December 19, 2022

New and significantly tightened requirements from the EU mean that even smaller companies must document their sustainability with far more detail – and you’d better get started.

Companies are measured by sustainability – we know it, and it will only grow. On whether you pollute the environment, how you treat your employees, and how you lead. But where it may have been a little airy with good intentions in the past, there will be different tangible requirements in the future – and those requirements will apply to far more companies than you might think.

And yes, now it gets a little technical, but that’s not an excuse not to continue reading. At the end of November, the Council of the European Union agreed that companies in the future must document their impact on the environment, employees, and their corporate governance on many more parameters – the so-called ESRS (European Sustainability Reporting Standards). In other words, it must be documented how a company affects the environment – it is not enough to talk about good initiatives – it must be proven so customers, clients, and investors can compare with other companies. Initially, this applies to companies with more than 250 employees, but – and this is where the danger of being caught with your pants down is – the requirements will also apply to subcontractors in the companies’ value chain. And yes, it will cost time and money to meet the documentation requirements.

There are 13 categories, each of which contains subsections, so in total, there are more than 1000 elements that must be reviewed before a combined report can be submitted. Not every single part is equally demanding, but it shows that sustainability will be a gigantic competitive parameter in the future. There will be a completely different transparency in companies’ value-based reporting, which in the future will be as comprehensive as financial ones. And yes, there will undoubtedly be criticism of the scheme’s scope and the extra burdens that come with it. Still, there is a clear trend towards sustainability becoming a parameter that can move customers and thus market share – and here, the new accounts on what were once soft values can be an offensive tool.

There are still some years until the requirements are introduced (it happens in several stages depending on the size of the companies), but now is the time to check whether your company fits the parameters and prepare. Then you can be left with your pants on, while others are a little more involuntarily exposed when the time comes.

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