ESG targets and opportunities for SMEs

The European Union has initiated a reform process aimed at achieving a leading position in the transition to a sustainable economy, compared to other governments and global institutions. Sustainability must be integrated into all procurement, production and distribution activities. The CSDD directive, Corporate Sustainability Due Diligence Directive or Supply Chain Act, provides structural measures aimed at achieving the SDSGs goals and is a benchmark for companies.

The CSDD and the Corporate Sustainability Reporting Directive (CSRD) aim to progressively bring companies operating in the EU to take a constructive attitude towards the transition of sustainable economic development. The CSRD, which came into force on 14 December 2022, extends the sustainability reporting obligation to all large companies not subject to Directive 2013/34/EU (from 1 January 2025) and to listed SMEs (from 1 January 2026). The main objective is to introduce standardised reporting in terms of content, structure and quality that allows business models to be influenced in order to integrate ESG criteria.

The Corporate Sustainability Due Diligence Directive aims to require companies to responsibly manage their environmental and social impact along the entire supply chain, in order to develop a more sustainable and ethical economy towards the environment and people. The CSDD is expected to come into force in 2024 on a trial basis, and then become mandatory in 2026 for EU companies with at least 500 employees and a net turnover of EUR 150 million. Whereas, compliance with the CSDD for companies with more than 250 employees and a net turnover of more than EUR 40 million is expected by 2028.

The Corporate Sustainability Due Diligence Directive (CSDD) incorporated the United Nations Guiding Principles known as United Nations Guiding Principles (UNGP) concerning the relationship between business and human rights. The UNGP is based on three main principles: mandatory (companies must perform due diligence on social and environmental impacts at all stages of the business); reporting (companies are obliged to prepare reports on the impact of their activities, risks at the supply chain level and risks related to the business); disclosure of information on sustainability with disclosure of information on respect for human rights, respect for the environment; governance and risk management.

The CSDD provides for the imposition of science-based climate targets for companies, supported by transition plans that bring them in line with the goals of the Paris Agreement to limit the temperature increase to less than 1.5 degrees Celsius. In particular, the directive requires that targets linked to the achievement of the company's climate goals be included in the management's variable remuneration policy, representing one of the most significant points. Another key aspect concerns the obligation for companies with more than a thousand employees to appoint a representative from among the board members to supervise and organise due diligence checks.

Within the scope of the CSDD, monitoring is envisaged by the regulatory authorities of each Member State who will have to verify compliance. These organisations will have the power to impose fines which, in certain cases, may be up to 5% of the companies' global turnover. This severity is justified by the desire to create the conditions for companies to accelerate the process of transforming their development strategies in order to meet the commitments set out in the Paris Agreement.

With the approval of the Corporate Sustainability Reporting Directive (CSRD) No. 2022/2464 (published in the EU Official Journal on 16/12/2022) on corporate sustainability reporting, a new transparency obligation is introduced. The main objective of CSRD is to ensure that companies provide accurate, comparable and reliable information on their environmental, social and governance (ESG) performance. One of the relevant features of CSRD is the inclusion of sustainability information within the Company Management Report. Companies will be obliged to provide an integrated report that includes both financial and non-financial information. With this in mind, 3Bee ensures transparent ESG disclosure through reports that comply with the CSRD Directive and reporting standards.

In August 2023, the European Union Commission gave the go-ahead to the European Sustainability Reporting Standards (ESRS), a step of great importance as the ESRS standards are primarily intended for all companies subject to the Corporate Sustainability Reporting Directive (CSRD) and are a reference and support in the achieving the sustainable objectives set out in the EU policy framework for sustainable finance. The European Sustainability Reporting Standards are a very important tool for investors, who will be able to access relevant information for investment decisions related to the achievement of companies' sustainability goals. Furthermore, they are the result of a collaboration with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI).

The new challenge facing businesses and professionals is of great significance. In particular, small and medium-sized enterprises (SMEs), which play a decisive role in the structuring of various supply chains, are faced with the challenge of not only reporting, but also of setting up virtuous paths with regard to sustainability and ESG factors. The challenge concerns the implementation of a structured medium- to long-term path, in which companies will have to commit to concretely realise the transition towards sustainability. There are five elements to be considered on a technical level: assurance obligation; digitisation of sustainability reporting; single reporting standard; corporate risk management model; value chain assessment. 3Bee can provide companies with innovative and technological solutions to achieve ESG goals.

Article by Angelina Tortora