What is the Sustainability Reporting Directive 2025?
The new EU Corporate Sustainability Reporting Directive (CSRD) will revolutionise corporate sustainability reporting practices in the coming years. This wide-ranging legislation will oblige more companies to report on the sustainability impacts of their activities more comprehensively than ever before. The CSR Directive 2025 is part of the EU's ambitious Green Deal programme to steer the European economy towards 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 corporate responsibility information. Unlike before, the CSRD covers a much wider range of companies and requires more accurate, externally verified information.
The Directive will be phased in between 2024 and 2028, with the first reporting obligation applying to large listed companies already covered by the NFRD for the financial year 2024, with reporting in 2025, and then extending to other large companies and eventually to SMEs. The aim is to create a coherent European reporting framework to support the green transition and improve the ability of investors and other stakeholders to assess corporate responsibility.
Which companies are affected by the Directive?
The CRD significantly expands the range of companies that are required to report. While the previous NFRD covered around 11 000 companies in Europe, the new Directive will apply to an estimated 50 000 companies. In Finland, this means that around 600-1000 companies will be subject to reporting obligations.
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, a turnover of more than €40 million or an average number of employees of more than 250. In addition, all listed SMEs (excluding micro-enterprises) are subject to reporting obligations, although a lighter reporting framework is foreseen for SMEs.
The phased introduction will be carried out as follows:
- In 2025: 2024 reporting for large public interest entities with more than 500 employees (already covered by the NFRD)
- In 2026: 2025 reporting for other large companies
- In 2027: 2026 reporting for listed SMEs
- In 2028: 2027 reporting for EU subsidiaries of third country companies
For Finnish companies, it is particularly important to note that even if a company does not directly meet the criteria of the Directive, it may have to provide information on its responsibility to larger client companies due to their reporting obligations. This indirect impact may even extend to small companies that are part of the supply chain of larger companies.
New requirements for sustainability reporting
The CRD introduces significantly more detailed reporting requirements, covering environmental, social and governance (ESG) aspects. Reporting will be based on the European Sustainability Reporting Standards (ESRS), which were adopted by the EU Commission in July 2023.
In terms of environmental responsibility, companies are required to report on their greenhouse gas emissions (Scope 1, 2 and 3), energy and water use, biodiversity impacts and circular economy activities, among other things. For example, for emissions, detailed information is required on emission sources, calculation methodologies and emission reduction targets and measures. In the area of social responsibility, the reporting obligation covers workers' rights, working conditions, diversity, equality and human rights across the value chain. Reporting on governance covers business ethics, anti-corruption, board composition and diversity.
A particularly significant innovation is the principle of double materiality. This means that companies must assess sustainability issues from two perspectives: how sustainability impacts on the company's business and value (economic materiality) and how the company's activities impact on people and the environment (impact materiality). In practice, this will require companies to conduct a much more thorough materiality analysis than in the past.
Reports must also be externally validated, which is a new requirement compared to the previous one. Initially, limited assurance will be sufficient, but later there will be a move towards reasonable assurance. This increases the reliability of reports but also the complexity and cost of the reporting process.
How to prepare for the obligations of the Directive?
Meeting the requirements of the CRD will require companies to prepare carefully and adopt new processes. The first step is to carry out a comprehensive analysis of the current situation: what data is already collected in the company, what is missing and what systems or processes are needed to collect the missing data. It is essential to understand the full requirements of the Directive and to identify the most relevant accountability issues for your company.
Collecting sustainability data usually requires new systems and processes. In particular, Scope 3 emissions accounting is challenging, requiring data to be collected from the entire value chain. This requires a systematic approach and possibly new technological solutions. Companies should identify clear responsibilities for the different steps of the reporting process and ensure that they have the resources and skills to carry out the task.
The cost of preparation varies depending on the size of the company and the starting situation. Typically, the following cost items can be identified:
- Human resources: sustainability team and other experts
- System investments: for data collection and reporting
- Consultancy: expert assistance in interpreting requirements and developing processes
- Verification: cost of external verification
We recommend proceeding according to the following schedule:
1. One year before the start of the reporting obligation: current situation analysis, materiality analysis and identification of gaps
2. 9 months before: development of data collection processes and systems
3. 6 months before: starting data collection and training staff
4. 3 months before: testing and documenting the reporting process
5. At the end of the reporting period: compilation, validation and publication of the report
Experiences of first movers: case studies
Many large Finnish companies have already started to prepare for the requirements of the CRD. For example, one industrial group company launched a comprehensive sustainability data management project as early as 2022, facing challenges especially in Scope 3 emissions accounting, as data had to be collected from hundreds of suppliers. As a solution, a supplier portal was developed to enable suppliers to report their sustainability data in a standardised format. This not only facilitated compliance with reporting obligations, but also improved supply chain transparency and risk management.
As another example, a medium-sized software company started to prepare for CSRD reporting by integrating sustainability metrics into their management reporting systems. Although the company is not yet one of the companies subject to the Directive, it decided to anticipate the future, as many of its customers are subject to reporting requirements. A particular challenge was to define and monitor social responsibility indicators. In cooperation with staff, a well-being and competence development toolkit was developed and is now integrated into the company's HR processes. This has improved both staff engagement and the company's image as an employer.
As a third example, the financial sector has for many years been reporting comprehensively on its responsibility on a voluntary basis. However, with the new directive, the company decided to modernise its reporting process to comply with ESRS standards. As a major benefit, the company has found that systematic sustainability work has opened up new business opportunities in the area of sustainable finance. In addition, investors have shown a growing interest in the company's sustainability activities, which has been reflected positively in the company's valuation. This shows that sustainability reporting is not only a legal obligation but also a strategic opportunity.
HSolutions' expert services for sustainability reporting
At HSolutions, we have identified the challenges companies face in meeting the requirements of the Sustainability Reporting Directive and developed a comprehensive set of services to support our clients in this change. Our expert services cover the entire sustainability reporting lifecycle, from initial mapping to report publication and ongoing development.
We offer tailor-made solutions for businesses of all sizes. For larger companies, our services include comprehensive consulting, system integration and the development of automated reporting processes. For medium-sized companies, we offer a cost-effective end-to-end solution that enables you to meet your requirements without significant investment. For companies that are not directly covered by the Directive but want to prepare for the future or meet the information needs of their customers, we offer lighter reporting and monitoring solutions.
Our expert team consists of finance, data and sustainability professionals who combine strong technical skills with business insight. Our team has experience from numerous sustainability reporting projects across different industries, and we keep our skills up to date through continuous training and international networking.
Working with us starts with a free consultation to assess your company's current situation and needs. Based on this, we will develop a tailor-made plan that takes into account your company's specific characteristics and objectives. The implementation will be carried out in stages, allowing for efficient use of resources and quick results. We will support you all the way and ensure that sustainability reporting is integrated as a natural part of your business development.
The CRD brings significant changes to companies' reporting requirements, but at the same time it offers an opportunity to develop business in a more sustainable direction. Properly implemented, sustainability reporting is not just a mandatory obligation, but a strategic tool to help identify risks and opportunities, improve efficiency and strengthen stakeholder relations. Contact us to discuss in more detail how we can help your company prepare for future requirements and turn them into a competitive advantage.