What does the Sustainability Reporting Directive really mean for your business?
The Corporate Sustainability Reporting Directive (CSRD) will revolutionize corporate reporting practices in the near future. This is an EU-wide set of regulations that expands and clarifies companies’ obligations to report on matters related to the environment, social responsibility, and good governance. At the heart of the directive is the idea of increasing transparency and promoting sustainable development in business operations.
The directive will gradually apply to all large and publicly traded companies, and eventually to many medium-sized companies as well. The reporting requirements will first take effect for listed companies with more than 500 employees for the 2024 financial year, and by 2026 they will apply to all companies with more than 250 employees or a turnover of 40 million euros. This means that significantly more Finnish companies than before will soon have to rethink their sustainability reporting.
The core provisions of the directive require companies to conduct a two-way materiality assessment that takes into account both the impact of sustainability issues on the company and the company’s impact on the environment and society. Reporting must comply with the European Sustainability Reporting Standards (ESRS), which specify in detail the information to be reported. These cover a wide range of topics, from climate change to employee rights and supply chain responsibility. Integrating financial data with sustainability data will play a key role—data-driven solutions are indispensable for managing precisely these kinds of complex issues.
The 5 Most Common Challenges in Sustainability Reporting and How to Overcome Them
The first major challenge in sustainability reporting is collecting reliable data from all parts of the organization and the value chain. For many companies, this data is scattered across various systems or is not collected at all. The solution is a comprehensive data collection system that integrates with your existing systems. Automated data collection reduces manual work and the potential for errors. In our experience, the best results are achieved by seamlessly combining data from enterprise resource planning (ERP) systems with sustainability metrics.
Conducting a materiality assessment effectively is another significant hurdle. How do you determine which ESG factors are most material to your company? Carrying out a two-way materiality assessment requires a structured approach. We recommend combining stakeholder consultations, industry analyses, and impact assessments. Visualizing the data in a materiality matrix helps prioritize actions and focus reporting.
Standardizing measurement poses a challenge for many organizations. Quantifying carbon footprints and social impacts in a consistent manner is particularly challenging. The solution lies in data analytics tools that enable consistent measurement and comparison of results across different time periods. ESG data management systems provide structured models for measurement and reporting. By integrating these tools into a company’s analytics systems, we can ensure data quality and comparability.
A lack of resources is the fourth common problem. Many companies lack the necessary expertise or human resources for sustainability reporting. In this context, external expert assistance and effective tools play a key role. In our experience, implementing automated solutions can reduce the time spent on reporting by up to 60 percent.
The fifth key challenge is integrating sustainability reporting into business decision-making. All too often, sustainability reporting remains a disconnected exercise with no link to strategy. The solution is to incorporate sustainability metrics into the company’s other reporting practices and KPI frameworks. This way, sustainability becomes part of everyday decision-making.
How to Build an Effective Sustainability Reporting Process from Start to Finish
Building an effective reporting process starts with comprehensive planning. First, assess your current information systems, data collection methods, and reporting practices. Define clear areas of responsibility within the organization and ensure management commitment. A good plan also includes a training plan for key personnel and a preliminary timeline for the entire process. Typically, you should set aside 4–6 months for planning the first reporting cycle.
Data collection and validation form the backbone of the process. Sustainability reporting requires the collection of diverse data—from energy consumption to HR practices and supply chain management. Leverage existing systems, but also identify missing data sources. To ensure reliable data, you need clear processes for data validation and quality assurance. The most effective solutions integrate sustainability data collection into the company’s other data collection practices and systems.
Analysis and report writing require expertise in data analytics. The collected data must be organized according to the principle of materiality and analyzed to assess the achievement of objectives. An effective report includes both numerical data and qualitative analysis. Visualize the results clearly using graphs and infographics. Use automated reporting tools to reduce manual work. With these tools, you can also build interactive dashboard views for management.
Verify the compliance aspects of the process using checklists. We have developed a comprehensive sustainability reporting checklist for our clients to ensure compliance with CSRD requirements at every stage of the reporting process. The checklist includes, among other things, the requirements of the ESRS standards, the timeframes required by the directive, and disclosure requirements. This ensures that the reporting complies with both the letter and the spirit of the law.
Sustainability reporting standards and frameworks – which one to choose?
Sustainability reporting is guided by a growing number of standards and frameworks, with the European Sustainability Reporting Standards (ESRS) emerging as the most important following the adoption of the CSRD Directive. These EU standards are mandatory for all companies covered by the directive. The ESRS covers a wide range of topics, from environmental issues to social matters and governance-related aspects. The strength of the standards lies in their comprehensiveness and comparability, but implementation can be a laborious process, particularly for smaller organizations.
The Global Reporting Initiative (GRI) is one of the world’s most widely used reporting frameworks. It offers a comprehensive, modular reporting structure that is particularly well-suited to the needs of external communication. The strength of GRI lies in its widespread recognition and clear guidelines, but its scope and level of detail—which may seem cumbersome—can be a weakness. However, GRI is compatible with ESRS, which facilitates compliance with both standards.
The Task Force on Climate-related Financial Disclosures (TCFD) focuses specifically on reporting climate risks and opportunities and is closely linked to financial reporting. The advantage of the TCFD is its close connection to financial impacts, which is particularly helpful in investor communications. The Sustainability Accounting Standards Board (SASB), on the other hand, provides industry-specific standards that focus on materially relevant sustainability issues.
The EU taxonomy provides a framework that classifies economic activities based on their environmental impacts. It is a key tool for companies that want to demonstrate that their operations are aligned with the EU’s climate goals. The strength of the taxonomy lies in its clear link to the EU’s sustainable finance objectives, but its detailed technical criteria can be challenging to apply in practice.
In our experience, the best approach for most Finnish companies is to build a reporting system primarily in accordance with ESRS standards, while also taking into account the GRI principles and, where necessary, industry-specific SASB standards. Choosing the right framework depends on the company’s size, industry, and stakeholder expectations. A data-driven approach enables the effective integration of requirements from different standards.
Outlook for the Future: How will sustainability reporting evolve over the next five years?
In the future of sustainability reporting, the role of artificial intelligence will grow significantly. With AI-based analytics tools, companies can automate data collection, analysis, and even report generation. AI also enables predictive analytics, which can identify sustainability risks and opportunities before they materialize. We are already seeing growing interest among our clients in utilizing AI solutions, particularly in carbon footprint calculation and supply chain sustainability management.
Data hubs and the development of standardized interfaces are set to revolutionize sustainability reporting. In the future, companies will be able to share and combine sustainability data more easily, both internally and with external stakeholders. This enables more accurate monitoring of supply chain sustainability and reduces duplication in data collection. An increasing number of our customers are already integrating sustainability data into the data flows of their enterprise resource planning systems.
The regulatory framework continues to tighten. Following the CSRD Directive, even more detailed reporting requirements can be expected at both the EU and national levels. In particular, reporting requirements related to biodiversity and the use of water resources are likely to increase. Due diligence requirements for supply chains are also becoming stricter, which requires companies to have increasingly detailed information on the sustainability impacts of their entire value chain.
Sustainability is becoming an increasingly important competitive factor. Companies that know how to leverage sustainability data in their decision-making and innovation gain a competitive edge. It is no longer just a matter of meeting compliance requirements, but of strategically managing sustainability based on data. We help our clients build a strategic competitive advantage from sustainability by providing tools that integrate sustainability data into management decision-making.