Among the most significant impacts that the much-discussed Green Deal will have on European companies are the new rules on non-financial reporting, i.e. the introduction of the Corporate Sustainability Reporting Directive (CSRD). The media often make a bogeyman out of it, and quite unnecessarily. Non-financial reporting can be a profitable investment in effective innovation for companies.
In fact, we should strive to make the Green Deal an iDeal first and foremost, through the meaningful introduction of non-financial reporting.
The CSRD imposes such obligations on all large companies with 250 employees or more, with more than 50 million EUR turnover or 25 million EUR in assets, as well as on public interest entities in the EU. This means that they must report their environmental, social and governance (ESG) data.
Some may say that this is unnecessary bureaucracy. But the opposite is true, both obligations can be turned into a competitive advantage. For example, Czech companies have been part of European supply chains for 30 years and are therefore linked to many global companies. For a Czech supplier, winning a tender today often means having the carbon footprint of their own company or its products calculated. Similar requirements have so far been imposed on their suppliers mainly by large multinational companies. It is certain that the circle of such contracting authorities will continue to grow worldwide. An example is our client Tritón Pardubice, spol., s.r.o., which needed to calculate the carbon footprint of its product according to ISO 14067 in order to meet the demanding requirements of a European customer. In effect, CSRD levels the playing field, where companies publish their ESG indicators according to precise standards.
Investing in ESG pays off in spades
In the case of the CSRD, for example, we should maximise the simplification of all processes. This includes automation and digitisation of data collection, which is a necessary goal not only for companies but also for the state. In the Czech Republic, we will have to accomplish this task anyway. The return on investment (ROI) can be very high in this area. ESG initiatives can also generate direct revenue. For example, a food company can create an organic product line that will increase sales and market shares. A manufacturer can use technological innovations such as artificial intelligence to optimise energy and resource consumption, thereby reducing operating costs in factories.
However, in addition to the direct benefits, we can also find a number of less obvious positive impacts. Good results will reduce talent turnover and help attract more candidates. By addressing environmental and social risks, companies can maintain their reputation and avoid costly marketing failures - or outright fines for greenwashing. Another critical ESG factor is safety: effective ESG compliance reduces safety margins and insurance costs, which improves the economic perfomance.
ESG drives the world of finance
According to a PwC survey, nearly three-quarters of global investors want standardised ESG reporting and 85% of CFA (Global Professional Investors Association) members said they included at least some of the indicators tracked by ESG in their decision-making process. In markets with mandatory ESG reporting, it appears that investors are willing to pay a higher price for this transparency. To reflect this, companies with high ESG scores should be subject to a premium in their valuation. In short, the ESG framework is already becoming an essential part of corporate strategies, financial reporting and valuation.
Meanwhile, data for ESG reporting is relatively easy to access within companies. So the problem is not their inaccessibility, but the fact that for the first time in history they are being put in one place, thus ending the era of data fragmentation and information silos in companies. This trend is not limited to office-based companies, but is also significantly affecting the manufacturing sector. So let's stop worrying about a bogeyman that doesn't exist and move forward. Through greater efficiency in companies and investment in innovative industries, the Czech Republic can be kick-started. The implementation of the CSRD can be both a useful stimulus and an aid.
댓글