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02 Apr 2024

Sustainability is much more than just being a profitable business and abiding by the law – and the bar for sustainability keeps rising

Sustainability and corporate responsibility in various forms have been hot topics for well over 50 years. Also dating back five decades is a classic article by Nobel Laureate Milton Friedman, entitled “The Social Responsibility of Business is to Increase its Profits”, in which the author proposes his liberal economic idea that the sole responsibility of a business is to produce profits for its shareholders.

The message of his article has occasionally been brought up in the Finnish debate on the topic, but fortunately corporate responsibility is now seen as a much more multidimensional concept. 

Nowadays, the letters ESG often come up in the debate on sustainability. They come from the words environmental, social and governance. The economic dimension has thus been extended to also include governance. 

Abiding by the law is not sustainability, but a prerequisite to operating a business

In terms of defining corporate responsibility, the prevailing consensus is that responsibility begins where legislation ends. This means that mere compliance with the legislation is not enough to meet the criteria for sustainable business activities. 

Corporate responsibility is therefore seen to require so-called voluntary measures that go beyond the requirements of the law in terms of environmental protection, for instance. Sustainable business activities meet the expectations of the stakeholders and are also less risky and more profitable. 

The values of the owners and the management are also often in the background, providing an essential starting point for credible sustainability efforts. 

More legal requirements constantly emerging 

As far as sustainability goes, the legislation is currently evolving at an increasing pace especially in the EU. 

The European Union, Finland included, is committed to highly ambitious goals in its legislation in terms of, for example, curbing climate change, as these goals are not expected to be reached through voluntary measures alone. 

As regulation becomes more robust, businesses need to put more effort into sustainability if they want to remain competitive. At the same time, the bar for the competitive edge that can be achieved through sustainability keeps getting higher. 

The tightening EU legislation will have an immediate impact mainly on large companies and listed SMEs. However, it will also have indirect effects on other, unlisted companies. 

Prepare for taxonomy, reporting and tracing the origin

Business owners and businesses should be aware of the latest EU regulations concerning sustainability and the directives that are currently under negotiation. These include the EU Taxonomy, the EU Corporate Sustainability Reporting Directive and the EU corporate responsibility directive, which is still under negotiation. 

The EU Taxonomy is a sustainable finance regulation of the European Union. It provides a classification system and criteria that will help identify sustainable finance and investment decisions in the future. What this means in practice is that the funding that a business applies for can be classified and either approved or rejected depending on how sustainable the activities of the business are.

The activities of SMEs will be affected even sooner by the Corporate Sustainability Reporting Directive (CSRD), which, as its name implies, requires companies to report on their sustainability performance. The reporting requirement entered into force in the beginning of 2024 in terms of large companies and will be gradually phased in by 2026 to apply to all listed companies and companies that meet at least two of the following three criteria: more than 250 employees, more than 40 million euros in turnover and more than 20 million euros in total assets. 

According to the reporting requirement, companies are obligated to gather information on the relevant sustainability impacts of their entire value chain. As a result of this requirement, companies that do not fall directly under the scope of the directive will also be required to gather information and produce reports.

The directive on corporate responsibility that is under negotiation will essentially mean that large companies would be required not only to report on the sustainability of their value chain, but also to prevent negative impacts and to assume responsibility for them. For example, companies would be required to examine their raw materials or the working conditions throughout their value chain. 

Know what to expect so you can prepare ahead of time 

EU directives aim to standardize sustainability reporting and define criteria for sustainability. At present, the focus in terms of sustainability is largely on developing the reporting system and meeting its requirements. 

The next step after reporting will be setting clear and measurable goals. The same is true for sustainability as it is for other business activities: if you cannot measure it, you cannot manage it. After you have the proper tools for measuring sustainability, the next step is to identify the measures you need to take to achieve the goals. 

At the end of the day, sustainability is all about your bottom line not only financially, but also environmentally and socially.


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