Laurel Farrer is an internationally-renowned thought leader of remote work. She has been unlocking the power of distributed workforces for over 15 years.
Why SMEs can’t afford to ignore sustainability reporting and how to get started
Sustainability reporting by trading giants and multinational companies has become standard practice over the last decade. The 2020 KPMG Survey of Sustainability Reporting found almost all (96%) of the world’s largest 250 companies (the G250) report on their sustainability performance. For some businesses, it’s a key cornerstone of their communications calendar, prioritised alongside financial performance reporting.
However, among SMEs, the practice of sustainability reporting is not as widespread. Global initiatives such as the United Nations Sustainable Development Goals (SDGs) are acting as catalysts to encourage SME reporting. One of the SDGs stated goals, (explained under SDG 12, ‘Responsible Consumption and Production’ target 6) is to encourage companies “to adopt sustainable practices and integrate sustainability information into their reporting cycle”. However, SMEs still trail behind larger companies when it comes to sustainability reporting. According to the Global Reporting Initiative (GRI), which produces the world’s most widely used framework for standardising how businesses report on their sustainability, only 10-15% of companies using its GRI Sustainability Reporting Standards are SMEs.
This is understandable, given the complexity of reporting frameworks and of the data-gathering efforts required, which can be difficult and expensive for SMEs with often limited financial and human resources. However, the importance of reporting on sustainability is gathering pace and there is a growing expectation by stakeholders including investors, commercial partners and governments for companies of all sizes to share their impacts.
The Global Reporting Initiative
The Global Reporting Initiative (GRI) operates as an international non-profit organisation and its Sustainability Reporting Standards were the world’s first blueprint for reporting corporate impacts. The standards were developed in partnership with leading international organisations including the United Nations Global Compact (UNGC), the SDGs the Organisation for Economic Co-operation and Development (OECD), the UN Environmental Programme (UNEP), ISO and the Carbon Disclosure Project (CDP and amalgamated their principles into one reporting framework.
The GRI standards can be used by any organisation – large or small, private or public, regardless of sector, location, and reporting experience. The use of these reporting standards provides clear and comparable communication to stakeholders on the business sustainability strategy and its implementation. This allows potential investors, public bodies and NGOs to easily compare different companies and measure their progress in key areas relating to sustainability. Moreover, these standards help companies with defining materiality and set priorities, creating accountability while identifying and managing long-term risk.
Last month, the GRI released an update to the standards, requiring companies to report on due diligence in managing their sustainability impacts, including on human rights. As the importance of sustainability grows, so does the importance of adopting the GRI standards as a mechanism for reporting sustainability actions. For example, regulators are studying making it mandatory for companies considering a public listing to adopt sustainability reporting standards. In 2018, the World Federation of Exchangespublished a revised sustainability reporting guidance (WFE ESG Guidance and Metrics) for member exchanges, which is fully aligned with the GRI Sustainability Reporting Standards.
Some facts and figures:
- The GRI Sustainability Reporting Standards are unique in addressing all 17 of the SDGs
- The GRI Sustainability Reporting Standards are referenced by 57 stock exchanges globally, including the London Stock Exchange and the US SEC.
- 73% of the G250 and 67% of the N100 use the GRI Sustainability Reporting Standards
- 61% of European corporations use the GRI framework.
- Currently, there are over 60,000 reports registered in the GRI Sustainability Disclosure Database.
How are the Global Reporting Initiative’s standards relevant to SMEs?
It’s clear small businesses can’t avoid the global economic shift towards a low carbon future and need to embrace fresh strategies or risk disappearing altogether. With investors’ increasing reliance on sustainability reporting to guide their funding decisions, SMEs who fail to share transparent and reliable information could be denied vital financing, stifling growth and innovation. According to a Eurobarometer survey, more than a quarter of SMEs that have undertaken activities related to the circular economy reported difficulties in accessing financing due to a lack of clarity about their overarching sustainability strategy.The GRI standards support businesses in providing the transparency and reliability investors need to inject funding and contribute to making global economies both more robust and sustainable.
GRI has been supporting SMEs around the world in their sustainability journey over a number of years. SMEs are encouraged to start reporting to show how they do business and manage their sustainability impacts. Sustainability reporting can start small scale, using GRI-referenced disclosures to focus on key impacts, and grow over time to be “in accordance” with the GRI framework. GRI’s Disclosure Database contains many great examples of SME sustainability reports from around the world.
Vision & Strategy
SMEs can set direction by placing their purpose, vision and strategy into the context of global sustainability. The sustainability reporting process helps to make this explicit to stakeholders.
Sustainability management and reporting requires management systems, which improve data quality. Tracking data highlights opportunities for improvement, eciency and cost saving.
Strengths & Weaknesses
Early warnings of emerging issues can help management seize opportunities or evaluate potentially damaging developments early, before they emerge as unwelcome surprises.
Engaging the workforce in sustainability eorts reduces absenteeism, attracts new talent and increases productivity through a motivated workforce. It is also a great way to upscale eorts.
Reputation & Trust
roactive and transparent communication about your sustainability eorts builds goodwill, reducing reputation risks. It also improves product image, brand name and reputation.
Reducing risk through sustainability management and communication can help signal quality and good management, providing potential for new sources of capital and lower costs.
Ongoing learning from the outside-in. Stay up-to-date on the regulatory environment. Sustainability reporting is a powerful tool to build or restore trust among stakeholder
Customers are looking for suppliers that minimize environmental and social risks. By reporting, SMEs can increase customer satisfaction and loyalty, and access the supply chain.
Why use the Global Reporting Initiative’s standards?
The GRI Standards may seem complicated due to their thoroughness and wide range of topic-specific standards but they are a useful stepping-stone for other reporting standards. As the first corporate sustainability reporting standard in the world, the GRI paved the way for ESG reporting, so following its guidelines can also help companies with submissions to other frameworks, such as the more US-centric Sustainability Accounting Standards Board (SASB). The GRI deliberately developed the 34 topic-specific standards so it can update individual standards as opposed to the entire reporting system. This structure allows GRI to incorporate emerging ESG topics and metrics, such as tax transparency or the circular economy, without a complete reconfiguration.
GRI also provides a way to benchmark your company’s ESG performance against industry peers. There is a high likelihood that companies in the same industry will prioritise the same material topics, and this benchmarking can provide valuable insights into the competitive landscape.
Our Top 5 tips to starting the process of sustainability reporting:
- Appoint a sustainability champion and a committee with at least one member of the Board/senior management.
- Develop a realistic sustainability strategy and set goals. If it is your first time, you can seek help at this stage from external experts.
- Research your sector and competitor’s sustainability reports for their materiality topics and reporting standards.
- Engage with your key external stakeholders to understand their concerns/expectations.
- Align your sustainability strategy and goals internally with senior management, and company vision/mission.
- Seek external support to write your first report to ensure you are using GRI standards accurately.
World Federation of Exchanges – WFE ESG Guidance and Metric. Studies, Reports, 2018.
Sustain Case – London Stock Exchange guidance for CSR/ ESG/ Sustainability reporting. News, 2021.
3BL Media – GRI Supports Sustainable Efforts Among SMEs. GRI, Empowering Sustainable Decisions, 2020.
GRI & OIE – SMALL BUSINESS BIG IMPACT SME SUSTAINABILITY REPORTING FROM VISION TO ACTION. Sustainability Report.
Global Reporting Initiative – Ready to Report? Introducing Sustainability Reporting for SMEs. Sustainability Report.
Sustainability & ESG News Central Europe – What is ESG for SMEs? Article. 2021.
Global Reporting – Sustainability reporting is growing, with GRI the global common language. 2020
Gregor, F., Bold, F. – SMEs and the Future of European Sustainability Reporting Rules. In ESG Investor, Commentary, 2021.
Global Reporting – Upward trajectory for ESG disclosure requirements. In News Center, 2020.
Geilan Malet-Bates is the Chair of the P27 Green FinTech Forum and a regular contributor to green finance debates and consultations.