Assessing the Readiness of Accounting Firms and SMEs in Finland for the Implementation of the European Sustainability Reporting Standard

Sustainability has come to Stay 

In recent times, environmental sustainability has gained significant attention, and the corporate world is starting to follow suit. Companies are realizing that investors are increasingly interested in the environmental impact of their operations. As a result, there is a growing call for businesses to voluntarily include ESG (Environmental, Social, and Governance) reports in their annual reports. 

The European Union has set an ambitious target to make Europe the first climate-neutral continent by 2050, and the introduction of specific standards aims to achieve this goal. In 2021, the EU made sustainability reporting mandatory by implementing the European Sustainability Reporting Standard (ESRS) and the Corporate Sustainability Reporting Directive (CSRD). The sustainability framework under this standard encompasses a comprehensive agenda of twelve topics, addressing environmental challenges such as climate change, and pollution, as well as social and governance issues. Companies must now provide thorough and transparent assessments of their environmental impacts and social practices, along with explanations of how they monitor progress toward their targets.

To whom it may concern: 

The ESRS applies to all large and listed companies, excluding micro-enterprises. The applicability criteria are based on factors such as company size, turnover, and number of employees. Companies meeting at least two of the following three conditions must comply with the CSRD: 

1. More than €40 million in net turnover
2. More than €20 million in assets
3. 250 or more employees 

In total, nearly 50,000 EU companies will be affected and required to report on their environmental, social, and governance impacts. EU member states must integrate the CSRD into their legal frameworks by July 2024. 

Finland has completed this transposition by incorporating the CSRD into existing legal frameworks, including the Accounting Act, Auditing Act, Companies Act, and Securities Market Act. The provisions will come into force on December 31, 2023, and penalties for non-compliance, as well as timelines and mandates for companies to make their sustainability reports public, will be in effect. 

Accounting firms in Finland are playing a crucial role in helping companies comply with these standards, as many firms outsource their financial reporting to accounting firms or employ in-house experts. Accountants must understand the directives and assist their companies and clients in achieving full compliance.

Summary of research and findings: 

This study aims to assess the level of awareness, challenges, and opportunities related to ESRS adoption, particularly from the perspectives of SMEs and accounting professionals. Are accounting firms aware of all the standards? What steps are being taken to assist companies in compliance? Are they developing templates, tools, and software to facilitate reporting? Is there sufficient knowledge sharing regarding data collection? Do accounting firms require additional training? 

The study involved a survey with relevant open-ended and closed-ended questions sent to 138 accounting firms. However, there was a notably low response rate. In addition to the quantitative approach, an industry expert was interviewed. 

The findings reveal significant knowledge gaps, particularly concerning the practical implementation of the ESRS and its integration with existing reporting practices. Challenges identified include limited resources, the complexity of compliance, and a lack of clear guidance on reporting requirements for SMEs. Nevertheless, there are opportunities for accounting firms to play a pivotal role in assisting SMEs with the transition to sustainability reporting. Despite these challenges, awareness of the ESRS is growing. It is hoped that increased advocacy from the government, non-governmental organizations, and large accounting firms will help support smaller firms in capacity building, enabling them to better assist their clients. 

Biography of the Author 

Ruth Akisanya (Olatunbosun) is an Accountant with over 12 years of work experience in the Oil and Gas sector in Nigeria a country that has experienced environmental degradation and the negative impact of business operations on the environment. She is passionate about ESG and she has supported various non-governmental organizations in Tree planting advocacy, youth empowerment initiatives, etc. She is married with three children.