What is the 2025 Sustainability Reporting Directive?
The EU’s new Corporate Sustainability Reporting Directive (CSRD) will revolutionize corporate sustainability reporting practices in the coming years. This far-reaching regulation will require an increasing number of companies to report on the sustainability impacts of their operations more comprehensively than ever before. The Corporate Sustainability Reporting Directive 2025 is part of the EU’s ambitious Green Deal program, which aims to steer the European economy toward a more sustainable future.
The CSRD replaces the previous Non-Financial Reporting Directive (NFRD), which has been in force since 2018. The key objectives of the new directive are significantly broader: it aims to improve the quality, consistency, and comparability of sustainability information. Unlike its predecessor, the CSRD applies to a significantly larger group of companies and requires more detailed, externally verified information.
The directive will be implemented in phases between 2024 and 2028. The reporting requirement will first apply to large listed companies already covered by the NFRD for the 2024 financial year, with reporting taking place in 2025. Thereafter, the obligation will expand to cover other large companies and eventually also SMEs. The goal is to create a unified European reporting framework that supports the green transition and improves the ability of investors and other stakeholders to assess corporate sustainability.
Which companies does the directive apply to?
The Corporate Sustainability Reporting Directive significantly expands the group of companies subject to reporting requirements. The previous NFRD covered approximately 11,000 companies in Europe, but the new directive is expected to apply to an estimated 50,000 companies. In Finland, this means that approximately 600–1,000 companies will become subject to reporting requirements.
The directive applies to all large companies that meet at least two of the following criteria: a balance sheet total of more than €20 million, revenue of more than €40 million, or an average of more than 250 employees. In addition, all publicly listed SMEs (excluding micro-enterprises) are subject to reporting requirements, although a lighter reporting framework is planned for SMEs.
The phased rollout will be implemented as follows:
• In 2025: Reporting for the year 2024 will apply to large entities of public interest with more than 500 employees (which were already subject to the NFRD)
• In 2026: Reporting for the year 2025 will apply to other large companies
• In 2027: Reporting for the year 2026 will cover listed small and medium-sized enterprises
• In 2028: Reporting for the year 2027 will cover EU subsidiaries of companies from third countries
It is particularly important for Finnish companies to note that even if a company does not directly meet the criteria of the directive, it may still be required to provide information on its sustainability practices to larger client companies due to those companies’ reporting obligations. This indirect impact can extend even to small companies that are part of larger companies’ supply chains.
New requirements for sustainability reporting
The Sustainability Reporting Directive introduces significantly more detailed reporting requirements than before, covering environmental, social, and governance (ESG) aspects. The reporting is based on the European Sustainability Reporting Standards (ESRS), which were adopted by the European Commission in July 2023.
With regard to environmental responsibility, companies must report on, among other things, their greenhouse gas emissions (Scope 1, 2, and 3), their energy and water consumption, their impact on biodiversity, and their circular economy initiatives. For example, regarding emissions, detailed information is required on emission sources, calculation methods, and emission reduction targets and measures. In the area of social responsibility, the reporting obligation covers employee rights, working conditions, diversity, equality, and the realization of human rights throughout the value chain. Governance reporting, in turn, covers business ethics, anti-corruption measures, and the composition and diversity of the board of directors.
A particularly significant change is the double materiality principle. This means that companies must assess sustainability issues from two perspectives: how sustainability factors affect the company’s business and value (financial materiality) and how the company’s operations affect people and the environment (impact-based materiality). In practice, this requires companies to conduct a significantly more thorough materiality analysis than before.
The reports must also be verified by an external party, which is a new requirement compared to previous practices. Initially, limited assurance will suffice, but the requirement will eventually shift toward reasonable assurance. This will enhance the reliability of the reports but also increase the complexity and cost of the reporting process.
How can you prepare for the requirements of the directive?
Compliance with the requirements of the Sustainability Reporting Directive requires companies to prepare thoroughly and implement new processes. The first step is to conduct a comprehensive analysis of the current situation: what data is already being collected within the company, what is missing, and what kinds of systems or processes are needed to collect the missing data. It is essential to understand the requirements of the directive in their entirety and to identify the sustainability themes most relevant to your company.
Collecting sustainability data usually requires new systems and processes. Calculating Scope 3 emissions poses particular challenges, as it requires data collection across the entire value chain. This requires a systematic approach and possibly new technological solutions. Companies should designate clear points of contact for the various stages of the reporting process and ensure that they have sufficient resources and expertise to carry out their tasks.
The costs of preparation vary depending on the size of the company and its current situation. Typically, the following cost items can be identified:
• Human resources: the sustainability team and other experts
• System investments: data collection and reporting
• Consulting: expert assistance in interpreting requirements and developing processes
• Certification: costs of external certification
We recommend proceeding according to the following schedule:
1. One year before the reporting requirement takes effect: Analysis of the current situation, materiality analysis, and identification of gaps
2. 9 months prior: Development of data collection processes and systems
3. 6 months prior: Begin data collection and train staff
4. 3 months prior: Testing and documenting the reporting process
5. After the end of the reporting period: Compilation, verification, and publication of the report
Experiences of pioneers: case studies
Many large Finnish companies have already begun preparing for the requirements of the Sustainability Reporting Directive. For example, a certain industrial conglomerate launched a comprehensive sustainability data management project as early as 2022. The company faced challenges particularly in calculating value chain (Scope 3) emissions, as data had to be collected from hundreds of suppliers. The solution was a supplier portal through which suppliers can report their sustainability data in a standardized format. This not only made it easier to meet reporting obligations but also improved supply chain transparency and risk management.
As another example, a medium-sized software company began preparing for CSRD reporting by integrating sustainability metrics into its management reporting systems. Although the company is not yet subject to the directive’s requirements, it decided to plan ahead, as many of its clients are required to report. A particular challenge was defining and monitoring social responsibility metrics. In collaboration with staff, a set of metrics for workplace well-being and skills development was developed, which is now integrated into the company’s HR processes. This has improved both staff engagement and the company’s employer brand.
As a third example, a financial services company has been voluntarily reporting comprehensively on its sustainability performance for years. However, with the introduction of the new directive, the company decided to overhaul its reporting process to align with ESRS standards. A significant benefit the company has observed is that systematic sustainability work has opened up new business opportunities in the area of sustainable finance. In addition, investors have shown growing interest in the company’s sustainability activities, which has had a positive impact on the company’s valuation. This demonstrates that sustainability reporting is not only a legal obligation but also a strategic opportunity.
HSolutions' Expert Services in Sustainability Reporting
At HSolutions, we have identified the challenges companies face in meeting the requirements of the Sustainability Reporting Directive and have developed a comprehensive suite of services to support our clients through this transition. Our expert services cover the entire sustainability reporting lifecycle, from initial assessment through to report publication and continuous improvement.
We offer customized solutions for businesses of all sizes. For large companies, our services include comprehensive consulting, system integrations, and the development of automated reporting processes. For medium-sized companies, we offer a cost-effective comprehensive solution that enables compliance without significant investments. For companies that are not directly covered by the directive but wish to prepare for the future or meet their customers’ information needs, we offer lighter reporting and monitoring solutions.
Our team of experts consists of professionals in finance, data, and sustainability who combine strong technical expertise with a deep understanding of business. Our team has experience with numerous sustainability reporting projects across various industries, and we keep our expertise up to date through continuous training and international networking.
Working with us begins with a free consultation, during which we assess your company’s current situation and needs. Based on this, we develop a customized plan that takes into account your company’s unique characteristics and goals. Implementation proceeds in phases, ensuring efficient use of resources and quick results. We support you every step of the way and ensure that sustainability reporting becomes a natural part of your business development.
The Corporate Sustainability Reporting Directive brings significant changes to corporate reporting requirements, but at the same time it offers an opportunity to steer business operations toward greater sustainability. When implemented correctly, sustainability reporting is not just a mandatory obligation but a strategic tool that helps identify risks and opportunities, streamline operations, and strengthen stakeholder relationships. Please contact us so we can discuss in more detail how we can help your company prepare for upcoming requirements and turn them into a competitive advantage.