Why should all companies work with ESG

Are you an owner-leader or director in a small or medium-sized enterprise? Then initially you fall under the EU’s requirements for ESG reporting—but that is a very tight deadline. Read on and learn why you should take a stand on ESG.

By Louise Thomsen, Co-founder and Consultant at ESG Rådgiverne, June 2024

ESG stands for environment (environmental), social (social) and governance (managerial) issues and represents a structured approach to measuring and reporting on sustainability for companies.

ESG has become an important part of many companies’ agendas, not least because the EU adopted the new Corporate Sustainability Reporting Directive (CSRD) in 2023.

In short, the CSRD legislation requires that companies in the EU publish detailed reports about their sustainability practices. Companies must therefore document and be accountable for how they impact the environment, society, and their internal governance (ESG) and set concrete targets for improvement in these three areas.

ESG is a business opportunity for you

You might be thinking: “We have plenty to do already, so why should we now start spending time on ESG reporting?”

If you are an owner-leader or director in an SME, your company will likely not be directly subject to the new legislation immediately. The companies initially subject to the CSRD legislation are large companies listed on an EU stock exchange, as well as large non-listed companies with more than 250 employees and either a net turnover of more than 40 million euros or a total balance sheet of more than 20 million euros.

Read on.

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EU’s CSRD legislation means that your larger customers and partners will scrutinize their supply chain and therefore ask for your ESG key figures so they can meet the new reporting requirements. It is a challenge for many companies to gather valid data, and questions will arise. But at the same time, it can be a potential business opportunity for you.

Let’s take a hypothetical example:

GrønTek is a small Danish company with 50 employees that specializes in the production of packaging. Although GrønTek is not directly subject to the CSRD legislation due to its size and turnover, GrønTek is a supplier to BioPack A/S, a larger listed company that is therefore subject to CSRD.

BioPack A/S is required to report on its ESG performance, which includes data from its supply chain. As part of this obligation, BioPack requires that all of its subcontractors, including GrønTek, collect and report on ESG. GrønTek sees the new legal requirements as a business opportunity and has begun working on measuring its ESG performance—data which it collects and reports to BioPack A/S.

This practice not only helps BioPack meet its reporting obligations, but also strengthens GrønTek’s own sustainability profile and opens up new business opportunities with other large companies that value responsible suppliers who have their data and improvement targets in order.

ESG sells—and can bring you to the front of the queue

ESG is a business opportunity because when you have your data in order, you can position your SME strongly in front of your current and potential customers. ESG sells!

If you start collecting data on your environmental, social, and governance aspects now, you can help your customers to excel in ESG reporting. In this way, you will position yourself at the front of the queue when large companies choose suppliers.

As an SME owner-leader or director, you can spot a business opportunity when it presents itself, and you are now ready to roll up your sleeves. For many SMEs, it can be a challenge to find internal resources and competencies to lift the ESG task, and often you have to look outside your company for help.