Mandatory sustainability reporting will be a huge change for company operations. It is worth taking the matter seriously, as it will affect, at least indirectly, almost every company, says Niklas Oikia, Regional Director at KPMG Finland.
Large companies will be required to report on their sustainability matters in the future. This so-called sustainability reporting will gradually become mandatory in the coming years. This is based on the new Corporate Sustainability Reporting Directive (CSRD), which has entered into force following EU regulation.
– This reform is a huge change for companies. It is not just a single sheet of A4 paper; a sustainability report can correspond in terms of workload and scope to roughly that of a financial statement. Therefore, it can even double the reporting obligations for the companies affected, says KPMG Finland Regional Director Niklas Oikia.
– Especially now during the transition phase, this creates a significant amount of work as the matter is new. Companies may not necessarily have the resources or expertise to produce the report, so they need external help.
KPMG is an international consulting firm offering services including audit and assurance, tax and legal services, and management consulting. Recently, the company has thoroughly explored the practices and verification of new sustainability reporting requirements. Oikia, which is responsible for the company's operations in Western Finland, has itself become one of the first qualified sustainability reporting auditors in Finland.
As of the beginning of this year, sustainability reporting became mandatory for almost all publicly listed companies. The report must be included in the company's financial statements in 2025.
In the second phase in 2025, the report will also become mandatory for larger non-listed companies. At that point, according to Oikia's estimate, it will directly affect about a hundred companies in the Southwest Finland region. Indirectly, its significance is much broader.
– In the future, companies must report sustainability data not only on their own operations but also on the entire value chain. This means that large operators will request this data from their subcontractors as well, and through that, the matter will soon affect almost every company. It is therefore worth starting to prepare, Oikia says.
“If Finland handles the reporting in an exemplary manner, we will soon have a significant competitive advantage over many other countries.” Niklas Oikia, Regional Managing Partner, KPMG Finland
He considers that in the Turku region, the matter will likely affect all those companies that work with, for example, the pharmaceutical industry.
– It is easy to think that as soon as the EU issues guidelines, Finland is the model student doing everything, even when it is not necessary. But that is not what this is about. We operate in a global market, and large companies are often the end users of the value chain. If you want to be their partner, it is worth getting your sustainability matters in order as early as possible.
Oikia estimates that Finnish companies already operate quite responsibly, but they do not know how to communicate it well enough. Soon, however, the situation may be different.
– If Finland handles the reporting in an exemplary manner, we will soon have a significant competitive advantage compared to many other countries.
Oikia hopes that companies understand that the reports are not being demanded just for the sake of reports. The purpose is to guide company procedures in a more responsible direction, towards more sustainable business.
– One motive for getting things in order in companies is also money. Banks and investors no longer want to work with companies that do not operate responsibly. In that case, obtaining financing becomes very difficult.
Checklist for companies
Identify your company's sustainability impacts and the related financial risks and opportunities. Find out if your company needs to report in the future. If not yet, when could revenue growth or the company's internationalization change the situation?
What about the future? If a company has to report on sustainability at some point, is all the necessary data already collected? Do I have the time and expertise in my company to compile the information, or do I need external help for it?
Sustainability reporting is expanding gradually
In sustainability reporting, or ESG reporting, a company reports on the environmental, social, and economic impacts of its operations. The abbreviation ESG comes from the English terms environmental, social, and governance. Companies may define for themselves which of these sustainability themes are material to them and report accordingly.
From 2024, sustainability reporting will apply to large companies with over 500 employees operating in EU regulated markets. Reporting begins in 2025.
From 2025, the obligation will extend to listed and unlisted companies that meet at least two of the following three criteria: a balance sheet total of at least 25 million euros, net revenue of at least 50 million euros during the financial year, or an average of 250 employees. These must report from 2026 onwards.
In 2026, the obligation will extend to listed SMEs as well as certain small and medium-sized credit institutions and insurance companies. Reporting must be done from 2027 onwards.
In 2028, reporting obligations will also apply to non-EU companies that have a subsidiary or a permanent establishment in the EU and whose EU-wide revenue exceeds 150 million euros. Reporting must be done from 2029 onwards.
Source: Suomen Tilintarkastajat
KPMG OY AB
Industry: audit
Founded: 1926
Employees: 1800
Revenue: 225 M€ (2023)