What small businesses need to know about ESG reporting

The important role of small businesses in ESG

Small businesses are an essential link in the supply chains of large organizations. Although they are not routinely covered by the strict CSRD regulations – which impose on companies the responsibility to report on their level of sustainability and social responsibility – because of their company size itself, their activities do contribute significantly to the overall sustainability performance of the total chain. Large companies are increasingly dependent on the ESG performance of their smaller partners to meet their own obligations.

By proactively working to meet ESG guidelines – including those for ESG reporting – small companies can not only improve their own sustainability, but also strengthen their competitive position and contribute to a more sustainable economy.

What does ESG reporting mean for small businesses?

ESG – it may already be familiar – stands for Environmental, Social, and Governance. ESG reporting involves capturing and reporting data on environmental performance, social impact and governance practices and thus, like certain ISO guidelines, has a direct effect on the quality of an organization. For companies, this means considering how their operations affect the environment, how they treat employees and the community, and how they are governed. Large companies need this information for their CSRD reporting, while small(er) companies, while not automatically required to comply with the CSRD reporting requirement, should make an ESG report to demonstrate the extent to which they operate in accordance with ESG guidelines.

Specific aspects of such ESG reporting include energy consumption and emissions, waste management, working conditions, diversity and inclusion, and ethical governance. Setting up ESG reporting can seem complex, but it also provides opportunities to identify and improve inefficiencies.

Differences between ESG and CSRD that smaller companies need to know about

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that requires large companies to report detailed sustainability information. Small companies are usually not directly covered by these regulations. However, if they are part of the supply chain of CSRD-compliant companies, they do contribute to the CSRD reports of such companies.

The main difference between ESG and CSRD is the level of detail and obligation. Whereas CSRD forces large companies to do extensive and structured reporting, small companies can be much more flexible when it comes to how they prepare and present their ESG reports.

As a company, how do you start creating an ESG report?

To begin, take a structured approach. First, thoroughly assess your current environmental, social, and governance practices and performance. Identify key areas where you are making (or can make) an impact, and set measurable goals.

Use existing frameworks such as the Global Reporting Initiative (GRI) standards or the Sustainable Development Goals (SDGs) for guidance. Start collect data and document your efforts and results. It is also helpful to engage with stakeholders such as customers and suppliers to better understand the elements that are important to them.

The future of your business in light of ESG legislation

The pressure to operate more sustainably is only expected to increase. By investing in ESG reporting now, small businesses can prepare for future regulations and market demands.

In addition, strong ESG performance can lead to new business opportunities, such as winning contracts with large companies that value sustainability, and attracting and engaging conscious consumers and investors. So ESG reporting is not just a legal requirement, but definitely also a strategic move towards the future.