A guest article by Dr. Markus Beermann and Thilo Marenbach – Partners at ECOVIS
Since 2017, capital market-oriented companies with more than 500 employees have had to report on the environmental and social impacts of their business activities. This means that their annual reports or separate reports must now address environmental and employee matters in much more detail than before. For very many medium-sized companies, this means that they, in turn, are almost forced into CSR reporting because of the higher expectations of their stakeholders. There are also initiatives at national and EU level in the area of sustainable finance that aim to make CSR reporting mandatory for SMEs.
Who are the stakeholders? First and foremost, it is the reporting customers. In any case, companies that are obliged to report must also address the sustainability of their suppliers. And if they want to remain listed as suppliers, they have to provide the relevant information. Other important stakeholders are external capital providers, i.e. banks and investors. In addition, however, the company’s own and potential new employees, customers and the general public are also interested in sustainability issues.
But what does this mean for SMEs, what challenges do they face? And how much effort does CSR reporting involve? Is it even worth it?
Prerequisite for reporting – develop sustainability strategy
First of all, a company must deal with the issue of sustainability internally. What follows is an inventory of all aspects relating to sustainability. To this end, all in-house procedures and processes are recorded in order to find out how sustainable the company’s own business activities are. This includes all functions and areas of the company.
It very quickly becomes apparent that the effort involved is more manageable than expected. This is because some of the data that is important for reporting has long been collected for other reasons. First and foremost, there are the activities relating to occupational safety and environmental protection. And most companies have already dealt with numerous other issues relating to sustainability.
The following generally applies to the individual business units:
Personnel or employee matters are an essential part of the sustainability strategy. It is about topics such as occupational health and safety, health hazards in the workplace, equal-pay or flexible working time models. But this is what most entrepreneurs are interested in anyway if they want to be an attractive employer and employ the best talent in the industry.
Products: The question here is whether the goods and services produced are sustainable over their entire product life cycle. How great is the consumption of resources? And what happens to the products when they reach the end of their service life? This is directly followed by the topics of production, purchasing and distribution. The entire supply chain must be assessed for sustainability.
Production: Under what conditions are the products manufactured? What raw materials, consumables and supplies are used? Are these finite and, if so, are there alternatives?
Purchasing: Which suppliers does the company have? Are they sustainably managed and will they be available in the future?
Sales: Who are my customers? What is in demand today and especially in the future? And how are the products sold used? As an example of the explosive nature of this topic, consider the defense industry.
Controlling, reporting: All the information obtained must be transferred to an appropriate and stable reporting system. Only with high data quality can changes be measured later and thus active sustainability management be installed in the company.
Advantages of reporting – Why the effort is worth it
If all the data is available and a reporting system has been installed, then the logical step to reporting is relatively easy. It also makes sense to have a stable reporting line in order to summarize the continuously collected information in a report for a broader public. And this has only advantages. After all, in terms of external presentation, a sustainability report always signals a company’s commitment to environmental protection, resource management and employee affairs. This also sends an important signal to potential employees and customers, who presumably first find out about a company through its website and the publications published there.
A CSR report is just as useful for answering questions about corporate sustainability as it is for answering questions about corporate strategy. After all, anyone who deals with questions about sustainability is also always solving key corporate questions about the future. Today’s business models may already be obsolete tomorrow – for example, if important resources are no longer available. Or when demand is increasingly geared to sustainability aspects and products can only be sold if they are actually sustainable. CSR reporting therefore forces companies to regularly question their current corporate strategy.
Those who take the principles of sustainability to heart will be rewarded
A company that does not address the issue of sustainability today has more or less lost touch. The topic is now simply too present in the public eye. A sustainability strategy and its public communication are always dismissed as “greenwashing” if the company does not really stand behind the principles of sustainability. However, if it stands by them and remains authentic, the reward is an ecological and social “depth” that all stakeholders honor in a special way and can thus be tied to the company.
Dr. Markus Beermann
Certified Public Accountant
Member of the Management Board of ECOVIS Audit AG Wirtschaftsprüfungsgesellschaft
Started his career at Arthur Andersen AG in Frankfurt after which he joined WAZ Medien Group. Joined ECOVIS in 2013. Focuses on business valuation and sustainable transformation.
Certified Public Accountant/Tax Consultant
Member of the Management Board of ECOVIS Audit AG Wirtschaftsprüfungsgesellschaft.
After training and studies, initially worked for Ernst & Young. With ECOVIS since 2018. Activity focus, in addition to auditing, particularly in the area of CSR reporting and sustainable finance.
ECOVIS is an international association of auditors, tax advisors and lawyers headquartered in Germany, where it ranks among the top 10 in the industry. Almost 2,000 employees work in more than 100 German offices. Worldwide, there are almost 8,500 in nearly 80 countries. ECOVIS supports and advises family businesses, owner-managed companies as well as freelancers and private individuals. In order to sustainably secure and promote the economic activities of its clients, ECOVIS bundles the national and international professional and industry expertise of all tax consultants, auditors, lawyers and management consultants. (to the homepage: www.ecovis.com )