The Swedish Government's legislation on Sustainability Reporting, a result of the EU Directive on Non-Financial Reporting, hasn’t left any large Swedish corporation unnoticed. The legal requirement has been criticized by various parties to be extensive and costly for a lot of companies that have never previously reported on sustainability. For other companies, it's rather a question of ensuring that the existing sustainability report covers all the aspects of the legislation. Every day we meet companies with great uncertainty of what the legislation means for them and how to approach it. Does my organization fall within the scope? What is the purpose of this law? How costly will it really be? What is expected of us? How can we make it into something profitable? Below we have summarized the requirements and what it means for your organization.
Does my organization fall under the legislation?
Companies that meet two of the following criteria should report:
- The average number of employees in the company during each of the last two fiscal years amounted to more than 250
- The company reported total assets for each of the last two financial years amounted to more than SEK 175 million
- The company has reported net sales for each of the last two fiscal years amounted to SEK 350 million
The requirement does not apply to a company that is a subsidiary of a Group in which the company and all the Group’s subsidiaries are subject to a sustainability report for the Group.
Why this legislation?
The purpose of the legal requirements for sustainability reporting is of course not to create additional reporting load for business. The purpose is mainly to create greater insight and transparency about the company's impact on the environment and people, positive and negative, and how they handle these impacts, for corporate stakeholders such as investors and consumers. To facilitate a more sustainable decision-making in society, such information must be available to stakeholders to enable these conscious decisions. Meanwhile, the requirement on sustainability reporting as a governing instrument to speed up the advancement of corporate responsibility and sustainable development.
What should be reported?
The law clearly recognizes that every company needs to analyze their own business, together with its stakeholders, to identifying the areas important to include in the report. The law however requires all corporate sustainability reports to include "the sustainability information necessary for understanding the company's development, position and results, and the implications of its activities, including information on matters related to:
- Social conditions
- Respect for Human Rights
- For publicly listed companies that meet the size criteria above, also Diversity Policy
Concerning these, and other areas identified as relevant, the report should state:
- The company's business model
- The policy applied by the company in the issues, including the control procedures have been implemented
- The result of the policy
Identified risks - within and outside the organization
- The significant risks related questions and are linked to the company's business including, where relevant, the company's business relationships, products or services that are likely to have negative consequences
- How the company manages the risks
Your performance indicators
- Key performance indicators that are relevant to your operations
Diversity policy for large publicly listed companies
Publicly listed companies which in the last two fiscal years has met two of the size conditions above must in the Corporate Governance Report also disclose: the diversity policy that applies to the Board, the objective of the policy, how the policy has been applied during the year and the result of the policy
Refer to the guidelines used
If specific guidelines have been adopted in the preparation of the report these guidelines should be stated
"Comply or explain"
If the company does not use any policy in one or more of the questions in the first paragraph, the reasons for this should be clearly stated
The report shall also include, where appropriate, references to and additional explanations of figures reported in the financial statements
Where should we report?
You can choose to include sustainability information as part of the management report, or to create a separate sustainability report. A separate report should be accessible via the company website and a reference to this website shall be stated in the management report.
How much does it cost?
This is a matter of debate and the answers vary depending on who you ask and the ambition level. There is considerable uncertainty within many companies and organizations around this, and many of them fear that the requirement will entail significant costs for their business.
The European Commission has estimated the cost at between about SEK 5500 and 40 000 per year, while the Confederation of Swedish Enterprise argue that the costs amount to SEK 1-2 million annually, and the Swedish Trade Federation estimates that the cost is at least six figured.
Demoskop’s survey among companies with net sales of over SEK 350 million shows that 10 percent of companies estimate that the cost is over half a million SEK per year. Companies with fewer than 500 employees however believe the cost to be less than 100 000 SEK per year.
It is clearly a matter of ambition and method. If you choose to create a sustainability report the traditional way, costs could easily jump with fees for external agency services in both the preparatory stage and in the packaging of the report. With modern solutions, such as digital tools, you will have a more automated compilation of data and reporting and a more efficient process for both the collection and communication of information. Of course, all businesses, regardless of approach, need to invest in one or more persons who will take ownership of the matter internally and ensure that you get the all the benefits from your sustainability agenda.
How can we generate value from sustainability reporting?
Working with sustainability in a proper, well planned way can lead almost entirely to benefits. If you have never reported on sustainability before, the first step is to develop an action plan for increased sustainability and when this starts to generate results, you will be able to strengthen both your competitiveness, employer branding, innovation in the company, efficiency and employee commitment, as well as minimize risk in for example the supply chain, which could otherwise damage your brand. This means you will see return on the investment if you have a clear plan.
This was a short summary of the Swedish legislation and how it may affect your busines and i recommend reading the act for full understanding. But in conclusion, the legislation on Sustainability Reporting is here, which, it's in my view, is an indication of a larger fundamental change in business. The demands on corporate sustainability, compliance and transparency, from all corners of society, is constantly incerasing and will not decrease over time. The investment in sustainability will most likely be a key factor for your success the coming years.
The sooner you start, the better.