Nordic private companies lead EU peers in environmental reporting, but lag amid regulation.

Environmental disclosure is in high demand. Soon it will become a legal requirement for at least 50,000 companies operating in the EU. Not all privately-owned companies in the Nordics (Denmark, Finland, Norway, Sweden and Iceland) are ready to respond – especially to meet the requirements of the incoming Corporate Sustainability Reporting Directive (CSRD).

Environmental disclosure can catalyse climate action among private companies. However, a lot of the hard work still lies ahead in this decisive decade for climate change. Produced in partnership with The Footprint Firm, this report examines where private companies in the Nordics need to step up their game on environmental reporting and action.

Key findings:

• More than 2,000 private Nordic companies are estimated to be subject to the CSRD.

• Over 1,000 of these companies have already received requests for disclosure through CDP, but less than half chose to respond (43%).

• More than half (62%) of Nordic private companies now report on emissions, although the wider value chain highlights a blind spot for many.

• Only 7% have emissions targets approved by the Science Based Targets initiative (SBTi) – double the European average for private companies.

• Less than half of private companies in the Nordics (35%) have financial incentives for their management to meet climate goals.

• Less than 1 in 10 (7%) have established any commitments on biodiversity.

At the 2019 UN Climate Action Summit in New York, Nordic prime ministers pledged to become the most sustainable region by 2030. In some countries like Denmark, companies have played an important role in shaping the plans that underpin the green transition – in fact, many play a central role in delivering it. While private companies have faced fewer disclosure requirements than their stock listed peers so far, their potential to scale sustainability actions in the economy might even be greater.

Capacity is an often-cited barrier to realising this potential, especially for smaller privately-owned companies. Many start by assigning responsibility for sustainability to functional teams – like compliance, finance, HR or marketing – on top of their existing responsibilities. Others see a clear need to increase capacity. According to LinkedIn, ‘Sustainability Manager’ was the fastest growing green job from 2019-2021, up 30% from the previous year. Whichever way the capacity is created, there is a risk that it is quickly swallowed whole by reporting demands.

We are almost a third of the way through the decisive decade for climate action. Limiting warming to 1.5 degrees necessitates nearly a 50% reduction in global emissions by 2030. And while there is still an opportunity to avoid the most catastrophic climate impacts, we must now reflect on how privately-owned companies in the Nordics are poised in relation to this important and difficult agenda.

Environmental reporting comes in different shapes and sizes. We see these three common types (click to show more information):

While the Nordics appear ahead of their regional peers in some areas of environmental reporting and action, our analysis indicates that there’s a lot of work left to do.

1. Although Nordic companies are more responsive to requests for disclosure, coverage remains low in relation to public companies.

Learn more about which companies could be subject to the CSRD.

Companies disclosing through CDP are typically either:

• more exposed to material environmental topics, increasing the likelihood that they are requested to disclose; or
• more actively addressing them, making them more likely to respond.

Therefore, our analysis may indicate a higher level of transparency and action than that which exists across all privately-owned companies – this includes around three quarters of companies that don’t currently report through CDP.

2. More Nordic companies are disclosing their greenhouse gas (GHG) emissions, but many are still getting started.

3. Climate-related risks have arrived in Nordic boardrooms, but less so in their strategies.

4. Biodiversity remains an elephant in the room for most Nordic private companies.

The historic outcome of the COP15 UN Biodiversity Conference in December – reinforced at EU-level within the EU’s biodiversity strategy for 2030 – has brought much needed focus and attention to nature and biodiversity loss.

Encouragingly, some companies have already begun disclosing biodiversity data since these were introduced into the CDP climate change questionnaire in 2022.

Based on dialogues with leading investors and private companies in the Nordics, The Footprint Firm has distilled five learnings to help the Nordics continue to lead the way in environmental reporting and do this in a way that is aligned with limited global temperature rise to 1.5C.

1. Default to proactivity

In the face of stakeholder requests and evolving reporting requirements, it’s understandable that private companies have proceeded with caution. Those who take a more proactive approach can get ahead of stakeholder demands in a more uniform way. While some key frameworks and standards are still under development, there is plenty of guidance to get going. The European Sustainability Reporting Standards adopted in August provide a framework for corporate sustainability reporting in Europe together with the CSRD. This will come into force in January 2024.

2. Build a foundation for improvement

While environmental reporting catches up with financial reporting, one aspect that is hard to replicate is precision. Companies that realize this challenge can build a foundation for continuous improvement as more precise data becomes available. They also tend to look outside of their organization to validate their approaches and assumptions including through external assurance.

3. Disclosure, insight, action

Reporting forms a basis for action and shouldn’t be seen as a separate task. For example, companies focusing on reporting alone often leverage ‘spend-based’ approaches to calculate emissions (emissions factor per dollar spend). On the other hand, companies taking an ‘activity-based’ approach (emissions factor per activity) can yield more accurate and useful outcomes, informing reduction planning and performance tracking.

4. Choose your disclosure system wisely

CDP’s disclosure system has made environmental reporting a business norm worldwide. Many companies see clear benefits in guiding their data gathering and reporting efforts, enabling uniform responses to stakeholder requests and supporting their sustainability claims. However, limited sustainability capacity often means private companies need to choose which disclosure systems best meet their needs.

5. Leverage disclosure scoring to your advantage

While distilling the sustainability of any company to a single metric is problematic, companies find scoring helpful to align with management on the aspiration and what is needed to get there. As disclosure systems increasingly reflect ambition and action, this could be even better leveraged to accelerate action.

The timeline has begun for application of the CSRD, with three stages of implementation for companies.

Delivering on the Nordic ministers’ 2030 pledge and staying within planetary boundaries is challenging. Time is against us, and it is important that private companies view both reporting and action as fundamental to driving change. Realising this is crucial for us to make the essential transition to a net-zero and nature positive economy. While Nordic private companies are ahead of their peers in several aspects such as setting science-based emissions targets, they are lagging in other key areas. Many more companies must disclose and act upon emissions across the value chain, and commit to protecting nature and biodiversity.

The window of opportunity to limit warming to 1.5 degrees is rapidly closing. Without action, damage will be irreversible. The private sector can effect significant change. It is vital that all companies embrace transparency and take action to drive us forward to a more sustainable future.

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Footnotes

1. Large companies are defined as enterprises meeting at least two out of three criteria of:

• 250 employees
• €40m turnover
• €20m total assets

2. Application of the CSRD will take place in three stages:

• January 1, 2024 for those already subject to Non-Financial Reporting Directive (‘NFRD’). First report in 2025.
• January 1, 2025 for large companies that are not presently subject to the NFRD. First report in 2026.
• January 1, 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings. First report in 2027.

3. Based on the number of companies with more than 250 employees (Data source: Statista, 2021).

4. The Science Based Targets Initiative (SBTi) defines and promotes best practices in emissions reductions and net-zero targets in line with climate science.

Further resources