Towards a Sustainable Economy – Is Business Equally Committed?

Corporate sustainability, also referred to as ESG (Environment, Social, Governance), is a business approach in which company’s economic needs are met while being attentive to the organisation’s impact on the environment, the wellbeing of employees, local communities and end users. The concept has gained prominence around the world in recent years, largely as a result of concerted commitments to implement sustainability.

Towards a sustainable economy

The European Union, which has set a very ambitious goal and plan for the transition to a sustainable economy, is currently leading the way and setting an example for the rest of the world. In the last 5 years alone, more than 57% of ESG legislation has come from the EU. Most of these requirements are imposed on companies or financial institutions, but more recently the obligation has been cascading down to large companies. As early as next year, companies in the EU, including Poland, with more than 250 employees will have to collect data and report on their sustainability performance (according to the CSRD – Corporate Sustainability Reporting Directive) in a different way than before, using the European Sustainability Reporting Standards (ESRS). There is no doubt that legal requirements are accelerating the green transformation, from which there is no turning back. However, the question remains whether only large companies will have to operate according to ESG principles (it is estimated that 3500 companies will be subject to the CSRD in Poland) and whether this means that companies in the SME sector can sleep soundly and not implement changes in their existing operations?

The involvement of Polish SMEs in sustainable development issues

Poland has more than 2 million SMEs, comprising nearly 99% of all companies, employing around 100 million people and being responsible for the production of nearly half of the national GDP. Their impact on ESG factors, irrespective of their scale of operation, is therefore undisputed and enormous. It is not possible to speak of a green transformation of the entire economy if only a fragment of it operates according to a new model, taking into account ESG factors, while the rest will not change anything in the way they have been operating so far. In order to achieve a common global goal, the whole business must act coherently and follow the same path. Unfortunately, not every company understands this yet, especially SMEs.

SMEs’ awareness of sustainability and the changes resulting from regulatory requirements, as well as their willingness to implement new ESG elements into their business, unfortunately do not inspire optimism. Polish SMEs, although they declare that they know the regulations, are in fact not familiar with the most important ESG legislation and often do not follow regulations that are not directly aimed at their industries.

Knowledge of sustainability principles and basic concepts in this subject is also an area in which Polish SMEs do not do very well, which is also reflected in the perception of the relevance of these issues in the context of their organisation. More than half of SMEs believe that sustainability issues are not important for their business activities. The fact that companies perceive ESG through the prism of costs, as an additional obligation, rather than tangible benefits, especially long-term ones, is of great significance. Unfortunately, companies in Poland are very often unaware that incorporating ESG factors into their operations, measuring and demonstrating their impact on sustainability is an opportunity for them and can become an additional competitive advantage alongside price and quality. This is particularly important for those Polish companies that export to the EU. In countries such as Germany or France, the awareness and involvement of companies in ESG is much higher, but also local regulations dictate that companies should establish business relationships with partners who can show how their product or service implements ESG strategy. Research shows that nearly 60% of Polish SMEs do not have ESG initiatives or strategies, and those companies that do, most often indicate that the main reason for these actions was to respond to the expectations of stakeholders, such as customers, investors, banks, counterparties or suppliers. This clearly shows that Polish SMEs are ‘forced to’ rather than ‘want to’ do business in a new, sustainable way.

Lack of knowledge or understanding of ESG issues also means that companies do not understand their indirect obligation to report on sustainability issues. According to research, only around 30 per cent of Polish SMEs publish sustainability information, stressing that the main difficulties are labour-intensity as well as lack of data and knowledge. Although the legislator has not imposed a direct ESG reporting obligation on SMEs in the unregulated market, it is important to note that the current CSRD imposes an obligation on large companies to analyse and include ESG data on their value chains, i.e. suppliers, partners, customers. SME entrepreneurs very often work with large companies as suppliers or subcontractors of services. This means that they too will have to start adopting a sustainable approach to business and management, as they will be indirectly subject to the obligations of the current legislation.

How to involve SMEs in the green transition

Although many SME entrepreneurs today have little interest in ESG issues and many companies consider sustainability to be of limited relevance to them, increasing pressure from contractors, customers or regulators will force them to change the way they do business in a new, ESG-compliant way. The difficulties and admissions most frequently cited by SMEs, such as lack of knowledge, human and financial resources or time, indicate that the sector needs a great deal of support from both its business partners and the institutions that govern the business environment. The transition to a sustainable economy must be based on dialogue and education, and technological development can also help. We already have tools on the market today (such as CRIF’s global Synesgy platform) that are ideal for educating or raising ESG awareness among companies, but most importantly for helping them to assess their level of sustainability quickly, easily and without the need for expert knowledge. It is encouraging to see that many companies today, with hundreds or thousands of partners in their value chains, are taking steps to help these stakeholders understand what ESG is and how it affects the company, and to provide them with tools to help them quickly and easily assess and report on their level of sustainability. All of this is done to enable stakeholders to stay in their value chains and thus put them on the path to sustainability.

Anna Kowalik – Business Analyst, CRIF Poland

Sources:

Study on the Awareness and Readiness to Implement Sustainable Development Policies in the SME Sector in Poland, 2023 Report, Ministry of Development and Technology

ESG in Opinions and Actions of Polish Entrepreneurs in the SME Sector, BGK Research and Analysis Department, April 2024.

Last Updated on May 29, 2024 by Anastazja Lach