ESG Regulation - Is There Enough Time for SMB?

Impact of CSRD ESRS into supplier/customer chain

Large companies have already started their ESG reporting journey, and some are doing better than others in taking it as new stream/topics and leadership setup to execute changes with a positive impact on the company itself.

Is your customer already providing a non-financial report due to NFRD or reporting voluntarily?

If yes, you will most likely be impacted, and for certain parts of your business, in advance before legislation enforces this. The reason is simple – within the new ESRS standards, there are new requirements for large companies to include in reporting and measure different aspects of the supplier chain, such as:

• Wellbeing and care for the workforce

• Key processes

• Details about your services

• CO2 impact of your services and products

ESRS requirement example – S2 Worskers in the Value Chain

Summary of one of new ESRS standard S2 Workers in the Value Chain (Link) requirements hitting supplier chain of your large customers below mentioned as „Companies“

Policies and Processes: Companies must describe policies and processes related to managing material impacts on value chain workers, including engagement with workers about impacts, remediation of negative impacts, and channels for workers to raise concerns.

 Action on Material Impacts: Companies should disclose actions taken to address material impacts on value chain workers, strategies to mitigate material risks and pursue material opportunities, and the effectiveness of these actions.

 Metrics and Targets: Companies are required to set and disclose time-bound and outcome-oriented targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities related to value chain workers.

 Supply Chain Coverage: The requirements cover both direct and indirect workers in the company’s value chain, including those in upstream and downstream activities.

 Materiality Assessment: The requirements are based on the materiality of impacts, risks, and opportunities relating to value chain workers.

 These requirements aim to ensure comprehensive disclosure and accountability of companies regarding the impacts of their activities on workers throughout their supply chain.  

 CSRD ESRS Timeline details for each company size segmentation

• 2024 (reporting in 2025)

  • Companies under NFRD (large banks, insurance companies, listed companies)

• 2025 (reporting in 2026)

  • Companies meeting at least two qualification criteria

    • More than 250 employees

    • Annual turnover of 40 million EUR or more

    • Balance sheet total of at least 20 million EUR

• 2026 (reporting in 2027)

  • Listed small/medium-sized enterprises (SMEs)

    • Less than 50/250 employees

    • Annual turnover more than 150 million EUR

  • Option to request a deferral

• 2028 (reporting in 2029)

  • Consolidated reporting for company groups outside EU

Resources

• EFRAG: https://www.efrag.org/lab6

• Finance Europa: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

Stay tuned for more topics related ESG in practical way leading to #SustainableIT!