Five steps to successful implementation.
What is in store for German SMEs in terms of sustainability reporting?
The implementation of the EU Sustainability Directive (CSRD) poses new challenges for German SMEs. By now, almost all enterprises in the German SME sector have come into contact with sustainability issues.
Banks, customers and suppliers are asking questions and requesting information, at the same time as public interest is increasing. However, enterprises have often not yet successfully introduced their own reporting of sustainability information.
In the future, this information requirement will be expanded and oblige enterprises to be more transparent with their sustainability information (data points). The EU Sustainability Directive will require a large number of enterprises to produce a report as part of the management report. The reporting requirement applies to all financial years of large companies beginning after 31 December 2024. Voluntary reporting standards are also being introduced for small and medium-sized enterprises.
"We recommend involving all relevant departments, locations and, if applicable, subsidiaries as early as possible."
Dr Philipp Rottke
Associated Partner
This task poses a great challenge to many companies. How can this be done successfully and efficiently at the same time?
First of all, one has to ask oneself what significance one wants to attach to the issue. How comprehensively should the issue of sustainability be anchored throughout the enterprise? This affects the implementation and design of the sustainability report.
It is important for the affected enterprises to make good use of the time available until the start of the reporting obligation. If, for example, you have already dealt with the issue of sustainability and implemented a sustainability manager, his or her work should be oriented towards the legal requirements of the CSRD, EU taxonomy and the accompanying ESRS standards. The sustainability manager should familiarise himself or herself with the specifications in order to coordinate the designing of the report together with all relevant departments in good time.
It is recommended that the relevant parties familiarise themselves with the scope of reporting required. What sustainability information is mandatory? Which issues may be optional? The recently published set of initial cross-industry ESRS standards forms the basis. The other sector-specific ESRS standards will further specify this in the coming year.
What specific measures are recommended to ensure the most efficient and successful implementation?
We recommend involving all relevant departments, locations and, if applicable, subsidiaries affected by sustainability issues in the enterprise at an early stage in order to raise awareness as early as possible. In our view, the following five steps are important for this:
1. Establishing a platform
A project team should be established which meets at regular intervals. The team should include members of the upper/top level of responsibility of all departments that are entrusted with ESG issues.
2. Materiality analysis
The business model should be analysed. To this end, two perspectives (double materiality) must be adopted. Which sustainability issues are significantly influenced by the enterprise and what impact do external influences have on the enterprise? You should take enough time for this task, as it is the basis for all further steps.
3. Determining spheres of activity
The analysis should determine the central issues that require substantial and more intensive work. Responsibilities should be allocated and initial sustainability targets with timeframes should be defined and discussed. These targets must be quantified.
4. Establishing communication channels
Sustainability information should be centrally bundled and processed in one report. Efficient communication standards are necessary for this. Instead of exchanging emails with individual Excel spreadsheets and allowing inefficiencies to arise, it makes sense to establish uniform communication channels.
5. Reporting
Finally, the project team should agree on a report structure (table of contents) based on the collected findings. Furthermore, control mechanisms should be implemented to ensure adequate data quality (e.g. dual control principle). This also includes reporting standards that can be embedded in the existing IT landscape as far as possible.
In particular, the last two points should be well coordinated at the end. In this way, the information to be reported from the different areas of the enterprise are aligned with the identified requirements of the final report. Accordingly, data that is not necessary should not be collected, just as data that is recognised to be essential should be requested in good time.