How to start the implementation of CSRD in a Finnish SME?: Case study of Sustainability Reporting

Abstract

Sustainability and sustainability reporting have been developed extensively during the past five years. The implementation of the Corporate Sustainability Reporting directive (CSRD) is the output of the continuous development of the sustainability reporting. The sustainability reporting directive CSRD was published in 2023, and implemented in Finnish law in January 2024. Before the implementation of CSRD, sustainability reporting was voluntary for the most small and medium-sized enterprises. Because of the implementation of the CSRD, the requirements related to sustainability reporting will change among SMEs. At the same time when CSRD was implemented, European sustainability reporting standards (ESRS) became mandatory. The reporting requirements of CSRD is presented via ESRS standards which ensures that sustainability reports can be assured and compared between companies. Therefore, the ESRS are equally mandatory reporting standards with CSRD. ESRS standards evalu-ate the sustainability of the organization from the three common perspectives environment, social, and governance which are the common ESG pillars. With the ESG pillars materiality is analyzed on CSRD from two perspectives, impacts and financial materiality, which build the concept double materiality. On double materiality analysis risks, and opportunities, and the essential material topics are reported on the final sustainability report.

The scope of this study is to investigate the implementation process of sustainability reporting in a Finnish SME in metal industry. The main aim of CSRD is to increase the transparency and harmonize sustainability reporting so that sustainability disclosures are in the same reliable level that other regulated financial reports. CSRD standardizes and harmonizes sustainability reporting across organizations so that the sustainability reports are comparable between organizations, reliable, understandable and that stakeholders get correct picture of the operations of undertaking. Harmonized reporting standards enables stakeholders compare sustainability reports. The accounting principles together with the harmonized sustainability reporting standards ensure that principles of accounting are met during the reporting process and stakeholders get actual picture of the sustainability. Sustainability disclosures should give understanding of main impacts, risks and opportunities, and increase transparency.

The thesis investigates the implementation of CSRD with the help of design science methodology. The study combines theory of sustainability reporting in practice. The primary goal of the thesis is to develop sustainability reporting routines, understand the reporting process and requirements for the sustainability reporting according to CSRD. To complete sustainability reporting the materiality assessment plays a crucial role. Because of that the study investigates double materiality analysis, and its preparations. Then the material topics are identified in a reliable way the process can continue to gap analysis, data collection, and finally the preparations of a final sustainability report. The research ends to the presentation of a possible process model to complete sustainability reporting according to CSRD. The results of the study presented that the implementation of CSRD should happen in implementation cycles. This study took a step forward with the implementation of CSRD in the case company. Since CSRD among SMEs is not been researched yet this thesis gives valuable information for the case company, and to the metal industry.