The European Commission’s proposal for a Corporate Sustainability Reporting Directive (CSRD) implies a major change from the current Non-Financial Reporting Directive (NFRD). It will affect some 49,000 companies in the European Union and about 700 companies in Finland.
The change will apply to listed companies (excluding micro companies) and companies that meet two of the following three conditions: minimum number of employees 250, minimum revenue €40 million and minimum balance sheet total €20 million. As of the 2023 financial year, these companies will have to start reporting in compliance with the new statutory corporate sustainability reporting standard.
“It’s advisable to start making preparations for the new directive on a timely basis. Under the new standard, companies are required to report both the sustainability risks they are exposed to and the impact they are having on society and the environment,” says Associate Professor Hanna Silvola of the Helsinki School of Economics.
The sustainability reporting standard (CSRD) is part of the EU’s Sustainable Finance Action Plan. It includes the EU’s green taxonomy, i.e., the system for classifying sustainable economic activities. It is designed to steer funding to environmentally sustainable projects. For companies, its effect will be felt in the availability and price of financing.
Currently, the sustainability report contains information that the company itself considers relevant as well as a description of the group’s business model. In future, the sustainability report must include all the information required by the standard. Companies will be called upon to disclose information on strategy, objectives, the role of the board and executive management, and the main adverse impacts related to the company and its value chain. Additionally, companies will be required to report prospective and retrospective information. All reporting must comply with the Sustainable Funding Disclosure Regulation (SFDR) and the EU taxonomy regulation.
Data verification will be mandatory instead of the current voluntary verification. As a rule, the data is to be verified by the company auditor. It will no longer be enough just to post a sustainability report in PDF format on the company website. Instead, the reported data must be published as an integrated part of the company’s annual report in a digital, machine-readable format and submitted to a centralized European disclosure repository.
“It’s the actions of the board and executive management that will determine winners and losers. Losers will be those who fail to respond to the sustainability requirements and whose business will experience a meltdown, for example as a result of climate change. Winners will benefit from the transition to carbon neutrality, gain a competitive edge from sustainability and increase their market shares,” Hanna Silvola adds.
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