Most of the small and medium enterprises (SMEs) in the country have little awareness of sustainability reporting and the related regulations, according to a survey commissioned by OP Financial Group.
The SMEs were asked about their familiarity with ESG (environmental (E), social (S) and financial/governance (G) impacts), said OP in a press release on Monday.
Of the respondents, 64 per cent of mid-size companies, 84 per cent of small companies and 91 per cent of microenterprises with fewer than 10 employees, were completely unfamiliar with the concept of ESG.
“These figures are alarmingly high and indicate insufficient awareness of something that could have unexpected impacts. As the amount and significance of regulation grows, sustainability reporting could become vital for SMEs positioned within the value chain,” said Heikki Peltola, Head of SME retail banking at OP.
Only large and listed companies are currently under a statutory obligation to engage in sustainability reporting.
As regulation’s impact on business activities grows, to fulfil their own obligations large corporations may require sustainability reporting from companies in their subcontracting chains.
“Our research shows that companies which view ESG as important and topical also tend to be growth-seeking firms with strong finances. Corporate responsibility is clearly good for business," Peltola added.
According to OP’s survey, sustainability actions feel everyday for many SMEs, but cannot always be expressed in ways compatible with formal sustainability reporting. Around half of SMEs responding to the survey stated that they had identified which sustainability issues are important for them.
In addition, most companies have not defined which corporate responsibility themes relate to their activities. Among the respondents, 17 per cent of mid-size companies, 24 per cent of small companies and 30 per cent of micro-enterprises stated that corporate responsibility was an informal part of their activities.
“We are headed in the right direction, but ESG must be clearly defined as part of corporate responsibility. For example, consumers and partners continuously expect more visibility and measurability in corporate responsibility work – including that of SMEs. Our previous surveys have shown that only one in ten large companies are satisfied with their supply chains’ handling of this issue,” Peltola said.
Sustainability reporting legislation is being continuously developed and adjusted. Reporting requirements have at least an indirect impact on SMEs – large companies, investors and financiers may pass pressure to comply onto smaller firms further down the value chain.
The sustainability reporting framework and system are still developing and taking shape with regard to SME activities. Small and mid-size enterprises need expertise and help to fulfil their growing reporting obligations.
“SME’s should ask their large partners directly about their future expectations and, if necessary, seek help with activities such as sustainability reporting. Otherwise, they may risk losing important customers,” said Peltola.
A total of 1,098 respondents participated in a nationwide survey of SMEs commissioned by OP and carried out by Red Note Oy . The survey was conducted by phone in September–November 2022.