“That’s scary.” You report how green you are. Mandatory for 3 years

There are words hidden under the acronym ESG Environmental, social and managerial. According to the European ESG directive, which became known as early as 2006, but has been widely applied only in recent years, companies are obliged to inform the public about the specific impacts of their activities on the environment, social sphere and management. Until recently, this term was mainly used by bankers and investors. For most financial institutions, so-called ESG reporting has been mandatory since 2018.

However, from January 1, 2023, it began to be applied to large companies with more than 250 employees, a turnover of more than 50 million euros and an activity of more than 43 million euros. From January 1, 2026, the obligation to report ESG data will also fall on small and medium-sized enterprises.

Additional concerns and costs

In layman’s terms, ESG will reveal how a company stands on the scale of greenness, sustainability, gender, what resources it invests in lobbying, how transparent it is towards shareholders, etc., explains to ParlamentnímListům.cz entrepreneur Filip W., whose company for the production of packaging materials fulfills guidelines and ESG.

“According to the value of the ESG rating, the company will be approached from the point of view of loans and investments, but it can be assumed that this will also have wider effects – for example, in the form of business cooperation, etc. Filip W told ParlamentnímListům.cz that the so-called dirty work, which includes, for example, coal mining or other fields associated with environmental impact, has a stop sign on the coasts. Companies of this type cannot realize their plans and when they get into trouble, no one will help them. It is not in the public interest.’

In particular, Filipa W.’s company is not coping well with the ESG reporting obligation: “I don’t know yet how exactly we will process it. We’re learning as we go, and frankly, it’s holding us back and bothering us quite a bit.”

Apparently, there is confusion among businessmen. Companies are not ready for the additional burden of administration: “These are additional costs, because someone has to manage and evaluate the agenda.” And either it will be sent additionally to the already existing administrative staff, or we will have to hire new ones,” explains the businessman.

At the same time, he had big problems with the energy crisis, when the company had to cut costs to a minimum in order to tighten operations. ESG reporting creates an additional burden of concern: “Basically, if you look at those ESG points, you’ll find meaningful things there, which as a good manager and responsible entrepreneur you’re already naturally doing, because if you didn’t do them, you’d be bankrupt.” But there are also things related to gender, quotas, diversity or lobbying, and these are topics on which companies differ.”

How to compare incomparable

According to Philip W., it’s simply not possible for, for example, engineering companies to provide data at a similar level to, for example, IT companies: “It’s a completely different world comparing the number of women or minorities employed. it will always be awkward. Or how do you want to measure employee satisfaction? In the same way, some companies, for example in the construction industry, can spend many times more money on lobbying than other companies. And is that good or bad? From what figure can you say – this is too much?”, believes the entrepreneur.

In recent years, he says, he feels that companies are becoming authorities: “They control us from all sides.” Of course, we can’t go wild here like Klondike, but the level of supervision over entrepreneurs is really huge. I don’t hesitate to say that sometimes it borders on bullying.”

According to Filip W., politicians are also officials: “The vast majority of elected representatives have never run a business in their lives.” They do not understand this and when making decisions, they are influenced by the opinions of other officials in the ministries. This also applies to the Czech Republic and Brussels, where ESG-type trends and the like come to us,” says Filip W. for ParlamentnímListům.cz.

Pressure from corporations

The editors also addressed the Association of Small and Medium Enterprises and Entrepreneurs (ASMP) with questions about ESG. First of all, we were interested in how ESG will affect small entrepreneurs, who already often complain about difficult conditions.

“ESG reporting is a very extensive and administratively demanding agenda, which SMEs are already afraid of. Resp. those companies that are aware of what ESG, i.e. non-financial reporting, means,” Eva Svobodová, executive director and board member of ASMP, told ParlamentnímListům.cz.

In general, it can be said that small and medium-sized enterprises are currently not solving this problem, because the year 2026 is too far for them. “Now entrepreneurs have to keep their positions after all the recent blows – covid, lack of materials and their price increase, high energy prices, high inflation, but also the pressure of employees on salaries or high interest rates on loans have taken their toll. entrepreneurs”, explains Svobodová.

According to the director of AMSP, companies that cooperate with large companies in the subcontracting chain most often encounter ESG: “Large companies have this obligation from 2024. And that’s why smaller companies are under pressure from corporations to also monitor and report on ESG . Large companies will have to report ESG for the entire chain of subcontracting, and therefore they need all its links not to spoil the numbers,” Svobodová describes the plight of smaller companies. According to her, the problem is that the law still does not specify how such an ESG report should look.

Agency for ESG

ESG will be publicly available data, but it is stated that the details of this agenda are still being harmonized: “This point has not yet been concluded at the European level, but it is expected that the report will be part of the annual report in the form of an additional table or the form that companies publish in the register . As for the more comprehensive form of the report, companies can publish it on their websites. The problem, however, is that the agenda belongs to several departments – financial and economic affairs within the Ministry of Finance, environmental affairs within the Ministry of the Environment, social affairs within the Ministry of Internal Affairs. The idea that a new “ESG agency” could be created scares us quite a bit, says the AMSP president.

The organization of ESG reporting also assumes time and administrative requirements, and companies must adapt to this as well. While large companies will have their ESG manager, smaller ones will have to deal with it differently: “In small companies, it will be up to the owner in cooperation with other employees from relevant agendas (HR, waste management, etc.). Due to the time required to process ESG reports, there are already a large number of companies, advisors and consultants offering their services in this area. Large companies are already announcing that only certain certified reports will be authoritative for them.”

However, as Filip W. stated above, this entails increased costs. “ESG reporting will take a lot of time for people in the company who would need it for their work, or the company will have to pay for an external service,” says Eva Svobodová.

Little ones with the biggest worries

And the director of the Association of Small and Medium Enterprises admits that small businesses will fare the worst: “The smaller the entrepreneur, the greater the administrative and financial burden for him, and again negative.” But it is necessary to wait for an exact specification from the European level – depending on the subject of business of a given entrepreneur or company, it is expected that each company will focus more on something else – who operates in the social field, both in the social field, who in the environmental field, and environmental areas, etc.’

As for the penalties for companies that do not have a good ESG score, nothing is clear in this field either: “The final task at the European level has not yet been completed, and therefore neither have the sanctions. Certainly, companies are already fulfilling something from ESG, without having strategies for it and reporting on it. Therefore, it will be necessary to collect that information, sort out what they have already filled in and gradually start building on it,” Svobodová believes.

It is also stated that the Association of Small and Medium Enterprises and Entrepreneurs is preparing a major awareness raising campaign within the project for the 2nd quarter of this year. 2023 year of business retention.

“In general, it can be said that luck favors those who are ready,” concluded the president of AMSP on the topic of ESG for ParlamentníListy.cz.

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author: Andrea Novotná

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