Sustainability reporting for SMEs: A new approach

Under the EU Corporate Sustainability Reporting Directive (CSRD), only large companies and listed SMEs are legally obliged to comply with sustainability requirements. In addition to this, large companies, driven by their reporting obligations, are requesting ESG data from their partners (SMEs). The Ecovis experts know the details.

In order for large companies to meet their own sustainability reporting requirements, they are increasingly demanding data from their partners – often smaller companies. This includes:

• Describing sustainability policies in place
• Declaring the actual or potential impacts on sustainability matters and the actions in place to monitor, prevent, mitigate, or remediate such actual or potential adverse impacts

SME business managers are often not sure where to start the sustainability journey in their company, how to implement a sustainability strategy, and how to integrate it into their business model. SMEs face many compliance challenges, as the CSRD requirements for SMEs are too complicated.

Tailoring ESRS for SMEs

The European Financial Reporting Advisory Group (EFRAG) has developed a simplified version of the voluntary European Sustainability Reporting Standards (ESRS) tailored to non-listed SMEs. The simplified ESRS are still under development, but to ensure proportionality, they are expected to include the following key features:

• Only require SMEs to report on sustainability matters that are material to their business
• Set out how SMEs can conduct a simplified materiality assessment
• Cover a reduced number of reporting topics compared to the ESRS for large companies

We offer services to support SMEs, for example in developing an ESG strategy, with compliance and risk assessment, or reviewing ESG reports.

Inga Karulaityte, Partner, Attorney at Law, ECOVIS ProventusLaw, Vilnius, Lithuania

Importance of ESG for SMEs

SMEs tend to delay starting their reporting because of the complicated CSRD requirements. However, they would benefit greatly from starting their ESG strategy and reporting today. Voluntary sustainability reporting allows SMEs to:

• Attract investors and lenders who increasingly favour businesses with a solid commitment to sustainability
• Proactively manage both the positive and negative societal and environmental impacts generated by their business
• Increase the long-term viability and sale value of a business
• Ensure that they stay in the supply chains of larger corporations which are increasingly requiring their suppliers, including SMEs, to provide sustainability data
• Attract new clients and open up additional market opportunities.

In today’s business environment, sustainability is seen as a competitive advantage, an opportunity to secure a company’s reputation. Soon it will become a necessity for companies hoping to survive in the market. The Ecovis experts therefore recommend starting preparations now.

Companies should review their existing internal policies to see whether they need updating. It is essential that policies are in place in areas such as environment, human rights, gender equality, inclusion and non-discrimination, anti-violence and anti-harassment, data protection, anti-corruption and transparency, business ethics, money laundering and terrorist financing, as well as compliance with international sanctions.

For further information please contact:

Inga Karulaityte, Partner, Attorney at Law, ECOVIS ProventusLaw, Vilnius, Lithuania
Email: inga.karulaityte@ecovis.lt