SMEs and Sustainability Reporting

Sustainability reporting is becoming increasingly important for all organizations, including
SMEs, as stakeholders demand more transparency and accountability in the way businesses
operate and impact the environment and society. However, the number of SMEs (Small and
Medium-sized Enterprises) that need sustainability reporting varies depending on various
factors, such as the industry, size, location, and stakeholder expectations.


According to a report by the Global Reporting Initiative (GRI), the number of SMEs reporting
on sustainability has increased in recent years, with SMEs accounting for 70% of all GRI
reporters in 2019. This suggests that an increasing number of SMEs recognize the
importance of sustainability reporting and are taking steps to report on their sustainability
performance.


Moreover, various stakeholders, including customers, investors, and regulators, are
beginning to demand sustainability reporting from SMEs as they become more aware of the
social and environmental impact of businesses. For example, some investors and financial
institutions are starting to require sustainability reporting from their investee companies as
part of their risk assessment and due diligence processes.


Therefore, while the exact number of SMEs that need sustainability reporting may be
difficult to determine, it is becoming increasingly important for SMEs to report on their
sustainability performance to remain competitive, gain stakeholder trust, and contribute to
a more sustainable future.


The amount that SMEs invest in their sustainability reporting can vary widely depending on
various factors, such as the size of the business, the scope of the sustainability report, the
reporting standards used, and the level of external assurance sought. Additionally, the costs
associated with sustainability reporting can vary depending on the jurisdiction in which the
SME operates, as different reporting requirements and regulations may apply.

Europe: The costs of sustainability reporting for SMEs in Europe can range from €5,000 to
€50,000, depending on the size and complexity of the business and the scope of the
sustainability report. The cost can be higher if an SME seeks external assurance or uses
more comprehensive reporting frameworks such as the Global Reporting Initiative (GRI) or
Integrated Reporting (IR).


United States: The costs of sustainability reporting for SMEs in the United States can vary
widely depending on the reporting standards used and the level of external assurance
sought. A basic sustainability report for an SME in the US may cost between $5,000 and
$20,000, while a more comprehensive report using frameworks such as the GRI or IR may
cost upwards of $50,000.


Asia: The costs of sustainability reporting for SMEs in Asia can vary depending on the
jurisdiction, with some countries having more stringent reporting requirements than others.
Generally, the costs of sustainability reporting in Asia are lower than in Europe or the United
States, with some estimates suggesting that an SME can produce a basic sustainability
report for as little as $2,500.


It’s important to note that these estimates are generalizations, and the actual costs of
sustainability reporting for SMEs can vary widely depending on the specific circumstances of
each business.

Investment capital from a variety of sources may ask for sustainability reporting from
businesses, including private equity firms, venture capitalists, banks, and institutional
investors. This trend has been driven by the growing recognition that environmental, social,
and governance (ESG) factors can have a significant impact on business performance and
long-term value creation.

Here are some examples of investment capital that may ask for sustainability reporting:

Private equity firms: Private equity firms may require sustainability reporting from the
companies they invest in as part of their due diligence process. This can include requesting
information on the company’s environmental impact, social practices, and governance
policies.

Venture capitalists: Venture capitalists may also ask for sustainability reporting from the
start-ups they invest in as a way of assessing the company’s long-term growth potential and
risk management practices.

Banks: Some banks may require sustainability reporting from the companies they lend
money to as part of their risk assessment processes. This can include requesting information
on the company’s environmental and social impact and the steps they are taking to manage
their risks.

Institutional investors: Institutional investors such as pension funds, endowments, and asset
managers may also require sustainability reporting from the companies they invest in as
part of their ESG screening processes. This can include requesting information on the
company’s environmental and social impact, governance practices, and risk management
strategies.

In general, investment capital that is focused on sustainable or socially responsible investing
is more likely to require sustainability reporting from the businesses they invest in.
However, as ESG considerations become increasingly mainstream, it is becoming more
common for a wide range of investors to request sustainability reporting as part of their
investment decision-making process.

SMEs face several challenges when it comes to sustainability reporting. Here are some of
the most common challenges:


Lack of resources: SMEs may have limited resources in terms of time, budget, and expertise
to produce a sustainability report. Sustainability reporting can be time-consuming and
requires dedicated resources to collect and analyze data, engage stakeholders, and report
on performance.


Lack of awareness: Many SMEs may not be aware of the benefits of sustainability reporting
or may not have a clear understanding of what sustainability reporting entails. This can
make it difficult for SMEs to justify the investment in sustainability reporting or to prioritize
it alongside other business priorities.


Lack of data: SMEs may struggle to collect reliable and relevant data on their sustainability
performance, especially if they do not have formal systems in place to track their
environmental and social impact.


Complexity of reporting frameworks: Some SMEs may find the reporting frameworks used
for sustainability reporting to be complex and difficult to navigate, especially if they are not
familiar with sustainability reporting concepts and terminology.


Stakeholder engagement: Engaging stakeholders, such as employees, suppliers, customers,
and local communities, is an essential part of sustainability reporting. However, SMEs may
find it challenging to engage stakeholders effectively, especially if they do not have
established relationships or if they operate in remote or dispersed locations.


Limited access to external assurance: External assurance, such as an audit or review of the
sustainability report by a third-party, can add credibility to the sustainability report.
However, SMEs may have limited access to external assurance providers, who may be more
focused on larger businesses.


Overcoming these challenges will require SMEs to prioritize sustainability reporting, invest
in the necessary resources and expertise, and build partnerships with stakeholders and
external assurance providers. By doing so, SMEs can demonstrate their commitment to
sustainability, build trust with stakeholders, and create long-term value for their business.

The timeline for preparing for sustainability reporting can vary depending on the size and
complexity of the SME, as well as the reporting requirements and standards they are using.
However, in general, SMEs should start preparing for sustainability reporting well in advance
of the reporting deadline to ensure that they have sufficient time to collect and analyze
data, engage stakeholders, and produce a comprehensive and accurate report.
Here are some general guidelines on how long in advance SMEs may prepare for reporting
on their sustainability:

Determine reporting requirements: SMEs should start by determining what sustainability
reporting requirements they need to meet, such as legal obligations, customer requests, or
investor expectations. This will help them to understand the scope and scale of the
reporting and the timeline for preparation.


Develop a reporting plan: Once SMEs have determined the reporting requirements, they
should develop a reporting plan that includes a timeline for preparing the report. This
timeline should take into account the availability of data, the need to engage stakeholders,
and the time required for internal review and external assurance.


Collect and analyze data: SMEs should begin collecting and analyzing data on their
sustainability performance as early as possible to ensure that they have sufficient time to
address any data gaps or inconsistencies. This process can be time-consuming, especially if
the SME does not have formal systems in place for tracking sustainability performance.
Engage stakeholders: Engaging stakeholders, such as employees, suppliers, customers, and
local communities, is an essential part of sustainability reporting. SMEs should start
engaging stakeholders as early as possible to ensure that they have sufficient time to
address any concerns or feedback.


Produce the report: Once SMEs have collected and analyzed data and engaged stakeholders,
they can begin producing the sustainability report. This process can take several weeks or
months, depending on the size and complexity of the report and the reporting standards
used.


In general, SMEs should aim to start preparing for sustainability reporting at least six
months before the reporting deadline to ensure that they have sufficient time to produce a
comprehensive and accurate report. However, the specific timeline will depend on the
SME's reporting requirements, resources, and expertise.

A double materiality assessment is a process that helps SMEs identify and prioritize their
sustainability issues based on both internal and external impacts. Here are the general steps
for conducting a double materiality assessment:

Identify internal sustainability impacts: The first step is to identify the sustainability impacts
that are most relevant to the SMEs operations, products, and services. This includes
assessing the environmental, social, and economic impacts that the SME has on its
employees, customers, suppliers, and other stakeholders.

Identify external sustainability impacts: The next step is to identify the sustainability impacts
that are most relevant to the SME’s external stakeholders, such as investors, regulators, and
the wider community. This includes assessing the environmental, social, and economic
impacts that the SME has on the wider society, including its contribution to the UN
Sustainable Development Goals.

Prioritize sustainability issues: Once the internal and external sustainability impacts have
been identified, the next step is to prioritize the sustainability issues based on their
materiality. Materiality is a concept that helps SMEs determine which sustainability issues
are most important based on their potential impact on the SME’s business operations,
reputation, and stakeholder trust.

Develop a sustainability strategy: Finally, SMEs can use the results of the double materiality
assessment to develop a sustainability strategy that addresses the most material
sustainability issues. This includes setting targets, developing policies and procedures, and
engaging stakeholders to ensure that the sustainability strategy is aligned with their
expectations and needs.

It’s important to note that conducting a double materiality assessment can be a complex
and time-consuming process, especially for SMEs that may have limited resources and
expertise. However, there are tools and frameworks available that can help SMEs conduct a
double materiality assessment, such as the Global Reporting Initiative (GRI) Standards and
the Sustainability Accounting Standards Board (SASB) Standards. Additionally, SMEs can
seek guidance and support from sustainability consultants, industry associations, and other
stakeholders to help them navigate the double materiality assessment process.

Yes, there are several tools and software available to help SMEs with sustainability
reporting. These tools can help SMEs collect and manage sustainability data, analyze their
performance, and prepare their sustainability reports. Here are some examples:


Sustainability reporting frameworks: There are several sustainability reporting frameworks
available that SMEs can use to guide their reporting, such as the Global Reporting Initiative
(GRI), Sustainability Accounting Standards Board (SASB), and International Integrated
Reporting Council (IIRC).


Sustainability data management software: There are several software solutions available
that help SMEs collect, manage, and report sustainability data. These include tools such as
Enablon, EcoVadis, and BREEAM.


Carbon accounting software: There are several software solutions available that help SMEs
track and report their carbon emissions, such as Carbon Trust, Carbon Clear, and Carbon
Footprint.


Environmental management software: There are several software solutions available that
help SMEs manage their environmental impacts and comply with regulations, such as
EcoIntense, Envirosuite, and SustainIt.


Stakeholder engagement software: There are several software solutions available that help
SMEs engage with their stakeholders and gather feedback, such as Stakeholder Reporting,
Dialogue App, and SurveyMonkey.

It’s important to note that these tools and software are not a replacement for a well-designed 

sustainability strategy and reporting process. SMEs should carefully evaluate their needs and 

choose tools and software that are aligned with their goals and objectives, and that complement 

their existing sustainability reporting processes.

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