RESEARCHER: Sustainability rules absolutely necessary – now an urgency to support small businesses

The EU is stepping up the pace of climate change adaptation with a series of new rules for businesses. Some in the Swedish business community are furious about the increased regulatory burden, while others see competitive advantages in the effort. Susanne Arvidsson, associate professor of business administration at Lund University, gives the background to the rules – and raises a warning finger.

– We see in all climate reports that things are not going in the right direction. Biodiversity loss is accelerating, affecting both nature and the economy. The loss of ecosystems leads to poorer harvests, increased water scarcity and greater climate-related disasters, and is ultimately crucial to our survival.

Susanne Arvidsson is, among other things, appointed as an expert for the Swedish Inspectorate of Auditors, runs a 100-million project focusing on the integration of biodiversity in the financial system, and is chairman of the ranking Hållbara bolag (Dagens Industri and Aktuell Hållbarhet).

Impact on businesses – a balance between burden and opportunity

The raft of new sustainability rules, which European companies will soon have to comply with, aims to steer investment away from activities that harm the environment and direct capital towards companies that operate sustainably. She emphasizes that the global economy is facing a crucial transition.

– This is not about reporting for reporting’s sake – the aim is to steer investments towards sustainable companies. For this to work, uniform rules are needed, otherwise it will be impossible to compare and make informed decisions.

She adds that previous sustainability reporting has been arbitrary, difficult to compare and often based on self-assessment. Now, the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are being introduced, which will create a uniform standard for how companies report their climate and environmental impact.

– The new reporting requirements that will be rolled out next year affect the entire business community. “The large companies will start reporting first, but smaller companies are also indirectly affected because they are suppliers, says Susanne Arvidsson.

Supporting businesses – a necessity for success

According to her, companies already working on sustainability are positive about the regulation because it creates clearer rules and makes it easier to measure and compare efforts. These companies see it as an opportunity to strengthen their market position.

– And then there are those companies that see regulation as nothing more than a burden and are concerned about the extra work and costs involved in collecting and reporting sustainability data.

Arvidsson says companies need clear guidelines on how to report, and that there must be a reasonable balance between requirements and resources.

– Many SMEs lack the resources to cope with the new requirements, so it is crucial that support is available to help them make the necessary transition smoothly and efficiently,” she says.

As important as financial accounting

A key element of the regulatory framework is that sustainability data should be put on an equal footing with economic data. This means that companies must be able to report their climate impact as clearly as their financial situation. Susanne Arvidsson is convinced that this will be a decisive factor in corporate loans and investments in the future.

– Banks and investors will start demanding sustainability data in the same way they demand financial reports. If you have high emissions or poor sustainability strategies, it can affect your ability to raise capital but also the cost of raising capital.

Another important aspect of reporting is that companies need to understand how they can use the data they collect.

– It is not about submitting figures to authorities. The purpose of the overview is for businesses to use the information internally to improve their operations. It will help them identify where they need to make changes and how they can do so profitably.

Sustainability – a competitive advantage

According to Susanne Arvidsson, companies that change now will have a competitive advantage as consumers and investors increasingly demand sustainable alternatives.

– It’s about changing how we run our businesses, how we consume and how we invest. Those who do not adapt risk being left behind – both economically and environmentally. We can no longer postpone sustainability action.

The rules are expected to become applicable to Swedish companies next year. Do we know when the business support will arrive and what it will look like?

– No, we don’t know that. But what we see from the EU side is that they are listening to the criticism of regulatory burden. For example, it looks like they will make some regulatory simplifications. For the regulation to be successful and lead to the expected results, it is incredibly important that it is not rolled out without solid support for small businesses, says Susanne Arvidsson.

Contact susanne.arvidsson@fek.lu.se