Large companies are not yet ready for the new ESG reporting requirements

Large companies are not yet ready for the new ESG reporting requirements

ESG (environment (E), social (S), governance (G)) is becoming more and more significant in companies’ operations, thus enterprises should look for sustainability solutions and integrate them into corporate decisions. Regulatory and market trends show the growing importance of ESG reporting since ESG is becoming a common regulatory principle and investors and financial analysts are increasingly including ESG aspects into their valuation model in response to the global environmental and social challenges facing the world.

The research led by BDO Hungary involved a total of 9 countries’ BDO firms and aimed to assess and overview what initiatives and measures companies in the Central-Eastern European region have taken, in the area of sustainability.

Trends in ESG efforts

83% of companies who completed the questionnaire think that ESG will be extremely or very important in the future for their business operation. However, the integration of sustainability considerations into corporate decision-making is most often driven by the regulatory requirements of the European Union and national governments. Other important motivating factors are reputation enhancement and the expectations of owners and stakeholders (e.g. banks).

More than 40% of responding companies would like to spend more on sustainability, while half of them answered (52%) that they would be spending the same amount as the previous year. 77% of the companies were focusing their investments on energy efficiency and green energy transformation—and 18% of the firms devoted and concentrated on gathering sustainable data.

There is a difference in how SMEs and large corporates integrate ESG measures into their operations.  Half of the large enterprises indicate that they are highly or extremely focused on carbon emissions and carbon neutrality, with a greater emphasis on ethical behavior and transparency than SMEs. On social issues, on the other hand, SMEs are more motivated, placing 8% more importance on employee well-being and 15% more on education, training, and human rights than large companies.

New sustainability regulation, low preparedness

Corporate Sustainability Reporting Directive (CSRD) ensures that companies disclose adequate information about their sustainability risks and opportunities and their impact on people and the environment, based on a dual materiality principle. The CSRD requires companies by law to apply standards to meet the legal obligations on sustainable reporting. The European Commission adopted common standards in line with the CSRD. The European Sustainable Reporting Standards (ESRS) are mandatory for companies subject to the directive.

However, the survey revealed that companies in the region are not yet prepared for the legislation. Capacity gaps, lack of information, and complex and time-consuming methodologies are the main obstacles to integrating ESG criteria into their decision-making and reporting processes.

The survey results reveal that only 20% of responding CEE+ companies have prepared ESG reports and nearly 40% plan to prepare their first ESG report soon. More than 40% of companies do not plan to report on ESG, with two-thirds of SMEs and one-third of large companies.

Takeaway for companies
  1. Be aware: new regulations are here or coming that focus on sustainability,
  2. Be informed: check whether the regulations have a direct or indirect effect on your operations,
  3. Be prepared: think ahead and start your preparation early as these tasks are complex, time-consuming,
  4. Be smart: strategic thinking is needed to stay ahead of your competitors and maintain business resilience.

The research was conducted by BDO Hungary's ESG business, in collaboration with BDO firms from nine countries - Czech Republic, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. The study involved surveying clients of participating BDO firms to evaluate the sustainability initiatives and actions taken by companies in the CEE+ region. The survey also aimed to gauge the clients' attitudes towards sustainability, their awareness and ESG maturity, their knowledge of regulatory requirements, and the obstacles they face. The research utilized a questionnaire methodology, and the online survey reached over 5,500 BDO clients.

Click on the download to view the research results