June 2, 2021

The Milestone 1 Report is now released

Read the full report and the rest of the main findings here.

“NordicSMEs will be affected by EUs Taxonomy, but they don’t know it. And they don’thave the resources to figure it out.”

This, and many other findings can be seen in the newly released Milestone 1 report from the project Nordic Sustainability Reporting Standard (NSRS) - developed by theNordic Accountant Federation.

The project aims at developing a simplified standard for sustainability reporting forNordic SMEs. This report is the summary of the main findings from a research process and aims at serving as the theoretical fundament for further development of the standard.

“We are sharing the main findings from our process as we believe in collective learning processes and transparency as a crucial approach in order to play our part in the greater sustainability transition in the region.”
- Kaja Koppang, ProjectManager and System Designer, NSRS

The report covers 9 main topics. The findings include an ongoing study on potential indirect implications, risks and opportunities facing Nordic SMEs when EUs taxonomy ought to be adapted from 2021 and onwards.

The NSRS project finds that the Nordics have a historical record of incorporating EUs environmental regulations in their national jurisdictions. When the EU is taking progressive leaps towards reducing 50% of emissions by 2030 and becoming carbon-neutral by 2050 (through the EU Green Deal and the Sustainable FinanceAction Plan among other initiatives), it is therefore likely, according to theNordic Accountant Federation, that these measures will be reflected in Nordic legislation in the short to medium term perspective.

The debate regarding the taxonomy and implementation is ongoing, but SMEs seems to be a forgotten segment in this context as they are not directly targeted by the new classification tool with the aim of steering capital towards green activities.

According to the NSRS project study, SME financiers, such as banks and investors who are directly targeted by the taxonomy, express a need to receive data from their downstream stakeholders if they are to successfully report according to the taxonomy.  

One concrete example the NSRS project point to, is from several interviewed banks that currently are in the process of developing incentives for their SME-loan takers in order to accelerate the taxonomy alignment internally. Carrots, in the form of improved interest rates and longer repayment times, are here combined with sticks, in the form of more expensive capital and stricter capital access criteria. Some are also incorporating stricter sustainability screening criteria of SMEs earlyin the credit rating process.

The transaction cost of implementing the taxonomy is likely to be significant. As one of SMEs main barriers for implementing sustainability related activities, according to the NSRS project study, is the lack of resources (time, money and skills),it is likely to believe that SMEs will be the losers if no support is put in place to support them with the transition.

“This insight, among all the other insights, are crucial for how we choose to design the first prototype of the standard.Simplifying the taxonomy, one way or the other, will be one of our main focus areas, or design criteria as we call it, when diving into the development phase in Milestone 2.”
- Hans Christian Ellefsen, Leader Technology and Innovation, AccountingNorway

The study further concludes with construction and building as the first focus industry for the prototype of the NSRS. The reason for focusing on one industry is the following dilemma, or trade-off as the NSRS project sees it; SMEs need something simplified in order to get started with sustainability reporting, but on the other hand, a sustainability report with too general and simplified information is of little value in a decision-making process. Focusing on industry-specific adaptations allows for more detailed Key Performance Indicators (KPIs) while still maintaining simplification as a core principle, according to the NSRS project team.

Read the full report and the rest of the main findings here.

Why small-and medium sized companies (SMEs) matter
Europe holds about 25 million SMEs which all together employs around 100million people, as well as being accountable for more than half of Europe’sGDP, and as much as 99% of all corporations in the region (European Commission,2020). Also, SMEs accumulated accounts for a substantial part of energy consumption and waste streams in Europe, in addition approximately 64% of the industrial pollution in the EU is attributed to SMEs (European Commission,2014). SMEs is the backbone of Europe, and thus also Nordics, social and economic fabric.

About the research team

The NSRS project consists of a Nordic transdisciplinary team stretching across three generations, five countries and multiple genders. Participants are representing the member organizations in theNordic Accounting Federation and are experienced with developing accounting standards in the Nordics. Further, the team is supplemented with five external sustainability experts covering a wide range of topics such as climate accounting, circular economy, sustainability transitions, system innovation and climate governance.

“The task we are upon is complex and multifaceted – and that is also why we believe in gathering expertise and perspectives as our best bet to climb this mountain.”
- Marthe Sofie L. Eide, Process Manager and System Designer, NSRS

About Nordic Sustainability Reporting Standard (NSRS)

The goal with the NSRS project is to provide a standard that will be supporting Nordic SMEs to get started with sustainability reporting, and thus gain insights crucial for sustainability-related decision making. Furthermore, it is evident that Nordic SMEs need to transition in order to maintain the competitive advantage in a changing world. The accountant’s role is prominent in this context as they in many cases are SMEs closest advisors. The NSRS project is therefore emphasizing the importance of building on accountants existing practices of gathering, structuring and reporting on financial matters. They are, after all, the lords of the numbers. The first prototype of the standard will be launched for testing by end of February 2021.The project is initiated by Nordic Accountant Federation (TAL, Srf konsulterna and Accounting Norway), and funded by Nordic Innovation. Read more about the project here:

“We do not aim at reinventing the wheel and add to the already complex sustainability reporting jungle. We aim at identifying missing links, so we hopefully can add a contribution to bridge a gap in current practice allowing Nordic SMEs to get started with sustainability disclosures – hand in hand with their closest advisor, the accountant.”
- Christine L.Larsen, CEO, Accounting Norway

Continue reading