What was previously very good for SMEs, but not mandatory, is becoming a “must have”: CSR reporting is moving into the SME sector and will be given a permanent place in the management report as of 1 January 2024. This puts non-financial, i.e. sustainable reporting, on the same pedestal as financial reporting.
The EU Commission’s planned changes to the extended reporting obligation are not surprising; after all, the sustainable contribution of all companies plays an important role in Europe’s sustainability transformation. Here, reporting is the toolbox to ensure the implementation of these sustainable economic measures.
Context: What is changing?
With the Corporate Sustainability Reporting Directive (CSRD), a draft for a new directive on sustainability reporting was presented by the EU Commission in April 2021, which extends the reporting obligation. Previously, non-financial reporting only applied to companies with 500 or more employees. From 1 January 2024, according to the current timetable, it will apply to all companies that meet two of the following criteria: They have more than 250 employees, make at least 40 million euros in revenue or have a balance sheet total of 20 million euros. Thus, all companies that are large or capital market-oriented in the accounting sense will have to prepare CSR reporting from the 2023 financial year. According to the draft, small and medium-sized enterprises will not be directly affected until 2026. However, a transparent report on all sustainable performance is already advisable for every company today, as it is increasingly demanded along the supply chain or by partners from the finance and insurance sectors. This poses new challenges for large medium-sized companies and soon also for small and medium-sized enterprises: On the one hand, they are coping with the concrete tasks around climate policy and societal changes – and in parallel, they will also deal with reporting on them in the future.
But what exactly is the content? Factors of good reporting
The reporting obligation focuses on five topics: environmental, labour and social issues as well as respect for human rights and the fight against corruption and bribery. According to the principle of “inside-out” and “outside-in”, the report should show what impact the company has on its environment, but also what impact the environment has on the company. CSR reporting should contain all relevant sustainability information, provide concrete information on concepts, processes, supply chains, risks, performance and time horizons and be compatible with the main EU regulations on sustainable finance. The report addresses different target groups, such as civil society organisations or rating agencies, and should be structured accordingly in terms of content. This is made much easier if it is based on an overarching CSR strategy. THE MAK`ED TEAM has a lot of experience in sustainable corporate development and works out individual CSR strategies for its medium-sized clients that facilitate CSR reporting.
Only extra effort or also extra value? A classification of the CSR reporting obligation
An integrated CSR strategy is an important basis for CSR reporting. In combination, CSR brings many advantages for a company. A strategically positioned and consistently practised Corporate Social Responsibility not only has positive effects on the environment and society, but also on the company itself: Efficiency can be increased, sales opportunities enhanced and CSR can be used as an important marketing tool. As can be seen from the example of large companies, transparent communication of sustainable business practices significantly improves their image and reputation – in line with the motto “Do good and talk about it”. In addition, non-financial data from CSR reporting makes it easier to observe the long-term development of a company than a purely financial view, which is often only a snapshot. In this way, companies can react in a future-proof manner to trends, such as rising energy prices. This makes them more crisis-proof, more efficient and more robust.
At first glance, the advantages of reporting lie only in meeting stakeholder requirements. But the reporting obligation can be perceived by SMEs as a great opportunity to turn it into competitiveness, stability, innovative strength and image with the right strategy.