Sustainability is no longer a "nice-to-have" – it's a must. Companies that fail to act risk reputational damage, regulatory penalties, financial losses, and the loss of their market position. At the same time, it's becoming clear that companies with clear ESG goals achieve higher profits, secure competitive advantages, and remain attractive to customers, investors, and talent.
The facts:
Those who act now minimize risks and seize opportunities. The key? A clear ESG strategy, transparent reporting, and targeted measures along the value chain. Sustainability is not just an obligation, but a growth driver.
Sustainability is no longer an optional topic, but a necessity for companies that want to be successful in the long term. But what happens when sustainability is ignored? The risks are diverse and can significantly impact company value in four key areas.
In Germany, consumers place great value on sustainable business practices: A full 89% expect companies to act sustainably. A particularly sensitive issue is greenwashing – when companies promise sustainability but fail to deliver on these promises. This can permanently damage trust in the brand.
The numbers speak for themselves: Only 17% of companies have a solid governance structure to effectively manage reputational and ESG risks, a decline compared to 23% in 2021. An example illustrates the consequences: A fashion retailer that introduced environmentally friendly materials faced massive criticism when reports of child labor in its supply chain surfaced. The reputational damage was enormous.
Reputation problems are often the beginning of a chain of economic disadvantages that are difficult to stop.
Regulations in Germany and Europe are becoming increasingly strict. Since January 2023, the Supply Chain Due Diligence Act (LkSG) applies to around 2,800 companies. From 2024, companies with more than 1,000 employees are also affected. Violations can be expensive: fines of up to 8 million euros or 2% of annual turnover threaten – with a turnover of over 400 million euros.
The Federal Office for Economic Affairs and Export Control (BAFA) monitors compliance with the law. Companies must, among other things, establish a risk management system, conduct regular risk analyses, and implement prevention and remediation measures. A German automotive company with a turnover of 500 million euros could, for example, pay up to 10 million euros in fines if it ignores forced labor risks in its supply chain.
In addition to these penalties, financial losses due to restricted financing opportunities are also a serious risk.
Sustainability increasingly influences financing conditions. Already 38% of banks consider ESG risks in credit decisions. Companies without sustainable practices find it difficult to obtain favorable conditions. Investors also place increasing value on ESG criteria: 80% include these in their decisions, and 49% withdraw their investments if ESG goals are not sufficiently pursued.
Interestingly, companies with a clear ESG strategy often benefit from better financial results. 88% of these companies achieve higher cash flows. This shows that sustainability is not just a cost factor, but can also be a competitive advantage.
The pressure to act sustainably is growing. 59% of companies feel increasing expectations from their customers. At the same time, 80% of consumers are willing to pay more for sustainable products, and 64% see sustainability as one of the three most important purchasing criteria. Sustainability also plays a role in talent recruitment: Over 60% of Germans pay attention to relevant information in job advertisements.
A cautionary example is provided by a fast-fashion company that made headlines in 2020. After revelations about poor working conditions at suppliers, trading partners broke off cooperation, consumers boycotted the brand, and the stock price fell by 40% within a week. Such incidents show that companies that neglect ESG measures risk their long-term competitiveness.
The following examples make clear what consequences inadequate sustainability strategies can have. They show how false or exaggerated promises not only result in legal consequences, but can also permanently damage trust in companies.
DWS: Greenwashing allegations at a leading fund company
In 2022, DWS, a subsidiary of Deutsche Bank, came under scrutiny from prosecutors and the Federal Financial Supervisory Authority (BaFin). The allegation: financial products were excessively marketed as "green" and "sustainable." At the same time, the US Securities and Exchange Commission (SEC) also began investigations into these allegations. This case shows how quickly supposedly sustainable product promises can lead to legal problems and reputational damage.
Investment funds in court: Unclear sustainability promises
In 2021, the Stuttgart Regional Court issued an injunction against an investment fund company that promised investors that an investment of €10,000 would reduce their CO₂ footprint by 3.5 tons. However, in the information memorandum, this was only formulated as a non-binding goal. This case illustrates how critically inaccurate or misleading statements about environmental goals are viewed.
TotalEnergies: Misleading advertising for CO₂ compensation programs
In April 2023, the Düsseldorf Regional Court decided that the advertising for TotalEnergies' Thermoplus heating oil was misleading. Submissions by the German Environmental Aid (DUH) had revealed that the advertised CO₂ compensation programs in India and Peru were insufficiently transparent. Such cases show how important clear and verifiable information is for sustainability initiatives.
Munich RE: Withdrawal from climate initiatives due to legal uncertainties
In early 2025, Munich RE, one of the world's largest reinsurers, withdrew from climate-friendly industry initiatives. The reason: legal uncertainties that made engagement in such initiatives difficult. This step illustrates how regulatory risks can lead companies to abandon sustainability projects.
Industry-wide impacts and insights
These examples are not isolated cases, but show a pattern: companies that do not take sustainability promises seriously enough or communicate them incorrectly risk suffering significant damage both legally and reputationally. Jurisprudence is becoming increasingly strict regarding environmental statements. At the same time, lawsuits from competitors and consumer protection organizations for greenwashing are increasing. With the upcoming EU directive on environmental claims, which requires companies to substantiate their claims with evidence, the requirements for credible sustainability strategies will continue to rise.
The challenges posed by inadequate sustainability should not be underestimated. However, with targeted measures, companies can actively counteract the negative consequences.
A well-thought-out ESG strategy (Environmental, Social, Governance) helps identify the most important sustainability factors. The first step: identify which ESG aspects are particularly relevant to your stakeholders. These could include reducing the CO₂ footprint, developing low-waste products, or promoting inclusive workplaces.
Monica Dimitracopoulos, EY Global Long-Term Value Leader, emphasizes: "Addressing ESG expectations requires a major shift in how CEOs and boards view the value their company creates. Leadership teams that focus on an ESG approach that is directly tied to their corporate strategy can make their companies stand out from the competition. Those that do not will fall behind when confronted with regulatory, customer and investor pressure."
It is crucial to prioritize initiatives that fit both the industry and the company's purpose while strengthening competitiveness. A good example: A large consumer goods company set itself the ambitious goal of achieving net-zero emissions within less than 20 years. This project required not only internal adjustments, but also close cooperation with suppliers, who account for a large part of the CO₂ footprint.
For ESG goals to be consistently implemented, cross-departmental collaboration is needed. Important are clear KPIs for measuring progress, incentive systems that support ESG goals, and technologies for efficient data management. Life cycle analyses can additionally help identify further opportunities for risk minimization.
Life cycle analyses can quantify environmental impacts along the entire value chain. They show where the greatest levers for improvement lie.
It makes sense to involve all relevant stakeholders to understand their expectations and systematically integrate ESG risks into existing risk management structures. Building a verifiable data structure from the beginning also facilitates reporting.
The EU has significantly tightened the regulatory framework with new regulations – companies should act early. The Corporate Sustainability Reporting Directive (CSRD) increases the number of reporting-obligated companies in Germany from 550 to 15,000.
The Supply Chain Due Diligence Act, which has applied to companies with more than 1,000 employees since January 1, 2024, as well as the monitoring of the Sustainable Finance Disclosure Regulation (SFDR) by BaFin, also represent important cornerstones [31, 34].
Lisa O'Donnell, UK CSRD Leader, explains: "This isn't just about compliance. The CSRD presents a real opportunity to add value and drive growth. By engaging early and embedding the CSRD into your strategy, you'll cement your commitment to our environment and communities, while realising transformational benefits."
Another point: The Green Claims Directive. Companies should ensure that their environmental claims are correct and verifiable. According to surveys, 76% of respondents expect that the CSRD will help integrate sustainability more strongly into decision-making. Regulatory compliance is thus not only an obligation, but also the basis for sustainable growth.
Sustainability offers opportunities for new business areas and strengthens market position. A global life sciences and healthcare company, for example, expanded its ESG strategy with consultants to focus on topics such as patient access and affordability.
Seth Reynolds, EY-Parthenon Americas ESG Leader, emphasizes: "ESG strategy needs to be about more than just checking a box. All companies will need to address ESG expectations from stakeholders, but leading CEOs make ESG initiatives an integral part of their corporate strategy. They focus on select initiatives where the company can truly make an impact, both for society and their competitive position."
An oil and gas company also took a strategic approach: it integrated financial and non-financial performance aspects into its communication. This enabled it to better respond to volatile market conditions and manage external pressure.
Another approach: consider sustainability features of products already in the development phase and incorporate the goals of the target market into planning. Companies that better recognize, measure, and manage environmental risks gain a clear competitive advantage.
Sustainability is far more than a moral imperative – it's a tangible business advantage. Companies that consistently integrate ESG (Environmental, Social, and Governance) into their strategies not only improve their market position but also increase their returns.
An impressive example is provided by Tesla: In 2023 alone, the company was able to generate revenue of $2.1 billion through the sale of CO₂ certificates – clear proof that sustainability can also be financially rewarding.
Statistics support the economic benefits of ESG: Over 75% of companies see ESG as an advantage, and companies with high ESG ratings achieve on average 4-6% higher annual returns. The operational impact is equally remarkable: 81% of surveyed companies reported that their ESG strategy increased profits, and 79% were able to identify new growth opportunities through ESG data.
Miriam Wrobel, Senior Managing Director of the ESG practice at FTI Consulting, puts it succinctly: "At its essence, ESG is a toolkit for companies to identify material risks and opportunities. Being smart about maximizing opportunity and minimizing risk will never go out of style."
The trend is also evident on the consumer side: Two-thirds of customers are willing to pay more for sustainable brands, and over 80% of Generation Z expect concrete environmental responsibility from companies. According to a Nielsen study from 2024, 78% of global consumers are willing to change their behavior to protect the environment. These developments illustrate why sustainable business strategies are becoming increasingly important.
Another example is Unilever: With the "Sustainable Living Plan," the company was able to involve 50,000 smallholder farmers in sustainable tea production in India. The result? The farmers' incomes increased by 30%, and Unilever secured long-term social acceptance in the region.
Partnerships also open new perspectives. Dow and P&G jointly developed a recycling technology that processes difficult-to-recycle plastics. This project not only reduces CO₂ emissions but also optimizes the supply chain.
The financial superiority of sustainable companies becomes particularly clear when looking at returns: sustainable companies achieve a median total return of 16% per year, while non-sustainable companies only reach 3%. Additionally, more and more companies recognize that sustainable strategies also help with employee retention and motivation – one-third of respondents confirmed this effect.
The market for sustainable investments is growing rapidly: in 2024, global ESG assets exceeded the $40 trillion mark. At the same time, sales of sustainable products have increased by almost 20% since 2014. These figures illustrate the growing demand for responsible business practices.
Another role model is Natura, a Brazilian cosmetics company. By using natural ingredients and recyclable packaging, the company was able to reduce its environmental impact while positioning itself as one of the most sustainable brands worldwide. This approach attracts both environmentally conscious consumers and ESG-oriented investors.
Sustainable business models also prove their strength in uncertain times. They respond more flexibly to market and regulatory changes, thus securing their long-term stability. This resilience contributes 1 to 5% to annual GDP growth worldwide.
Scott Wilson, Director of ESG and Sustainability at Grant Thornton UK, puts it succinctly: "A company's approach to sustainability can be used as a proxy for risk management."
However, transitioning to sustainable business models requires clear strategies. Companies must integrate ESG into their core processes and decisions, incorporate stakeholder expectations, and systematically address climate risks.
Sustainability is therefore no longer just a compliance issue, but a central driver for growth and innovation. Companies that actively embrace this change not only secure their competitiveness but also create the foundation for long-term success in an increasingly sustainability-oriented economy.
After the detailed examination of the opportunities of sustainable business models, one thing is clear: it's time to act. Companies that continue to view sustainability as optional are putting their long-term competitiveness at risk. The costs of inaction are rising noticeably, while the benefits of decisive action are becoming increasingly obvious.
The numbers speak clearly: Already 70% of consumers avoid companies they perceive as unethical. At the same time, 85% of private investors are interested in sustainable investments. Ignoring these developments means not only losing customers but also access to important capital sources.
The risks are real: failures in reputation, regulation, finance, and market position can be existentially threatening. A prominent example is Volkswagen, which had to pay £4.8 billion in fines after the diesel scandal and suffered a shareholder value loss of 37%. In contrast, IKEA shows how sustainability and economic success can work together. Between 2016 and 2023, the company reduced its CO₂ footprint by 24.3% while simultaneously increasing revenue by 30.9%. The Body Shop was also able to more than double its revenue from £300 million in 2011 to £800 million in 2018 through consistent sustainability measures.
These examples underscore: preventive action is crucial. The first step? Start with a double materiality analysis, orient yourself to the German Sustainability Code (DNK), and assemble an interdisciplinary team – this lays the foundation for sustainable competitiveness.
The World Bank predicts that global costs for waste management will rise to $375 billion by 2025. Companies that act now can not only avoid these costs but also secure competitive advantages. Consumers are willing to pay 9.7% more for sustainably produced products – an opportunity that only companies who act early can seize.
Now is the moment to minimize risks and seize opportunities. Don't wait until regulatory penalties, reputation loss, or market share losses force you to take action. Take the initiative and make sustainability your strategic advantage.
Fiegenbaum Solutions stands by your side as a partner. Whether ESG strategy development, life cycle analyses, or CSRD compliance – we accompany you on the path to a future-ready and profitable company. Schedule a free initial consultation and learn how you can make sustainability your competitive advantage.
The crucial question is no longer whether you should act – but how quickly you can start.
A well-thought-out ESG strategy (Environmental, Social, and Governance) is today more than just a "nice-to-have" – it's a decisive factor for long-term success. Companies that ignore sustainability not only risk their reputation but also face legal consequences and lose competitiveness in a market that increasingly values sustainable principles.
Consistent implementation strengthens stakeholder trust – whether customers, partners, or investors. At the same time, it contributes to economic stability by meeting the growing requirements of regulatory authorities and capital providers. Furthermore, it offers companies the opportunity to clearly position themselves as pioneers in sustainability and thereby secure a tangible competitive advantage.
To avoid potential penalties in the area of sustainability, it is essential for companies to consistently comply with all relevant legal requirements such as the CSRD, the EU Taxonomy, and the Supply Chain Act. This means, among other things, creating regular and transparent reports and firmly integrating due diligence obligations into operational processes.
Another important step is training your employees on sustainability topics. This not only raises awareness within the company but also promotes clear, sustainability-oriented governance. Such proactive measures offer a double advantage: they not only minimize the risk of penalties but also sustainably strengthen the trust of customers, business partners, and investors.
Companies can strengthen trust in their sustainability promises by relying on independent audits and certifications. This helps avoid accusations of greenwashing and supports the credibility of their statements. Another important step: formulate clear, measurable goals and regularly report openly on the progress achieved.
With these approaches, companies create trust among their stakeholders and reduce the risk of reputational damage that could arise from insufficiently substantiated or misleading information.