(Financial) Opportunities of European sustainability reporting rules for small businesses

July 2021 Issue

This year will be key for future climate policy and especially for sustainable finance in Germany and Europe. Sustainable finance plays a crucial role in improving climate protection and sustainable growth. To this end, Germanwatch joined forces with the Alliance for Corporate Transparency in order to push towards greater corporate responsibility and disclosure requirements to meet the EU and Paris climate targets.

This is the fifth article of our briefing series “Full Disclosure: Monthly Briefing on EU Corporate Transparency Regulation”, in which we aim to shed light on the need for and benefits of forward-looking reporting requirements in a changing EU regulatory environment.

About this issue:

No company can afford to ignore the financial risks of climate change. This also applies to small and medium-sized enterprises (SMEs). To reduce these financial risks for companies and investors, it is crucial to be transparent. So far, however, SMEs are not considered in legislation on transparency requirements, meaning disclosure of climate and sustainability risks. Even the current EU Commission proposal, revising this legislation, only includes SMEs listed on the capital market.

In the public debate, many stakeholders fear bureaucratization and an unnecessary additional burden for SMEs through an increase in sustainability reporting. However, since sustainability risks have long become financial risks, disclosure holds many opportunities that SMEs should seize. Harmonization of current reporting formats can even have a relieving effect on SMEs.
It is high time for SMEs to adapt to the new requirements, because the financial market needs appropriate information and data for its own security and is increasingly demanding exactly this from invested companies.

In this issue, we explore the following questions:

•    What are the benefits for SMEs of reporting on sustainability risks?
•    Are there disadvantages for SMEs that do not report?
•    How can SMEs be more realistically represented in the current EU proposals?

June Issue: Climate transition plans: How EU standards can help companies to focus on the right data

May Issue: The EU Sustainable Finance April package and how EU sustainability reporting standards fit in

April Issue: What needs to be reported on sustainability-related governance?

March Issue: Reform of the EU Non-financial Reporting Directive: A Push Towards Future-proof Reporting Obligations