Sustainability Reporting: From Compliance to Competitive Advantage

By Ashkan Pakseresht, Associate Professor at Brunel University of London & Sustainability Consultant at Transformative

In the EU, the Corporate Sustainability Reporting Directive (CSRD) replaced the Non-financial Reporting Directive (NFRD) and extended Environmental, Social, and Governance (ESG) disclosure requirements to large number of companies. Sustainability reporting, initially focused on public companies, is now extending to private entities due to regulatory developments, stakeholder expectations, and market pressures. For decades, sustainability reporting was seen primarily as a compliance exercise—an obligation rather than an opportunity. However, this mindset is shifting. The emergence of frameworks like the Corporate Sustainability Reporting Directive (CSRD) and the growing influence of ESG-focused investors have made one thing clear: Sustainability reporting is no longer just about risk mitigation—it’s about business transformation, strategic decision-making, and long-term value creation.

The Evolution of Sustainability Reporting

Sustainability reporting has gone through three major phases[1]:

• Pre-standardization (1962–1998) – Awareness-building around environmental and social responsibility.

• Standardization (1999–2016) – The rise of frameworks like GRI, SASB, and the introduction of structured ESG disclosures.

• Post-standardization (2016–present) – A shift toward harmonization and integration, with the formation of the International Sustainability Standards Board (ISSB) and the EU’s CSRD, making ESG reporting mandatory for thousands of companies.

We are now entering a new era—the era of sustainability reporting convergence, where regulatory and voluntary frameworks are aligning to create global standards that enhance comparability and strategic decision-making. Historically, businesses have faced challenges navigating multiple sustainability reporting frameworks, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD). However, with the introduction of frameworks like the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS), there is a shift toward a unified global approach. This convergence not only simplifies reporting for corporations but also enhances transparency, enabling investors, regulators, and other stakeholders to make better-informed decisions. More importantly, it facilitates the integration of sustainability into corporate strategy by embedding ESG considerations into business decision-making processes. As sustainability reporting moves from compliance-driven disclosure to strategic business alignment, companies can leverage these frameworks to identify risks and opportunities, drive eco-innovation, and enhance long-term resilience in an increasingly sustainability-conscious market.

Figure 1. From compliance to strategic decision-making

Key Trends Shaping the Future of Sustainability Reporting

1. Investors & Consumers Demand Greater ESG Transparency

Investor pressure is intensifying—ESG-focused funds now control over $30 trillion in assets globally[2]. The Sustainable Finance Disclosure Regulation (SFDR) mandates (Regulation (EU) 2019/2088) financial market participants to provide transparent ESG disclosures to enhance clarity on sustainability risks and impacts. It is closely connected to the EU Taxonomy via the Regulatory Technical Standards (RTS), which outline the required disclosure process, ensuring alignment with the EU Taxonomy classification system. As regulatory frameworks tighten and sustainable finance becomes mainstream, companies that fail to deliver clear, credible, and comparable ESG reporting risk losing investor confidence, access to capital, and long-term market relevance.

Meanwhile, consumers are increasingly making sustainability-driven purchasing decisions, reflecting a growing awareness of environmental and social issues. This shift is influenced by a combination of factors, including rising concerns about climate change, resource depletion, and social inequalities. As a result, consumers are more inclined to support companies that align with their values, prioritising those that demonstrate a commitment to sustainable practices such as reducing carbon footprints, using ethically sourced materials, and engaging in fair trade. Companies that fail to provide clear, credible, and comparable ESG disclosures risk losing both investment and market relevance.

2. Rising ESG Reporting Pressure on Non-Public Companies

Historically, ESG disclosures have been driven by publicly listed companies. However, private companies and SMEsare increasingly impacted by evolving expectations. Larger corporations now require ESG data from suppliers to comply with regulatory and sustainability commitments. For instance, under the Corporate Sustainability Due Diligence Directive (Directive 2024/1760), micro-companies and SMEs are not directly covered, but they may be affected as contractors or subcontractors for larger firms that must ensure responsible business practices across their supply chains. Similarly, the Corporate Sustainability Reporting Directive (CSRD) imposes strict disclosure requirements on large companies, which may cascade down to SMEs through data-sharing requests and contractual obligations. As a result, even businesses not directly in scope must align with ESG expectations to maintain commercial relationships. Financial institutions are integrating ESG risks into lending and investment decisions, influencing access to capital. SMEs with limited ESG disclosures may face higher borrowing costs, reduced credit availability, or exclusion from sustainable finance opportunities. Banks and investors increasingly favour businesses that demonstrate strong ESG performance, aligning with frameworks like the EU Taxonomy and SFDR. As regulatory scrutiny grows, SMEs that fail to meet ESG expectations may struggle to secure funding, impacting their long-term growth and competitiveness. Additionally, sustainability considerations are becoming a key factor in talent attraction and retention, as employees increasingly seek purpose-driven workplaces. As a result, ESG transparency is no longer optional but a strategic necessity for businesses of all sizes.

3. Technology & AI will Transform ESG Data Management

The complexity of sustainability data is growing, and businesses will need scalable digital solutions to effectively collect, analyze, and report ESG performance.

AI and automation will play a critical role in enabling real-time ESG data analysis, providing predictive sustainability insights, and automating compliance tracking. These technologies will help businesses streamline their sustainability efforts, ensuring timely and accurate reporting while supporting informed decision-making for long-term environmental and social impact.

The challenge of aggregating ESG data is growing due to its fragmented nature and lack of standardisation. Artificial Intelligence (AI) offers significant potential to address these challenges by improving data collection, accuracy, real-time monitoring, and reporting. Blockchain technology and AI-powered tools like Natural Language Processing (NLP) can standardise data across industries, while AI algorithms can verify data accuracy and detect discrepancies. Furthermore, these digitalisation enables real-time monitoring, reduces costs, and increases efficiency by automating data aggregation and reporting. As digital technologies continue to evolve, it will drive innovation in ESG data insights, helping businesses unlock valuable, actionable information. This technological shift is transforming businesses by enabling them to use ESG data as a strategic tool, not only ensuring compliance and transparency but also enhancing their resilience and driving sustainable business practices.

4. Eco-innovation as Strategic Decision-Making

Sustainability reporting is evolving from a box-ticking exercise into a strategic enabler. Companies that embed sustainability data into their core decision-making processes will be better positioned to navigate regulatory changes, manage risks, and identify growth opportunities. Corporations are increasingly recognising eco-innovation as a strategic tool to enhance their resilience and adaptability in response to evolving sustainability-related challenges. By focusing on sustainable innovation, companies are better positioned to navigate regulatory changes, shifting consumer preferences, and environmental pressures. This proactive approach not only strengthens their competitive advantage but also ensures long-term sustainability by integrating environmental considerations into their core business strategies. As sustainability concerns become more pressing, businesses that leverage eco-innovation can stay ahead of market trends and contribute to a greener, more sustainable future. The literature on sustainable innovation, identifies three broad approaches[3]: (i) operational optimization, which focuses on achieving more with fewer resources; (ii) organizational transformation, which creates positive impact through novel solutions; and (iii) systems building, which involves creating positive impact through collaboration with others.

While research highlights the dynamic interactions between sustainability initiatives and strategy, there is an increasing demand for a more critical evaluation of this integration. The idea of incorporating sustainability into business strategy could unintentionally imply that strategy takes priority over genuine sustainability concerns. This highlights the need for a critical examination to ensure that sustainability is not merely used as a tool for enhancing economic performance or greenwashing but is genuinely embedded in the company’s core values and operations. In this context, sustainability reporting can serve as an effective oversight mechanism to verify the authentic integration of sustainability initiatives.

Figure 2. Sustainability  maturity phases.

Future: From Compliance to Strategic Decision-Making

Over the past decade, the concept of corporate sustainability reporting has evolved through three distinct phases: pre-standardisation, standardisation, and post-standardisation, and is now entering the era of convergence with corporate core strategy. Initially, sustainability reporting was primarily mandatory for public companies and viewed mainly as a compliance and risk mitigation tool. However, due to increasing pressures from investors, consumers, and even employees, businesses are now recognising the importance of integrating sustainability into their core operations. Sustainability is no longer seen as a mere obligation but as an opportunity to gain a strategic advantage through eco-innovation and decision-making. This shift has been further facilitated by digitalisation and technological advancements, which have made sustainability data more accessible, actionable, and integral to business strategies, enabling companies to leverage it as a strategic tool for long-term growth and market differentiation.

Companies that embrace ESG data as a tool for business transformation can unlock new revenue streams through sustainable innovation, enhance financial performance by reducing risk and operational costs, and strengthen stakeholder trust with transparent ESG commitments. By embedding sustainability into their core operations, businesses can also future-proof their strategies against evolving regulations and market demands. Ultimately, this approach positions companies not just as market leaders, but as responsible stewards of long-term environmental and social value.

Ashkan Pakseresht, Associate Professor at Brunel University & Sustainability Consultant at Transformative
Co-authors: Astrid Friborg & Håkan Läbom

[1] Opferkuch, K., Caeiro, S., Salomone, R. and Ramos, T.B., 2021. Circular economy in corporate sustainability reporting: A review of organisational approaches. Business Strategy and the Environment, 30(8), pp.4015-4036.

[2] Global Sustainable Investment Alliance, 2022. Global Sustainable Investment Review 2022. Available at: https://www.gsi-alliance.org/wp-content/uploads/2023/12/GSIA-Report-2022.pdf  

[3] Nascimento, L.S., da Rosa, J.R., da Silva, A.R. and Reichert, F.M. (2024), “Social, environmental, and economic dimensions of innovation capabilities: theorizing from sustainable business”, Business Strategy and the Environment, Vol. 33 No. 2, pp. 441-461.