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Why private businesses shouldn’t see ESG reporting as a burden – but an opportunity
In my everyday conversations with private and family-owned businesses, a topic that nearly always crops up is how they’re approaching ESG (environmental, social and governance) issues. And within that, we invariably discuss the actions they’re taking to make their operations more sustainable.
What do they tell me? Often that they’re making great strides towards goals like reducing the carbon footprint of their products and supply chain. In many cases, they’re keeping pace with listed corporations in this respect. Yet while they’re making great strides on sustainability, they’re not telling anyone about it.
Private businesses should reprioritise ESG reporting
In some ways, it isn’t surprising that they’re keeping their ESG achievements to themselves. For one thing, private businesses – and family-owned businesses in particular – are renowned for being values-driven and taking a long-term perspective on value creation. So behaving responsibly towards communities and the environment is in their DNA, and making ESG investments is simply business-as-usual, part of their wider drive to build future value.
For another, most private businesses don’t have the formal procedures and processes that you find in listed businesses. So, rather than setting up specific ESG projects or workstreams with defined targets and KPIs, they’re more likely to approach actions like decarbonizing their operations in an informal way, responding to a changing market. Which means the owners and executives sitting down together to agree what should be done, putting it into effect, and then seeing what the outcomes are.
It's an approach that’s highly responsive, agile and entrepreneurial – but which doesn’t lend itself easily to detailed external reporting. While listed companies are already required to publicly disclose their sustainability performance based on hard data, most private businesses don’t yet have to do this. So it’s something they leave in the ‘too complicated’ box.
The CSRD is extending reporting requirements to private businesses
But this is about to change because of the EU’s Corporate Sustainability Reporting Directive (CSRD). Adopted by the European Commission in November 2022, the CSRD will extend the requirement for detailed non-financial reporting to many more businesses, including private and family-owned ones.
The CSRD will be enacted through a phased implementation approach starting on 1 January 2024, from when the new rules will apply to large public-interest companies already subject to the Non-Financial Reporting Directive (NFRD). Other large companies – including private ones – will come within the CSRD from 1 January 2025. However, if they’re part of the supply chain of a business in the first wave of CSRD, they’ll already need to be able to report the relevant ESG data up to their large public-interest customers from the start of 2024.
It is important to realise that the CSRD will not only be applicable for EU businesses, but also for Non-EU businesses with EU subsidiaries. Doing business with EU companies? Most probably you are required to provide the data for the services provided or products delivered, since you are in the supply chain of the EU business.
New reporting requirements provide an opportunity for private businesses
How do private and family businesses view this prospect? In general, they’re not keen on regulatory reporting requirements – and in many cases they regard CSRD in this light. The immediate response of many private firms and owners I’ve spoken to is that the CSRD is an additional compliance obligation that’s being imposed on them, and that they could well do without.
But look at the CSRD another way, and a very different picture emerges. One where the new reporting requirements provide private and family businesses with the opportunity to tell a clear and compelling story about their commitment and achievements around ESG. And where they can become recognised as the ESG leaders that their values and long-term perspective equip them to be.
It’s an opportunity that I believe they mustn’t miss – and which they’re well-positioned to capitalise on. ESG is already embedded into everything that many private businesses do, but to date they haven’t been measuring or articulating the results. By requiring private businesses to report on sustainability, the CSRD opens the way for them to truly integrate ESG and use it as a differentiator with customers, suppliers and talent. The result? They could leapfrog their large and listed counterparts on the sustainability agenda.
There are other reasons why ESG leadership is a natural role for private businesses. Since they’re not bound by the rigid, formalised internal processes seen in large listed companies, they’re more agile and can move faster in reinventing themselves for a low-carbon and inclusive world. This also enables them to be more entrepreneurial in their pursuit of long-term value – in a world where that value will increasingly come from ESG performance.
Mapping out your route to ESG transparency and value
The overall message for private and family businesses? It’s time to reframe your view of the CSRD. Far from being a burden, it provides you with the incentive and opportunity to understand where you are on your ESG reinvention journey and tell your story in a clear and credible way. And since compliance with CSRD will not be optional, the question isn’t whether you do this – but how.
This is one of many questions that we’ll be discussing during our webinar on ESG reporting for private and family businesses on 8 February 2023. Interested in finding out more? Register here.
Find out more about ESG reporting
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