Environmentally and socially friendly business is becoming a necessity. Companies are under pressure from European legislation and clients.
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29 September 2022 in Bratislava
Sustainable economy as an inevitable goal of large companies in Slovakia is becoming a reality. Businesses no longer want to and cannot generate profits at the expense of the environment and society. They are under increasing pressure created by European legislation, but also by clients who demand goods and services produced in a sustainable way. These are the main reasons why large companies are changing their business strategy. The climate crisis appears to be less of a motivator for transformation. This is according to a survey of international audit and consulting company Mazars in Slovakia, published in cooperation with the research agency Ipsos. The joint study is based on anonymised qualitative survey involving ten large companies from across the country, operating in the manufacturing, automotive, IT, retail, telecommunications, and transport segments.
ESG criteria – how a company impacts the environment, society and what its governance looks like
Sustainability, or responsible business management with the least possible negative impact on the environment, with respect to both employees and the company, is measurable using the so-called ESG criteria. This is a relatively new concept for most large companies in Slovakia. It is more frequently mentioned in companies with an international background, especially since 2021, when it became mandatory to publish information on sustainability based on precise standards, currently finalised at European level.
What the changes look like in practice
When selecting business partners and suppliers, companies are starting to choose from companies that hold one of the existing sustainability certifications. Several companies are starting to measure their carbon footprint, many are changing their fleet (eco buses, electric cars), reducing non-recyclable packaging in production, using recycled waste plastics from the seas and oceans, controlling their energy consumption. The aim is to implement the cleanest possible production and disposal at the end of the product life cycle, with minimal impact on the environment. In the "social" sector, for example, companies have provided jobs and accommodation for people fleeing Ukraine, giving equal opportunities to both genders at management level, or helping communities in the region.
Most attention is paid to the environment
Of the three ESG pillars, companies are currently placing great emphasis on environmental protection and resource saving, especially due to the worsening situation (climate crisis, biodiversity loss, soaring energy prices, etc.). Less work is being done on the social pillar of ESG, which deals with access to employees (gender equality, inclusion, etc.) and society, because there is a feeling that it is already adequately set up in companies.
Pushing for change is neither easy nor cheap
Among the most common obstacles, companies listed a fragmented or low budget, the mindset of the management or even the employees, or ignorance about what and how the company should implement. In corporations, the slow approval process is also a problem. Poor awareness on the topic is an obstacle as well. The solution could be better structuring of the company, education, generational change of employees and management, use of external help in consulting and getting a more detailed overview of legislative expectations.
Up to 50,000 European companies will have to report on sustainability
From 2018, around 11,000 companies in the European Union must report on non-financial indicators showing their environmental and social impact. This obligation is imposed by the Non-Financial Reporting Directive (NFRD). The aim is to make this information more accessible to investors, civil society or other stakeholders and to motivate companies to act responsibly. Key indicators include respect for human rights, environmental protection, anti-corruption behaviour, equal treatment of employees regardless of gender, social responsibility and others.
However, the European Union goes further and extends the obligations of the already existing European legislation. It is doing so through the new Corporate Sustainability Reporting Directive (CSRD). It will apply to all large companies not only based in the EU but also operating in the EU. There are currently around 50,000 of them. They have reporting obligations if they meet 2 out of 3 criteria:
- Revenue higher than EUR 40 million
- Total assets higher than EUR 20 million
- 250 employees
According to Mazars' analyses, approximately 30 Slovak companies currently have experience with the so-called sustainability report card, and no more than a third of them would meet the stricter reporting criteria.
A new feature is that the information reported will have to be independently audited. Companies will store them digitally in a centralized system. The European Union plans to adopt the directive this autumn. Companies would thus have to publish reports on non-financial indicators under the new rules in 2025 for the year 2024.
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