The question of whether the European directives, which address the obligation of so-called ESG reporting for companies, will only lead to more paperwork, has been asked by many people in the past months and years. However, the events in the world accompanied by the increase in the prices of energy and other resources clearly show that only the administrative form of reporting would be a loss for everyone. Companies will really have to start using innovations more and try to save on energy and material resources. The collection and reporting of data on sustainability should help them in this. In connection with the war in Ukraine, the energy crisis and the upcoming ESG legislation, renewable energy sources are one of the current topics. In addition, the emphasis on efficiency and energy savings will be greater and greater, because Europe is a continent that does not have enough conventional resources.
It is the prices of energy, but also of materials, that show us that what was previously politically questionable is actually starting to happen. The low prices of the past are illusory because they were based on a situation where we were using fossil resources on a large scale and at the same time renewables were emerging fueled by many subsidy opportunities. Therefore, there was a large amount of cheap energy on the market. But this time will not return.
Reporting on finances and higher competitiveness
The so-called ESG legislation currently affects roughly 30 of the largest companies in the Czech Republic. They must fulfill non-financial reporting as early as 2018. From January 1, 2024, another European directive, Corporate Sustainability Reporting (CSRD), will be added, which will already apply to about a thousand large companies – the legal requirements apply to companies that meet at least two of three criteria: net turnover of at least 1 billion crowns, more than 250 employees, assets on the balance sheet of more than 500 million crowns.
It can indirectly affect even small companies that are part of subcontracting chains. Other smaller businesses will not be directly affected for a long time, but they may encounter a request for data in connection with a loan from banks. But that will depend on how much the European Commission and national regulators, such as the Czech National Bank, control the banks.
Today, reporting is typically done by larger companies, investment funds and developers. All of them, and especially the last named, have to think on a long-term scale, their projects usually last almost a decade, so they are much more prepared to monitor developments. They perceive it very sensitively and are preparing.
Developers are more open to ESG reporting also because there is already a customer demand for LEED and BREEAM sustainability certifications (for example, in the construction of office buildings). If medium and small companies also find that there is demand from consumers in this direction, they will start to be more interested in certifications and other matters. In addition, public opinion surveys indicate that over 60% of Czech customers are willing to pay extra for a product that is more environmentally friendly.
During this year and the coming year, many changes await companies, especially in connection with ESG legislation. And although it will not yet directly affect small and medium-sized enterprises, they may begin to find that the processing of ESG reporting is more advantageous for them, in terms of access to finance and with regard to higher competitiveness. In the future, they will have a higher chance of obtaining loans from the bank, which will ask companies, for example, what program they have to reduce their carbon footprint. Companies that want to issue a bond will find that it is much more profitable to issue it in a green standard.
In short and well, quality ESG reporting and related management can decide where will be successful in the next period and who will not. Among other things, this will be discussed at the Bold Future conference with the subtitle Sustainability for effective business, which takes place on October 25 in Prague.