EU requirements to increase transparency risk having the opposite effect.

Recently, Swedish listed companies have been subject to a number of new requirements that govern how they prepare their annual and sustainability reports. The aim of the legislator is to increase transparency. But the increased requirements risk having the opposite effect. Authors are Katarina Sivander and Daniel Bergsten, both with long experience of IR and communications work in Swedish listed companies.

The future of listed companies’ annual and sustainability reports is quietly changing in a transformative way. This is due to a number of new regulatory requirements: the scope of the sustainability data to be reported increases significantly and the reports must be delivered in a machine-readable format.

The requirements come from the EU and aim to increase transparency in the capital market to make it easier for investors to compare different companies and invest sustainably.

So no more greenwashing and vague descriptions. Instead, hard facts should apply to sustainability data in the same way as to financial data. This is of course fundamentally good and absolutely necessary to realize the EU Green Deal with the goal of a climate-neutral Europe by 2050.

At the same time, there is a risk that the ambition to increase transparency will have the opposite effect if all the energy is spent on reporting according to new standards. The sustainability data to be collected is very extensive. In addition, the new machine-readable format ESEF (European Single Electronic Format) makes reporting technically complex, which has led to production problems in the current work process.

In order to reduce the burden on companies, there are calls for the annual and sustainability report to contain only the most formal elements required by law. But the ESEF format is chosen because it can be read by both humans and computers, precisely because hard facts are not enough for transparency. The need for explanation and comprehensibility remains, in a format that allows the report to be trusted.

ESEF opens up the brave new world of digitalization and automation, with easier and safer production of financial reports. Instead of lowering the level of ambition, modern system support is needed to make reporting in the new format available so that more companies, even those with limited resources, are able to report on their sustainable business.

Sweden has one of the world’s most share-oriented populations and Swedish companies have for many years been at the absolute top of the world when it comes to creating communicative annual reports with educational descriptions of operations, business models, markets and risks. All the information that helps investors, both private and professional, to understand companies in depth and make informed investment decisions.

Many CFOs, IR and sustainability managers are now thinking about how to solve new challenges such as CSRD, ESRS, ESEF etc. Our challenge to you is to harness the power of the new digital format, simplify your work and continue to create annual and sustainability reports that help increase interest and understanding of the company among all types of investors.

Katarina Sivander
Founder and CEO of Xplir

Daniel Bergsten
Business angel and advisor

The debate article was published on August 3, 2023.
https://www.realtid.se/eus-krav-for-att-oka-transparensen-riskerar-att-fa-motsatt-effekt/

  • Background:
    The new sustainability reporting requirements (under CSRD and ESRS) will be phased in based on the size of the company, starting from the financial year 2024. Both listed and unlisted companies are affected.
  • ESEF (European Single Electronic Format). Format requirements for annual reports of listed companies since the fiscal year 2021.
  • CSRD (Corporate Sustainability Reporting Directive). EU directives aimed at directing capital to sustainable investments. The number of companies affected increases from around 11,700 to 50,000 in the EU.
  • ESRS (European Sustainability Reporting Standards). New common EU standard with increased requirements for future sustainability reporting.