With the EU Corporate Sustainability Reporting Directive (CSRD), sustainable reporting will become mandatory for many Finnish companies over the next few years to. This means they will need to prepare a sustainability report in accordance with the European Sustainability Reporting Standards (ESRS). Even if a company does not meet the size limits of the sustainability reporting obligation, compiling the sustainability data required by the European Sustainability Reporting Standards (ESRS) may be relevant if it operates in the value chain of reporting corporations or aiming at new markets.
The materiality assessment is the starting point for CSRD sustainability reporting in accordance with the ESRS. It determines the data that is presented in the sustainability report. Often, the results of the materiality assessment are also used as a basis for sustainability targets and strategy. This is why it is especially important to prepare it professionally.
The materiality assessment of sustainability reporting takes into account double materiality: the company’s outward sustainability impacts relevant to the company (impact materiality) and sustainability risks and opportunities that affect the company’s financial position, profit and cash flows (financial materiality). It is often advisable to start with the impact materiality, i.e., the company’s outward sustainability impacts on the environment, society, individuals and communities. Next, we examine whether the observed sustainability impacts also have a financial impact on the company or whether other financial impacts caused by sustainability factors can be observed.
The materiality analysis begins by analysing the company’s sustainability context. The sustainability context is influenced by both company and industry-specific factors and stakeholder expectations. The end result of the materiality assessment is a list of sustainability topics material to the company, on the basis of which the reported information is determined.
European sustainability reporting obligations will extend more widely to companies in the value chain
The materiality assessment is not limited to assessing the sustainability impacts, risks and opportunities of the company’s own consolidation entity, but must take into account the operations of the entire value chain. Thus, the scope of reporting is more comprehensive than, for example, the group’s reporting boundaries in financial reporting, and reporting obligations also apply to transactions with companies in the value chain. Determining the structures and factors of the value chain and identifying the resulting material sustainability impacts is part of the materiality assessment process.
The ESRS do not impose a formal process for carrying out the materiality assessment. However, the materiality assessment must meet the requirements of the ESRS and must be documented carefully. Since sustainability reporting will become statutory and contain verifiable data for companies obligated to carry out sustainability reporting, documenting its various stages and conclusions is key. As in financial statement information, an external assurance provider must be able to verify the solutions and the end result on the basis of the documentation.
Going forward, Nordic Offset’s services will cover sustainability reporting needs – from determining sustainability impacts to reporting
Nordic Offset’s team of Finland’s leading specialists provides customers with high-quality specialist services in sustainability consulting, from the materiality assessment of sustainability reporting to the measurement of climate and other sustainability impacts, as well as statutory ESRS reporting. The ESRS require companies to report on all sustainability topics material to the company’s operations. Our ESG analyses cover environmental, social and governance topics in line with the EU Corporate Sustainability Reporting Directive.
Climate change and the targets and actions related to mitigation of the change are sustainability topics that concern all people and communities. There is a lot of information related to calculation, goal-setting and measures that can be measured and modelled. Our experienced specialists serve customers in all areas of climate responsibility and implement carbon footprint calculation, management and compensation solutions. The increasingly popular carbon handprint calculation determines the climate benefit the company generates for its customers.
We also carry out other impact assessments and measurements. For example, the nature footprint indicates the impact an organisation, product or service has on biodiversity. With the EU Taxonomy Regulation and the Corporate Sustainability Reporting Directive, the legislative requirements regarding measures that prevent the loss of biodiversity and their reporting practices will soon extend to an increasing number of companies.
The EU Corporate Sustainability Reporting Directive makes sustainability information equally important to financial statement information. In the future, sustainability reporting will occur in a specified format, which will be approved by the board of directors as part of the annual report. After the corporation’s double materiality sustainability impacts have been assessed and the value of relevant sustainability impacts has been set and identified, the reporting must comply with the ESRS requirements. The statutory nature of reporting and it being subject to assurance lead to higher requirements also in terms of analysis and documentation. Our experienced sustainability reporting regulation specialists also assist customers in preparing documentation and reporting that meet quality requirements set for the information.
Consistency between sustainability and financial reporting requires more attention in the future
With more standardised sustainability reporting requirements, the link between financial statements and sustainability data will become clearer. In the future, sustainability and financial statement information will form a whole describing the company’s value creation, and they cannot be examined separately.
On the other hand, companies are already required to be consistent in their reporting. As the impacts of climate change affect an increasing number of companies and industries, and as the business impacts continue to intensify, companies’ reporting should be balanced in these respects as well. For example, significant sustainability risks that could have an impact on the results or financial position should also be disclosed in the financial statements instead of only in the annual report or sustainability information. Often, companies’ environmental targets may require significant financial investments in the form of, for example, development projects or investments. This should also be reflected in financial statements.
In addition to sustainability reporting, we help companies review their reporting as a whole so that consistency is achieved and sustainability impacts are reflected in financial reporting as required.