Exploring European Union Corporate Sustainability Reporting Directive’s (CSRD) integration process implications on business strategy.

Abstract: Following the introduction of the Corporate Sustainability Reporting Directive (CSRD) by the European Commission, the complexity of sustainability reporting increased significantly concerning a vast number of companies. The lack of consideration in the literature on the implications it will have on the business strategy can create negative perceptions of the directive’s integration process for the companies and make the transition process more challenging than anticipated. Specifically, a knowledge gap exists across nations with limited expertise in sustainability reporting. Therefore, this study focuses on exploring how companies in the Baltic region navigate the complex landscape of compliance. This study conceptualized five key aspects that contribute to understanding the CSRD integration process's strategic implications. Namely, the CSRD integration process stage, challenges and second-order consequences, motivations, and double materiality assessment approach. To investigate this, qualitative research employing a collective case study design was utilized, involving eight semi-structured interviews conducted with representatives from the Big Four Consulting firms operating in Latvia, Lithuania, and Estonia. Moreover, secondary data from 55 sustainability reports published by listed companies in the Baltics region were analyzed. The empirical findings demonstrate that Lithuanian companies are ahead of Latvian and Estonian when assessing the stage of the integration process. Additionally, the CSRD implementation stages vary based on the company's type. Moreover, the results indicate that the double materiality concept is challenging for the majority of companies, impeding their compliance progress. The main obstacle when considering the way forward is the lack of knowledge in collecting and interpreting quantitative data. While the main motivation for companies to integrate CSRD is regulatory compliance, the second-order consequences of the companies’ actions relate to the high cost of compliance which can result in a positive or negative reputation. This was examined through Transaction-Cost Economics theory to support companies in their journey. These findings add to prior research by providing deeper insights into the key aspects of the CSRD integration process. Finally, an empirical framework is proposed as a summary of all CSRD integration process findings on strategic implications, and future research is proposed to repeat the research as the directive progresses by adding direct insights from the companies.