projects increasingly fail to satisfy buyer requirements for additionality-verified procurement.

Q: How will the Corporate Sustainability Due Diligence Directive (CS3D) change supply chain requirements? A: CS3D, entering force in 2027-2029 based on company size, requires companies to identify, prevent, mitigate, and account for adverse human rights and environmental impacts across their value chains. Unlike CSRD's disclosure focus, CS3D mandates operational due diligence processes including supplier assessments, contractual cascade provisions, and remediation mechanisms. Companies must establish complaint mechanisms accessible to affected stakeholders. Practitioners anticipate CS3D will require fundamental restructuring of supplier management processes, with due diligence costs estimated at 0.1-0.4% of covered companies' revenue. Early preparation should focus on mapping value chain relationships, assessing existing due diligence processes against CS3D requirements, and developing supplier engagement strategies for enhanced requirements.

Sources

• European Commission, "Corporate Sustainability Reporting Directive Impact Assessment," 2022
• European Financial Reporting Advisory Group (EFRAG), "European Sustainability Reporting Standards," 2023
• European Environment Agency, "Carbon Border Adjustment Mechanism Implementation Report," 2024
• CDP, "Global Supply Chain Report: Scope 3 Data Quality Assessment," 2024
• EcoVadis, "Business Sustainability Risk and Performance Index," 2024
• Science Based Targets initiative, "SBTi Corporate Manual and Scope 2 Guidance," 2024
• European Investment Bank, "Climate Finance Report 2024"
• UK Transition Plan Taskforce, "Disclosure Framework and Implementation Guidance," 2023