Large enterprises are not yet prepared for the new ESG (Environmental, Social, Governance) reporting requirements, as revealed by a Sustainability study conducted by BDO in CEE.
ESG is becoming increasingly significant in company operations, prompting businesses to seek sustainability solutions and integrate them into corporate decision-making. Regulatory and market trends highlight the growing importance of ESG reporting as it becomes a common regulatory principle, with investors and financial analysts increasingly incorporating ESG aspects into their valuation model in response to global environmental and social challenges.
The research involved BDO firms from 9 countries – Czech Republic, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia – aiming to assess and highlight the initiatives and measures taken by companies in the Central and Eastern Europe region in the field of sustainability.
ESG Efforts Trends
83% of the surveyed companies believe ESG will be extremely or very important for their business operations in the future. However, the integration of sustainability considerations into corporate decision-making is most often driven by EU and national government regulatory requirements. Other significant motivational factors include reputation improvement and expectations from shareholders and stakeholders (e.g., banks).
Over 40% of responding companies would like to spend more on sustainability, while half (52%) intend to spend the same amount as the previous year. 77% of companies have focused their investments on energy efficiency and green energy transformation, with 18% dedicating efforts towards sustainability data collection.
There is a difference in how SMEs and large corporations integrate ESG measures into their operations. Half of the large enterprises indicate they are extremely or very focused on carbon emissions and carbon neutrality, placing greater emphasis on ethical behavior and transparency than SMEs. On the other hand, SMEs are more motivated in social issues, valuing employee welfare 8% more and education, training, and human rights 15% more than large companies.
"Sustainability is not just a legal requirement but a business initiative that must be embedded in the company's DNA, being a real necessity for a better future for both them and the socio-economic environment in general," stated Roxana Tudor, Partner at Tudor-Andrei and Associates, a law firm affiliated with BDO Romania.
New Sustainability Regulations, Low Readiness
The 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 double materiality principle.
CSRD legally requires companies to apply standards to meet legal obligations regarding sustainable reporting. The European Commission has adopted common standards in accordance with CSRD. The European Sustainability Reporting Standards (ESRS) are mandatory for companies subject to the directive.
However, the survey showed that companies in the region are not yet prepared for the new legislation. Lack of capacity, lack of information, and time-consuming complex methodologies are the main obstacles in integrating ESG criteria into their decision-making and reporting processes.
The survey results show that only 20% of CEE+ companies that responded 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.
"Adapting to this new governance framework has already begun, companies that invest more and are more actively involved in this process will significantly differentiate themselves in the market in the coming period," declared Gabi Ionita, Senior Manager at BDO Romania.
Sustainability is an essential aspect of strengthening the corporate governance, the concept of "sustainable and resilient corporate governance" being even mode used in policy documents and financing strategies recently. Therefore, companies should develop ESG strategies and ensure that the principles and measures promoted are increasingly integrated into the policy, actions, and values of the company.
About BDO Romania
Present in the local market since 1992, BDO Romania has over 250 employees and offices in Bucharest, Cluj, Iași, Timișoara, Sibiu, and Chișinău. With a solid team of specialists experienced in a wide range of services and industries, BDO offers its clients financial audit, accounting, payroll, business restructuring, taxes, transfer pricing, financial, legal, and management consulting services. The company is part of the international BDO network, founded in 1963, which currently has 1,776 offices and 155,661 employees in 166 countries.