As sustainability issues become increasingly central to businesses, digitalization plays a key role in enabling the transition towards a more sustainable future. The new European Sustainability Reporting Standards (ESRS) and Corporate Sustainability Reporting Directive (CSRD) have been introduced to increase transparency and accountability in the corporate world. At a time when Finland is lagging behind in innovation and the EU is experiencing a lower growth rate compared to the US and China, the CSRD directive has come into force. This means that more than 50,000 companies in the EU will have to report on sustainability from 2025. However, these regulations raise questions about how they will affect the competitiveness and comparability of Finnish companies, as well as the particular challenges faced by SMEs.
ESRS and CSRD: An overview
The ESRS and the CSRD are two important EU initiatives that aim to standardize and strengthen sustainability reporting among companies. The ESRS provides a framework for companies to report their sustainability performance, which includes social, environmental and governance aspects. The CSRD extends reporting requirements to more companies, including small and medium–sized enterprises (SMEs), and introduces stricter requirements for the collection, verification and reporting of sustainability data. These initiatives are intended to create more consistent and comparable sustainability reporting across the EU, which in turn should contribute to a more sustainable and fairer economy.
Future competitiveness: catalyst for change or brake?
The new reporting requirements can be seen as a catalyst for change by forcing companies to integrate sustainability as a core part of their business strategy. For Swedish companies, this can lead to increased competitiveness in a global market where sustainability is increasingly in demand by both customers and investors. Companies that adapt quickly to the new requirements can not only achieve better environmental and social performance, but also strengthen their brand and attract new business opportunities.
On the other hand, there is a risk that the increased reporting requirements may act as a brake on businesses that do not have sufficient resources to adapt quickly. For these businesses, the administrative burden can become overwhelming, which can hamper growth and innovation. Therefore, it is crucial that businesses invest in digital solutions that can streamline reporting and make the process less costly and more manageable.
Comparability: opportunity or interpretation problem?
One of the main objectives of the ESRS is to harmonize companies’ sustainability data, enabling fair and transparent comparisons between companies. This is a potentially powerful mechanism for driving sustainability forward, as it provides investors and other stakeholders with a better basis for making informed decisions.
Nevertheless, interpretation problems may arise as different companies, even within the same industry, may have different interpretations of how to report under the new standards. This can lead to inconsistencies and reduce the comparability that the framework aims to create. To minimize these risks, it is important that firms have access to clear guidance and that there is a continuous dialogue between supervisors and industry. Digital platforms and tools can play a crucial role here by offering automated solutions to standardize and verify data, helping to maintain a high level of comparability.
Small business challenges: administrative burdens and solutions
Small and medium-sized enterprises face particular challenges in meeting the requirements of the CSRD. With limited resources and staff, the increased administrative burden can become a significant burden. This risks stifling innovation and growth, especially in companies already operating on small margins.
To counter this, it is crucial to create support functions and tools that help small businesses navigate the new requirements. Here, digitalization can play a key role. By using digital solutions to automate and simplify the reporting process, small businesses can reduce the time and resources required to meet CSRD requirements. This can include everything from simple digital tools for data collection to more advanced platforms that integrate sustainability reporting into the company’s existing business systems.
Summary
Digitalization is a necessity to address the challenges and opportunities brought by ESRS and CSRD. By leveraging digital tools and platforms, companies can not only comply with the new reporting requirements, but also take advantage of them to improve their sustainability and competitiveness. However, for this potential to be fully realized, clear guidance and strong support for the companies facing the biggest challenges, especially SMEs, are necessary to ensure that reporting requirements become a force for positive change, rather than a burden that hinders growth and innovation.
