Governance is not a cost. It's the engine
May risk and resilience roundup - from CS3D exposure to profitability pivots
As the dust settles after April’s policy whirlwind, May is turning out to be something else entirely: a governance stress test.
From CS3D to the Omnibus Directive, ESG rules are shifting, and so is the conversation. We’ve rounded up the most critical developments and insights from the past month to help you stay ahead.
CS3D: A governance audit in disguise
CS3D may present as a legal or compliance challenge. But every page of the directive points to one thing: operational accountability.
If you say human rights matter but your procurement system doesn’t flag risk – that’s a governance problem. If you disclose emissions data but no one checks the source system – that’s a control failure.
➡️ Download the CS3D Readiness Blueprint
Omnibus: deferrals don’t mean downtime
The so-called "Stop the Clock" regulation passed in April, offering limited deferrals for some CSRD reporting obligations and touching adjacent rules like the EU Taxonomy and CS3D.
But this is not a signal to slow down. As Andreas Rasche of Copenhagen Business School reminded us, the delay does not weaken the overall architecture. It merely shifts the spotlight to internal readiness.
If anything, this is a chance to strengthen your control environment while the window is open.
What EFRAG did — and didn’t — didn’t do
While EFRAG’s Sustainability Reporting Board initially voted against fast-tracking simplification of the ESRSs, the simplification agenda has not been dropped. Instead, it is proceeding a little more slowly and through the standard consultation process, rather than expedited routes, albeit certain consultations will run in parallel.
The message is more nuanced now: simplification will still come, but it will be deliberate, procedural, and subject to full stakeholder input.
In the meantime, materiality remains judgement-based, not checklist-driven. Companies need more than a disclosure policy, they need the governance capacity to support it.
ISSB: New exposure draft sharpens climate governance focus
Last week, the ISSB released an exposure draft proposing targeted amendments to IFRS S2, aiming to reduce reporting complexity while preserving decision-useful information for investors. The proposals are especially relevant for financial institutions managing Scope 3 emissions disclosures across complex portfolios.
Key areas of proposed change:
Financed emissions relief for financial institutions: Banks, insurers and asset managers may exclude emissions linked to derivatives, facilitated transactions, and insurance underwriting. However, they must disclose the value of excluded activities and explain their definitions.
Industry classification flexibility: Companies may now use alternatives to the classification system currently mandated in IFRS S2 (GICS), provided they explain their choice and maintain consistency.
Jurisdictional flexibility on methodologies: Where local rules require different GHG methodologies or conversion values, companies may use these instead of those prescribed by the Greenhouse Gas Protocol, provided they explain the basis and scope.
Importantly, all proposed changes are optional. Companies can choose to retain full IFRS S2 compliance if they prefer. These proposals do not scale back ambition — they aim to reduce friction for adoption and maintain alignment with global baselines.
As ISSB Vice-Chair Sue Lloyd noted, this is about "helping preparers where possible, without causing too much disruption".
Climate risk and corporate value: new data, old challenges
Verisk Maplecroft’s latest research shows that US$1.14 trillion in corporate value is located in countries at risk from climate upheaval. This reinforces that governance cannot be divorced from geography. If your supply chain is vulnerable, your balance sheet is too.
This connects directly with CS3D’s traceability and risk mapping expectations. If your governance processes don’t already integrate geopolitical climate data, it’s time they did.
Sustainability assurance: confidence versus compliance
Across Europe, there’s increasing momentum toward mandatory assurance of sustainability disclosures. But audit firms are still playing catch-up.
While some leaders are investing in cross-functional ESG audit frameworks, others are still treating assurance as a last-mile issue. The risk? Verifiers will be unable to sign off unless governance systems are in place – long before reporting. I’m also hearing horror stories of where CSRD reporters “forgot” to involve their assurance provider during the double materiality assessment, and in some cases, hadn’t even appointed them prior to getting work underway.
Selecting your sustainability auditor may seem like a task to defer, especially when you don’t yet know which ESG topics will be deemed ‘material’, but they need to be involved throughout the CSRD preparation process in order to provide the limited assurance you’re seeking - today is already too late.
The tools we’re still not using
We were particularly impressed by Hannes Matt’s recent LinkedIn article, which explored open data tools for climate risk, and the yawning gap between what’s available and what’s actually used in ESG reporting.
We don’t suffer from a lack of tools. We suffer from a lack of governance maturity to embed them.
Governance is the throughline
Amid shifting standards and policy pauses, governance remains the constant.
This month, we’ve explored governance not as a reporting requirement – but as a strategic asset. One that:
Enables faster decisions
Helps teams act under pressure
Connects disclosure to control
And increasingly, as we pivot toward May’s next big topic – profitability – governance becomes the enabler of performance.
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