25 July 2022 — News
by Jesper Esman Andersen, Roesgaard
Jesper Andersen is an accountant in a medium-sized accounting firm in Horsens, central Denmark. For over 40 years, the practice has been supporting its diverse SME client base– ranging from 1-employee businesses to EUR 250 million turnover medium-sized companies. Last year, it opened a new service line: sustainability.
For years, we have helped our clients communicate ESG metrics in their annual reports. That is why it felt natural to expand our service lines towards climate accounting and ESG reporting. We first started with training our team on climate accounting and ESG reporting. For specific matters such as emission calculations, we rely on our network of technical experts and engineers from specialised firms.
However, many SMEs are not able to consider sustainability. At a recent meeting I had with 50 chief financial officers (CFOs), only one said to have been approached by a SME client for support on sustainability. There is definitely some convincing to do.
It is key to make SMEs aware of ESG reporting and the new sustainability legislation coming their way. They will inevitably be impacted by new obligations despite not being in scope of the EU sustainability reporting Directive (CSRD). And this might happen sooner than many expect.
In Denmark, banks have already taken interest in SMEs’ sustainability related key performance indicators (KPIs). They started to collect sustainability information from SMEs this year. The government will also introduce a new CO2 tax as from 2024. This will incentivise SMEs to calculate their carbon footprint so they know what to expect on their tax bill. Of course, these add to societal expectations and climate science that tells us what needs to be done to tackle the climate crisis.
The main problem is that everyone – supply chain partners, banks, legislators – expects different sustainability information from SMEs. Legislators currently put focus on explanations over figures, banks on environmental KPIs, while supply chain partners ask about social and governance matters. These requests also come in different formats and questionnaires.
There is thus a lack of clarity on what SMEs would have to act and report on. They need certainty on common standards and guidelines for sustainability disclosure obligations.
This first step is awareness raising. The next one is data collection – calculating emissions, CO2 footprint, energy consumption, water usage, assessing workforce happiness and gender diversity, among others.
SMEs should decide on their own sustainability KPIs based on that data and develop a strategy to reach them as a 3rd step. For example, if the goal is to reduce CO2 emissions, their strategy could include investments in more effective production processes, a switch from gas to electricity, re-designing products in a more sustainable way etc.
And finally, communicate – internally to enable a more sustainable decision-making, and externally towards stakeholders. Assurance would be the 5th step but for now this happens only once SMEs’ larger company customers start demanding it.
This interview is part of our Insights from SME accountants series, where small practitioners share their experience supporting SMEs with their sustainable transition. Connect with Jesper Esman Andersen on LinkedIn or follow him on Twitter.