Sustainability reporting has come a long way over the past decades. According to a study by Mordor Intelligence, the global market in this segment is expected to reach approximately 17 billion dollars this year. By 2030, it is projected to more than triple to nearly 54 billion dollars. This enormous growth could be significantly slowed by the US government’s policy reversal on climate protection. But most experts do not believe that the momentum can be reversed.

This is because, in much of the world, at least a majority of corporations now have a sustainability reporting strategy, as highlighted in a study by KPMG. While the topic has played little role in Germany’s federal election campaign, its global significance has only increased in recent years.

The growing importance is also reflected in major consulting firms. „At the very beginning – when we started our sustainability business 30 years ago – it was primarily about environmental assessments and contamination issues“, recalls Rainer Kroker, Partner and Sustainability Leader at PwC Germany. There was little regulation and standardisation at the time – meaning there was no real business model either. High investment requirements stood against limited revenue prospects.

Regulation then naturally became a major driver. The Supply Chain Due Diligence Act now includes a host of legal issues. Kroker is convinced that demand for consulting services will continue to grow: „With the upcoming Greenwashing Directive, there will also be many litigation-related challenges", he says in an interview with Börsen-Zeitung.

Reporting requirements have expanded year after year. „This means that consulting needs are constantly evolving – either because already-covered entities need to provide more data, or because new companies are being included“, explains Kroker. In major economies like Germany, Japan, or the US, there are virtually no large companies left that do not engage in sustainability reporting. On a global scale, however, the situation is quite different. Countries such as Venezuela, Cyprus, Saudi Arabia, and Israel lag significantly behind the international average.

According to a KPMG study, the most widely adopted standards are still those of the Global Reporting Initiative (GRI), used by 77% of companies (2022: 78%). But the Sustainability Accounting Standards Board (SASB), which is now being developed into a global standard under the International Sustainability Standards Board (ISSB), is rapidly gaining traction. Among G250 companies, its adoption rate rose from 49% to 56% in just two years.

Even though many companies already have sustainability departments, track their environmental impacts, and measure progress, increasing regulatory requirements continue to drive the consulting business. „The Corporate Sustainability Reporting Directive (CSRD) has led to significant growth – even from a consultant's perspective“, states Kroker. He quickly realised that expanding consulting services required additional revenue, profitability, and employee responsibility. As a result, PwC established a dedicated business unit for sustainability consulting about 18 months ago, which has been growing at an annualised rate of 20% per year. Kroker’s sustainability team, which he has led for three years, now has around 800 employees in Germany alone.

Kroker believes that a true sustainability transformation cannot be driven by reporting obligations alone. A genuine energy transition is also necessary. That is why PwC’s sustainability unit not only integrates industrial and financial services but also includes experts in energy transformation – such as specialists and engineers in hydrogen technology and wind energy. The goal is to provide holistic consulting services.

The surge in regulatory requirements has recently overwhelmed parts of the expanding consulting industry. Some firms have had to turn down client requests due to capacity constraints. To address this, Kroker and PwC formed alliances with partners at the end of the year to alleviate capacity bottlenecks in CSRD auditing and consulting. Looking ahead, PwC hopes to manage the surge in demand through greater use of technology, including AI.

Kroker is particularly concerned that family-owned businesses and small and medium sized enterprises (SMEs) might struggle to meet reporting obligations. „Publicly traded companies – regardless of whether they are in the Dax 40 or Dax 100 – are generally well-prepared. They have a Chief Sustainability Officer and a dedicated department that handles these regulations and is capable of implementing the requirements“, he explains.

Despite benefiting enormously from regulatory expansion and the associated demand for consulting, PwC remains critical of the growing bureaucratic burden. „In my view, lawmakers need to make significant adjustments“, argues Kroker. Because only directives are established, which then need to be transposed into national law, regulatory patchworks are created within the European Union. This inconsistent regulatory approach becomes particularly problematic when companies in different countries introduce additional requirements due to a lack of standardised rules. „Moreover, the CSRD and the Supply Chain Due Diligence Act are simply too complex: too many metrics, too many data points, insufficient focus, and not enough emphasis on corporate management and strategic aspects“, notes Kroker.

The volume of sustainability-related key performance indicators (KPIs) now exceeds that of traditional financial reporting. „That’s not a good development. We already see how extensive financial reporting is and who actually reads it. Adding 100 to 300 more pages to the management report for sustainability reporting – I don’t consider that particularly focused or useful for corporate management“, says Kroker. „The reporting obligations need to be streamlined, simplified, and harmonised.“

Kroker's shift in perspective, shared by others in the industry, is further supported by three decades of consulting experience. Initially, PwC optimistically promoted the idea that „sustainability is the new profitability.“ In some cases, this still holds true. For example, a pharmaceutical company worked with PwC to choose its production sites based on sustainability criteria, which ultimately proved to be a smart economic decision. However, many small and mid-sized companies are overwhelmed by excessive reporting requirements.

But even if reporting obligations become less significant, consultants do not expect demand for their services to decline. The issue of resilience, for example, is still underexplored. How resilient is a company to potential natural disasters? How well-prepared are its production facilities? What disruptions are to be expected? These are questions businesses will need to address in the coming years, Kroker says, as such events can have enormous financial consequences.

Additionally, the energy transition will be a massive financial undertaking, with costs for Germany alone estimated to be between 400 billion and 1.2 trillion euros. „Right now, the consulting business is heavily driven by regulation, but in the future, there will be significant demand beyond regulatory requirements – because failing to adopt sustainable practices will have direct financial consequences", he says.