The governments proposal: CSRD postponed for one year
The legal requirements for sustainability reporting under the EU's CSRD Directive are postponed by one year.
The government announced this in a referral to the Swedish Legislative Council at the end of last week, and the legislative changes affecting companies' sustainability reports are proposed to enter into force in July 2024. This means that companies with more than 500 employees, and which do not have a broken financial year, will not have to start reporting in accordance with CSRD until 2025.
Otherwise, the Government proposes no major changes to what has previously been communicated regarding the new rules for sustainability reporting, except for the classification of "large companies". The threshold for the number of employees remains at 500, but the thresholds for both turnover and balance sheet total are adjusted upwards to SEK 550 and 280 million respectively, from SEK 350 and 175 million.
The announcement that the legal requirement will enter into force one year later has been positively received by the Confederation of Swedish Enterprise, among others, which writes that it is gratifying with reference to the fact that companies' data collection for sustainability reporting should take place throughout the financial year and that it would therefore have been reasonable for the legislation to already be in place when the work begins.
Longer time for preparation
As a consequence, large companies will now have significantly more time to prepare to report in accordance with the CSRD, but so will reviewing authorities and audit firms, with the result that expectations on the content and quality of reporting will be higher for the financial year 2025 than they would have been for 2024.
A likely scenario, given the previous extensive discussions on CSRD, is that a number of companies will already be reporting under the new legal requirements next spring, even if they have not yet entered into force. These companies will have a significant head start in their reporting process and in adapting to the ESRS standards, and will act as guides on content and quality. There is also a high probability that those who are already good at sustainability reporting now, or for the financial year 2024, will be even better when the new legal requirements enter into force.
This is the CSRD
For those who haven't been following the developments surrounding the EU's Corporate Sustainability Reporting Directive (CSRD), in short, it means new legislation in all EU countries that imposes higher requirements on companies' sustainability reporting in in connection with the annual report. This is because the EU wants to provide financial markets with comparable and more transparent information on environmental, social and governance issues, while also highlighting financial risks arising from climate change and social failures.
The Directive contains two major changes in reporting. First of all, reporting must be based on a dual materiality analysis. According to the Directive, companies must provide information about their activities from two perspectives: how they are affected economically by, for example, climate change, and what impact they and their activities have on the environment, society and people. Companies must then report on the elements that are considered to be material in a dual sense. Within the dual materiality analysis, there is also an aspect relating to the company's value chain, and one requirement is to collect opinions from the company's stakeholders in all parts of the value chain, either quantitatively - through surveys, for example - or qualitatively - through interviews.
The second major change is that reporting will be done according to the new European Sustainability Reporting Standards (ESRS). Similar to how companies report their financial accounts under IFRS, ESRS is a similar framework for sustainability reporting.
Overall, the Directive sets significantly higher requirements for sustainability reporting in the future compared to today, and many companies will need to involve both management and other key individuals within the company in the transition process. From an IR perspective, the reporting is also important as sustainability-related information will become comparable between companies, allowing institutional investors, such as funds, to rank investment options or select the companies with the most comprehensive and transparent information in accordance with their own sustainability reporting framework, SFDR.
Our view
AVA Corporate Communications has a neutral position on the government's proposal to delay the implementation of CSRD. One positive aspect of the announcement is that it will probably benefit many companies who will have more time, and by extension also improve the quality of reporting. At the same time, the AVA has, on several occasions already during the previous year, advocated that companies should initiate work on dual materiality analysis and to align their reporting with ESRS. It has been no secret if and when the legislation would come, and there are already several exemptions baked into the directive to ease the transition. Therefore, the government's proposal can also be seen as a lifeline for those companies that have not yet engaged in the process.
AVA currently has a strong focus on working with issues related to CSRD and sustainability reporting, and we are already working with several listed companies for their transition to reporting under the new legislation. We have good contacts with experts for collecting sustainability data and offer training, counselling in CSRD and ESRS, carrying out double materiality analysis, and preparing sustainability reports and annual reports. Contact us today to find out more.
