Themes such as sustainability and sustainability reporting have become staples of the news, and our blogs are no different. With new laws and regulations, there is no getting around it. Not for accountants and neither for you as an entrepreneur. Having a good sustainability policy is a requirement for more financiers, suppliers and customers. And with the advent of the Corporate Sustainability Reporting Directive (CSRD), the last vestige of non-commitment is being curtailed. This far-reaching sustainability reporting legislation will become mandatory for large, listed companies from FY2024 and, from 2025, also for large unlisted companies. Medium and small enterprises will not be subject to this legal obligation. But you shouldn’t get too excited just yet; indirectly, SMEs will also be affected. So don’t underestimate the impact of the CSRD.
Corollary to the Green Deal
What is the impact of your business on people, the environment and society, and vice versa? It won’t be long before large organisations will be obliged to answer these questions in a sustainability report required under the CSRD. This is a European law resulting from the EU Green Deal presented in 2020. The objective of this directive is for the EU to have a sustainable economy by 2050, in which greenhouse gases are no longer emitted on balance and the health and well-being of residents are protected from environment-related risks. The CSRD forces companies to show full transparency in regard to the measures they take to promote sustainability and how they contribute to the objectives of the EU Green Deal. This will become a standard section of the annual report. An accountant has to audit the report and issue an audit opinion.
Don’t think you’re off the hook as an SME
The sustainability reports of large corporations don’t just concern their own impact. They also have to look at the sustainability aspects of the chain they are a part of. Simply put, they need to include the impact of their direct and indirect suppliers and customers in the report. And that conversation generally consists of small and mid-size enterprises. Large chain partners will therefore ask their medium and small partners for sustainability information and, eventually, those SMEs will be legally obligated to answer that call. But it doesn’t stop there. Banks and insurance companies will surely also become increasingly demanding when it comes to the sustainability policies of companies that are seeking financing or insurance. Financial service providers will have no choice but to comply, because of other laws and regulations stemming from the EU Green Deal. Therefore, when the CSRD comes into effect, most companies in the Netherlands and other EU countries will face (some form of) mandatory sustainability reporting. The importance of a sustainability policy should thus not be underestimated, and the time for procrastination is really over.
Don’t wait and start today
In case you haven’t started reporting on sustainability at your company yet, you better start making preperations. But where do you begin? It’s not that simple, but the following roadmap will help you to get started.
- Purpose & Strategy. Formulate how sustainability is embedded in the company’s strategy and what risks & opportunities are recognised.
- Stakeholder analysis. Research who the company’s stakeholders are, what their interests are and what impact the company has on stakeholders. A reliable analysis can only take place in an active dialogue with those stakeholders.
- Sustainability themes. Which themes are material to your organisation? You base this on the analysis in steps 1 and 2, whereby you look at actual and potential negative and positive impacts on people and the environment, as well as impacts on the company’s development, financial position and financial performance.
- Objectives and indicators. For the material themes, it’s important to set targets, perform a baseline measurement and determine which performance indicators are relevant and how to measure them.
- Internal organisation. Decide what adjustments are needed in the internal organisation to achieve reliable and relevant data and reporting.
It requires a lot of effort and is unavoidable, meaning it can be quite overwhelming. Which is why it’s good to know that you aren’t alone. Since all companies are facing the same developments, you can learn a lot from each other. Joanknecht is also happy to lend a hand. We have the expertise to ensure your organisation is prepared for sustainability reporting, for instance by helping you to formulate your goals and strategies, or to set up your processes for sustainability.