Sustainability reporting and SMEs

How to prepare for CSRD and the new reporting obligation

by Alessandro Malerba

The preparation of a sustainability reportmodel

The process that leads to being able to report on the objectives and intermediate goals already achieved by the Organization is the result of activities and methodologies, sometimes complex, to be applied in a similar way to what we have been used to doing with financial reports for years. The application of these methodologies and activities requires, however, to immediately pay attention to some mandatory steps

• the identification of the objectives for which the company can define itself as sustainable in relation to its industrySDGs
• the definition of its business model from a sustainable perspective, functional to pursuing the SDGs;
• the implementation of the connected operational strategies
• the lines of action, activities and intermediate goals

  Today, talking about these methodologies and activities is particularly important given the attention paid to these issues: not only an increasingly pressing demand from the market (financial institutions, large corporations and stakeholders) but also the adoption of specific regulations. At a European level, for example, the EU Council CSRD directivecompanies responsible for their impact on society

  Entrepreneurs and administrators, that is, can no longer ignore sustainabilitybusiness continuity

   CSRD - organizations involved and implementation times

  The European Financial Reporting Advisory Group (EFRAG “European Financial Reporting Advisory Group”European Sustainability Reporting Standards”

  The new rules on sustainability communication will apply to large public interest companieslarge companiescompanies listed

  But what will be the path (indicated in the Directive) for the application of these rules?

  • 2025companies already subject to the Directive
  • 2026companies currently not subject to the Directive
  • 2027listed SMEs
  • 2029third country companies

    As can be seen, the Directive will be a complex process that will extend over the medium-long term, progressively expanding the list of organizations impacted by these innovations. For this reason, beyond the application roadmap, it is essential that companies immediately start a sustainability path, to avoid the risk of arriving unprepared for the regulatory obligation. sustainability reporting must be implemented today

    Reporting standards

    Today, officially, the European ESRS regulatory standard cannot yet be adopted (but it will be adoptable in time for the entry into force of the effects of the CSRD directive, i.e. 1 January 2024).

    Currently, among the internationally recognized and most widespread standards for the preparation of the sustainability report (or sustainability reporting), there are the GRIGlobal Reporting Initiative standards

    It should be considered that the current EFRAG draft of the ESRS, compared to the GRI  2021, in fact expands the reporting requirements and introduces more stringent and complex concepts (such as, for example, double materiality) with the aim of creating standardized and comparable sustainability information, raising its quality. In this way, information sets will be created with a more rigid structure and with mandatory minimum requirements

    It is clear that this will result in a significant effort for the companies involved

    We are not going into, here, the discussion currently underwayindustrieslimits to the variety and breadth of information

    It is sufficient to read some 2021 sustainability reports to understand how the approach taken by organizations up to now, although adopting the same standards (GRI mostly in core

    A sustainability path for SMEs

    To outline a path suitable for SMEs, we can draw inspiration from the methodology adopted by our Partner, EFTILIA Srl STP Benefit, one of the main advisory companies

    The declination of the so-called EFTILIA method for SMEs places the task of undertaking a path aimed at sustainability reporting on the highest governing body of the Organization. It is a method, a roadmap, which includes some steps.

    1. Understand the degree of attention and awareness of the SME, through:
       • analysis of the current business model with a comparison between the Entrepreneur/Management and the consultants, to arrive at abusiness model
       • analysis of business processes and collection of existing data regarding risk analysis (preliminary assessment
       • Identification, examination and analysis of the needs of present and future stakeholders (stakeholders engagement
         1. Definition of the sustainability policy and adaptation of the business model from an ESG perspective
            • adoption of ethical principles to guarantee business continuity;
            • planning of training and communication for the diffusion of the culture of ESG sustainability, through the training of governance but also of workers and collaborators and effective communication to customers, suppliers, territory and responsible marketing;
            • assessment of environmental impacts on the SME's ecosystem;
            • risk mapping (risk assessment
            • definition of material topics;
            • measurement of impacts with reference to the identified topics (material assessment
            • definition of an ESG Action Plan, which determines, by functional operational steps, the paths aimed at pursuing the ESG objectives inherent in the business model adopted;
            1. Reporting sustainability
               • inform stakeholders, in compliance with the chosen standard, about its ESG mission and the results achieved;
               • explain the objectives and activities undertaken and to be undertaken to achieve the subsequent goals.

               What is mentioned in this article is a first analysis of a topic that deserves to be studied in depth, technically studying the regulatory changes that will have the greatest impact on the future of our businesses.

               On the blog of our partner EFTILIAdefinition of the material ESG topics

               However, it is worth anticipating one question right now: it is not necessary to be a large company to undertake a path aimed at bringing out sustainability and your own business model in an ESG perspective. To do this you need to be great entrepreneurs, that is, people capable of grasping and anticipating what will inevitably affect everyone

               Starting a sustainability path today will allow you to implement the regulatory obligation prepared and with a competitive advantage compared to other less sensitive players on the market; by doing so, you will be able to implement those policies sooner and more effectively that will guarantee the continuity and growth of your business over time.