PeopleProvide had a chat with Mikael Salo, founder and CEO of Scandinavian State of Sustainability AB, ahead of our training day on sustainability and ESG on May 10, where he is the course leader.

Why do you do what you do?

Because it is meaningful, interesting and critical for the planet, society and business. I have always been interested in the environment and sustainability and studied for a master’s degree in industrial production and environmental management at KTH. After that, I worked for almost 15 years as editor-in-chief of Miljöaktuellt, which in 2016 became Aktuell Hållbarhet. 1.5 years ago, I felt it was time for new challenges, started my own company and took on an assignment as sustainability manager at a smaller listed company, while continuing to have assignments for the Dagens industri group and as a course leader, lecturer and moderator.

What will change in the near future in sustainability?

Plenty! The conditions for business will change radically in the coming years. We have begun a transition where society and the business world have to deal with many new strong forces of change.

Who are they?

The ongoing climate crisis that is manifested in major negative climate effects is one. Global and national sustainability and climate goals are another. Russia’s war in Ukraine and energy crisis a third. New ambitious EU regulation in the area of sustainability that makes the financial sector a catalyst for change a fourth.

Above all, it is the EU directive CSRD with the standard ESRS that will affect many. In practice, it requires companies to report their ESG performance according to a very specific standard where sustainability aspects such as the environment, climate, social sustainability and corporate governance are included.

Sustainability is given the same status as the financial report and must be included in the annual report. In addition, it must undergo an audit by auditors. That’s a huge shift because ESG performance has an impact on brand, employer brand and shareholder value. The financial market and other stakeholders will assess and evaluate companies based on their sustainability work in a completely new way.

Kommer alla bolag påverkas?

Will all companies be affected?

Approximately 50,000 companies in Europe are directly affected. But many more indirectly because many SMEs are subcontractors to large companies that will require ESG information. There is a timetable for how the implementation will go. The companies that are currently covered by the Sustainability Reporting Act will be the ones that will only start reporting according to the new standard for the 2024 financial year. Then large, but not listed companies, followed by smaller listed companies.

How does this affect companies in practice?

This will require both new skills and the companies to increase resources. According to the EU’s expert authority, it will cost a medium-sized company approximately three million kroner in implementation and three million kroner annually to comply with the directive. It also means that companies need to work with sustainability in a completely new and more comprehensive way.

How should companies prepare?

Already now, companies must understand the new requirements and what they mean in practice. Companies need to do extensive strategic work that includes double materiality analysis, scenario analyses, conversion plans and assess the financial effects that sustainability issues have.

Companies thus need to engage and prepare their organization in both the strategic and practical aspects. The board, management team and the sustainability manager, if the organization has such an employee, are given a great deal of responsibility. The financial manager who is responsible for the annual report becomes a key person in this, but also HR because the new directive requires information about how the company works with social sustainability, and that includes company culture, employees, equality, inclusion, diversity, countering discrimination, working life balance, and so on.

How far have the companies come in this work?

Most of it is new for everyone and there is intensive work going on to interpret and prepare for the new legal requirements. But many companies with clear ESG ambitions and climate goals in line with the Paris Agreement definitely have an advantage. I see that even now companies at the forefront are preparing by hiring ESG managers and increasing the skills of their organizations.

But there are many who today do not understand what the new requirements and expectations mean and there is a risk that they will be caught flat-footed. The hygiene level for sustainability will increase quickly and significantly and it is a big business risk to ignore this. Many companies need to develop skills, recruit a sustainability manager or assign new responsibilities to someone in the organization, for example HR or finance manager.

Exactly how the new requirements are to be handled is up to the companies themselves to decide. But the directive and the standard, which will be decided on this summer, are clear in what applies.

There will be a big, big shift, and sustainability is about to become as important as the financial, concludes Mikael Salo, CEO of Scandinavian State of Sustainability AB.

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