In recent months, there has been much discussion about reducing the reporting burden of sustainability for companies and the European Commission's desire to simplify reporting.
As always, there are two sides to the coin. From the perspective of mandatory reporting, companies with reporting obligations could hope for easier breathing thanks to the proposals put forward in the Omnibus package. If a company's business is very local, has few personnel, and its stakeholders are not interested in sustainability, then the answer to the need for reporting is clear. Simplifying it: if I sell you apples and you sell me flour, and our business takes place across the street, then there is no need for complex systems, including sustainability reports – no one reads them anyway! Therefore, the company would indeed not need a sustainability report if no one other than the regulator asks for it. At least for now.
Should anyone report at all?
A sustainability report is a summary and reflection of how a company contributes to ESG topics. What are the principles considered important? What has the company already done and what does it plan to do (innovative products/services), is it contributing to the circular economy? How and how are sustainability topics measured and are these topics integrated into the business strategy? It also reveals how the company's activities impact the environment and people, and how external factors could financially affect the company.
The sustainability reporting directive developed in the European Union sets a uniform format for sustainability reports, which companies publish as part of their annual report. For the financial part of the annual report, it is the auditor's task as an external specialist to confirm the accuracy of the presented information and evaluate it. The auditor has the same task for the sustainability report – to give the reader (e.g., investor, financial institution, client, future employee) confidence that the presented information corresponds to the actual situation and is not a sales trick or marketing fluff.
The other side of the coin
Companies that export, supply their products/services to Central Europe or Scandinavia often face not only regulatory pressure to prepare a sustainability report but also the desire of major clients and end consumers to see activities in the ESG field. Even better if these activities and the information presented about them are validated by a third party.
Grant Thornton's European network companies also advise US companies specifically in the field of sustainability. Why should a company based in the USA deal with ESG topics? For a very simple reason – they want to sell their products in Europe, and European clients ask about ESG activities in tenders. Ultimately, it is a desire to stay competitive. They also try to think 10–15 years ahead, what trends are coming and adjust themselves step by step accordingly.
It is also not insignificant that by emphasizing sustainability topics, a company based in Estonia can better recruit employees. In other words, it is a sales argument for new potential talents to join our company.
At the end of March, news came from Germany that the obligation for zero emissions reached the German constitution. The goal is to achieve climate neutrality in Germany by 2045. The still relevant green transition requires solutions in households, companies, and government institutions, and of course, the German government is also putting money into it (initially 100 billion euros to deal with climate and economic changes). The green transition requires various solutions (products, services) and technologies in very different fields/sectors that lead to climate neutrality. Is the news from Germany a risk or an opportunity for Estonian companies? I see a great opportunity here to offer innovative sustainable products and services. This also brings the opportunity, later the need, to report on ESG activities.
In conclusion, it must be acknowledged that although the requirements for mandatory sustainability reporting are under review due to the Omnibus proposal, this does not mean that the market, clients, financiers, investors, and procurement partners have lost interest in sustainability topics. Companies can prepare an overview of their activities in this field based on a voluntary standard (so-called VSME). This gives companies the opportunity to choose a calm pace and move forward step by step with substantive activities and reporting.
