With the new EU Sustainability Directive (2022/2464), over 4000 Swedish companies will have to report on their sustainability performance under the new rules to “protect the health and well-being of the public from environment-related risks and impacts.”

The Directive is designed to increase transparency for investors, businesses and customers.

The sustainability report must be audited by an accredited auditor. In the past, companies have handled any reporting themselves without requiring third party approval. Sustainability work has sometimes been difficult to understand, verify and in some cases has not been implemented at all in operational activities.

Sustainable websites and sustainability policies have sprung up like mushrooms. Green washing has in some cases become Green bathing.

The only real transition is when you take something you used before and either stop using it completely, or replace it with something that has a lower carbon footprint.

The EU aims to create a sustainable economy, limit global warming to 1.5°C in line with the Paris Agreement and become climate neutral by 2050 (Regulation (EU) 2021/1119 of the European Parliament and of the Council (4)).

An important part is therefore to direct capital, consumers and suppliers to companies that are actively working on sustainability issues. Inclusion and a holistic approach are part of the objective, along with how the company is actively working to reduce its carbon footprint.

The fact that reporting will also increase the understanding of sustainability internally within companies is described as one of the benefits of the requirement for regulated reporting.

“Redirect capital flows towards sustainable investments in order to achieve sustainable and inclusive growth, manage financial risks arising from climate change, natural resource depletion, environmental degradation and social issues, and promote transparency and long-termism in financial and economic activities. The provision of relevant, comparable and reliable sustainability information by certain categories of companies is a prerequisite for achieving these objectives.” From the CSRD Directive

The fact that the Directive covers the entire value chain means that far more than 4000 companies are affected by the new Directive. Declarant companies will in turn investigate and receive reports from their subcontractors, leading to a leverage effect.

‘Stop the main actual and potential negative impacts of their activities and identify how companies manage these negative impacts. Impacts related to a company’s activities include impacts directly caused by the company, impacts to which the company contributes and impacts otherwise linked to the company’s value chain. The due diligence process applies to the company’s entire value chain, including its own operations, products and services, business relationships and supply chains. In line with the UN Guiding Principles on Business and Human Rights, an actual or potential adverse impact will be considered material if it can be considered one of the most significant impacts associated with the company’s activities on the basis of: the severity of the impact on people or the environment; the number of individuals affected or potentially affected, or the extent of the environmental damage; and the ease with which the damage can be remedied, by restoring the environment or the affected people to their scope 1, scope 2 and, where appropriate, scope 3 emissions.” From the CSRD Directive

The conclusion is that it is too expensive not to be sustainable. In the past, the discussion has been what should it cost to become sustainable. With the new rules, the question is who can afford not to be sustainable?