Thank You CSRD
This autumn's debates have been colored by the combinations of letters repeated by those familiar with sustainability issues. CSRD, ESRS, SFDR, EFRAG, and DMA have joined the ranks of NFI, GRI, and SDG in previous talks.
Behind the code-sounding messaging is a clear theme of sustainability, where the EU is pushing companies to become more responsible in the way they do business by tightening up-regulation.
Businesses often perceive increased regulation as a negative obligation, and new requirements do not always improve national practices. However, there is a broad consensus on sustainable development, as the operating environment for many businesses will change significantly in the coming decades as natural resources are depleted and climate change and loss of nature continue. The massive negative impacts of our lifestyle need to be addressed quickly and on a broad front, so European Union regulation is welcome.
The CSRD Directive will apply to an estimated 1,000 Finnish companies when the amendments to the Accounting Act enter into force. These companies will be required to consider the impact of their operations across their entire value chain and will therefore require sustainability information from a wide range of their partners and suppliers. Thus, a very large number of companies will be indirectly affected by the requirements of the law. It could be estimated that only a few will escape them altogether.
To many, the law now seems like an obligation, but on reflection, it can be said to bring a whole new way of thinking to the way companies do business. The basis of sustainability reporting is the double materiality assessment (DMA), which analyses the risks, impacts, and opportunities of a company’s business from a sustainability perspective. For example, companies need to consider the future impact of climate change on their operations and the impact of their operations on people and the environment. They also need to assess the likelihood of each risk in different time frames. The double materiality assessment is therefore similar to a thoroughly conducted strategy process, where different scenarios outline the resilience and responses of the planet and humanity. This is a major shift in thinking, as such discussions have hardly ever before been held in management teams and governments.
The success of businesses often depends on their ability to predict the future. Double materiality assessment takes predicting the future of companies to a whole new level. This in turn will translate into updated strategies and business development, and a better ability to respond to different risks. The directive, which some see as a yoke for businesses, may well be a guarantee of future success.