Sustainability reporting is often seen as the domain of large corporates, but SMEs can benefit too.
Social and environmental sustainability is often seen as more relevant to big multinational companies (MNCs) than to SMEs, small-to medium enterprises employing no more than 250 people.
MNCs are more likely to have a sustainability strategy, and resources for its implementation, monitoring, reporting and communication. They are more likely to report externally, integrating their reporting across sustainability and financial activities, and to be scored by ESG rating agencies.
In Ireland much of this disclosure is driven by the Corporate Sustainability Reporting Directive (CSRD) – part of the European Green Deal’s climate change action objectives – to further enhance the disclosure by companies on climate and environmental data.
But, as we have seen in the past, in a relatively short time reporting like this is likely to be a requirement of all sizes of SME’s as well.
CSRD SCOPE AND TIMELINE
Ireland and other member states have until mid-2024 to transpose the directive, with a view to mandatory requirements commencing for financial years on or after:
- 1 January 2024 for public interest entities in scope of EU non-financial reporting rules (greater than 500 employees)
- 1 January 2025 for other larger companies and public interest entities (greater than 250 employees)
- 1 January 2026 for listed SMEs, with an ‘opt out’ possible until 2028.
Companies in scope will be required to report on a double materiality basis. This means that companies will have to disclose not only the risks they face from a changing climate and other ESG matters (financial materiality), but also the impacts they themselves may have on climate and society (impact materiality). Companies will also have to provide information on their value chain.
WHY SHOULD SMALLER SME’s BE CONCERNED?
Value Chain
If your business is a supplier to one of the larger entities noted above, then you will, in time, be required to report in a similar way, at least in respect of that part of the business which deals with the bigger entity.
If, for instance, an MNC is moving towards zero-carbon, it is likely to require smaller companies in its supply chain to be also on that journey.
It will probably be easier to prepare a report on the entire business than for a part of it, so planning for this over the next year or so will be worthwhile.
Tenders
Recent Requests for Tenders (RFTs) on the government website have included a requirement to state the tenderer’s sustainability and equality/human rights policies. While these attract a relatively low proportion of the overall scoring now, both the scoring and detail required are likely to grow.
Having sustainability polices as well as goals in place, and reporting on them will become a necessity if you want to secure significant business from government or semi-state agencies.
War for talent
One reason for SMEs to begin some form of sustainability reporting is so that they can compete with MNCs locally to attract and retain talented employees.
The labour market is tight, remote working has shifted the power balance, and younger generations are more focused on sustainability.
Increasingly, SMEs are framing their sustainability credentials more clearly, and connecting them with their employer brand so that they can attract the talent they need.
Customers focus on Brand values
Sustainability reporting can convey a sense of what the business is all about, its values and purpose.
This is especially valuable in the B2C sector but as mentioned above has a positive impact in B2B as well.
WHERE TO START
To begin preparations for this, businesses are encouraged to avail of government supports such as the Green Transition Fund and to use the Climate Toolkit 4 Business.
The toolkit allows you to see your environmental impact based on information at hand and create a plan to improve it.
A discussion with your accountants or auditors and large companies that you work with will also be helpful to your preparations.
Starting the process now, before it’s imposed on your business will allow you take whatever small steps your resources will allow and develop a plan, with your staff, which will allow your business be a leader in sustainability.
