Although I’ve spent a lot of time in 2024 working with large companies in scope for the European Corporate Sustainability Reporting Directive (CSRD), I’ve remained very conscious that many micros and SMEs will soon find themselves facing a slew of sustainability disclosure requirements from their customers, as a knock-on effect of their customers’ own reporting obligations or customer endeavours to get ahead of the curve.
In practice this means that micro companies and SMEs need to start showing their sustainability credentials soon, in order to win and retain business. While most reasonable customers realise businesses need time to ready themselves for this, they will not wait years for their suppliers to comply with disclosure requests, regardless of how small these suppliers are or how robust their relationships seems currently.
While this may seem daunting, especially when small businesses are already faced with a difficult trading environment and ever-changing legislative landscape, it is possible to get yourself into a good space next year by prioritising certain key sustainability initiatives. Before we dive into what these are however, it’s important to take a step back to review what enterprise sustainability is all about.
The Context
Contrary to popular belief, enterprise sustainability is not just about the environment, i.e. climate change, biodiversity, the circular economy, etc. While these are indeed central topics, they are only one leg of a three-legged stool which comprises the Environment, Society and Governance (i.e. ESG).
Enterprise sustainability is in fact a measurement of your company’s impact on the environment, people and the wider economy and an assessment of how you structure and govern yourself to ensure your company conducts business responsibly. Conducting business responsibly means, among other things, not thinking of your company as an isolated entity, but instead as one that is dependent on, and benefits from, the many inputs it receives from suppliers and business partners. This means that although your company may be compliant with environmental and employment law and with international regulation on human rights, if one of your suppliers or business partners is not, you are guilty by association.
This is the crux of why large companies are starting to ask all of their suppliers for information on items such as their Scope 1 and 2 Greenhouse Gas emissions, their human rights policy, their gender diversity stats and their tax compliance. In fact, many are in the process of developing new ESG screening and procurement policies for their suppliers and business partners to ensure all ultimately comply with a minimum set of sustainability thresholds.
As a result, although we usually recommend all companies start their sustainability journey by laying the foundations of sustainability governance and due diligence within their organisation first, we recognise that many micro companies and SMEs do not have the luxury of doing so. These companies need to respond to their customers quickly on certain items which include a statement of their Scope 1 and 2 GHG emissions (climate change), information on their human rights policy and details of their gender pay gap. We therefore advocate creating a plan for 2025 which prepares for and prioritises these three initiatives.
GHG Emissions Accounting
When it comes to climate change one of the first things most companies will ask you for is your Scope 1 and Scope 2 greenhouse gas or GHG emissions. Some may also ask for your Scope 3 emissions but all will require Scope 1 and 2.
(Note: If you would like to to understand the context behind climate change and GHG emissions, please check out our explainer video here.)
Scope 1 emissions are those emissions that are directly caused by your company through the combustion of fossil fuels or by land-use change while Scope 2 emissions are indirect emissions caused by your electricity and energy use. Scope 3 emissions then are all the indirect emissions incurred as a result of your operations, so those incurred in your value chain through things like purchased goods and services, waste, employee travel and home working and business travel. Scope 3 even includes emissions incurred as a result of your investments such as company pensions and through the disposal or end-of-life stage of your products. Scope 3 emissions can therefore be very far-reaching and are typically more difficult to fully account for.
Luckily, calculating your Scope 1 and 2 emissions is relatively straightforward. This involves reviewing your receipts and bills for the units of fuel or energy you consume (e.g. KWH of electricity) and multiplying these by nationally-relevant emission or conversion factors which are used to calculate the carbon dioxide equivalent CO2e of your activities in kilograms or metric tonnes.
There are many free online calculators to help you do this such as the Irish Government’s Climate Toolkit 4 Business which will give you a high level view of your carbon footprint that you can share with your suppliers immediately if you are under pressure to do so. Each calculator is different however and not all specify which of your emissions fall into the different Scope 1, 2 and 3 categories that are defined in recognised GHG accounting and reporting standards and frameworks such as the GHG Protocol Corporate Accounting and Reporting Standard and ISO 14064. Therefore they might not be sufficient for the requirements of certain stakeholders or for use in the longer term.
In addition, while knowing your Scope 1 and 2 emissions is great, you really need a way to repeatedly assess and report on these year-on-year and to show progress in relation to specific reduction targets you have made. You also need a means of getting to grips with your Scope 3 emissions, which will happen over a longer period of time. Up-skilling a member of staff through university or training modules will help as would the engagement of third-party consultants to develop a model/framework you can use to report on an annual basis together with a plan to determine your Scope 3 emissions. At RBESG, we have developed a bespoke GHG accounting model to support those who wish to report in accordance with the GHG Protocol Corporate Accounting and Reporting Standard and ISO 14064. If engaged, we would tailor this to your specific business model and operational and reporting needs.
Human Rights Policy
Human Rights is the one area in which most companies immediately tell me they perform very well. “Respect is the cornerstone of our business”; “We are an equal opportunities employer”; “We treat our staff very well”, “We don’t abuse human rights”; etc.
While all of this is true, it is also true that there is a myriad of ways a company can abuse human rights, without being aware of it. This occurs typically through the supply chain. For example, if your company avails of catering, perhaps the fish or meat is sourced from companies that demand their staff work longer hours without overtime or that provide sub-par living facilities for employees. Maybe the minerals required for your manufacturing processes are sourced from mines that use child or forced labour or your IT providers do not have sufficient security in place to protect the privacy of your employee or customer data.
If human rights abuse occurs in your supply chain, you are complicit in this exploitation or abuse through what is known as the ‘chain liability effect’. Large companies know this and are thus putting human rights-related selection criteria in place for new suppliers while working their way through their existing suppliers to assure that these are doing their utmost to respect human rights and to guard against abuse. Most do this, as a first pass, by asking suppliers for their human rights policy.
An effective human rights policy sets out the company’s commitment to respect human rights in accordance with the UN Guiding Principles on Business and Human Rights, the International Bill of Human Rights, the Fundamental ILO Conventions and the Declaration on Fundamental Principles and Rights at Work. It also establishes working principles and processes through which the company intends to identify, assess and manage its impact on human rights. A fundamental requirement of this would be to establish a grievance mechanism, through which any affected or concerned party can raise confidential concerns against the company or a member of the company without fear of reprisal or recrimination.
Within their human rights policy, company’s must also commit to engage with stakeholders and/or their legitimate representatives in the development of and monitoring of the company’s human rights approach and to remedy adverse impacts on individuals, workers and communities that are caused by or linked to company operations, products, services and decisions.
When developing a human rights policy, we recommend self-assessing against international guidance and benchmarks such as the World Benchmarking Alliance’s (WBA) Corporate Human Rights Benchmark and the UN Guiding Principles Reporting Framework by Shift and Mazars.
Gender Pay Gap Report
One of the cornerstones of sustainable employment is that of Equality and Equal Opportunity where equality means treating everyone the same regardless of their age, gender, race, religion, nationality, disability, marital or family status and sexual orientation; and Equal Opportunity means giving everyone the same opportunities in terms of career advancement and progression and personal and professional development.
Not only does this require making the same opportunities available to everyone, it also requires companies to ensure they do not inadvertently exclude people from certain opportunities by practices which include things like arranging informal networking or social events outside working hours that some people cannot attend due to family or personal commitments. It also requires companies to proactively identify those individuals or groups who may be discouraged or restricted from participating in or taking advantage of opportunities for any reason, so that company managers can work with these individuals to remove or minimise roadblocks that may be impeding them.
Championing equality and equal opportunity may also require companies to review their hiring and promotion practices to ensure they are fair and balanced and free from unconscious bias. Affinity bias for example, where we are drawn to people like ourselves, is a well-known phenomenon that may affect our hiring decisions if we do not watch out for this.
Companies can also promote equality and equal opportunity by ensuring everyone receives equal pay for equal work. This means paying people based on the role they perform, regardless of their gender, personality or any other factor. Although this is not currently happening as is evident from Europe’s 12.7% pay gap and Ireland’s 9.6% gender pay gap, the objective of the EU’s Pay Transparency Directive and Ireland’s Gender Pay Gap Information Act 2021 is to bring remuneration on a par for men and women. Irish companies must do this by reporting the difference between mean and median remuneration and bonuses paid to males and females and the percentage difference of men and women who receive bonuses and benefits in kind. Companies must also explain why these differences exist and outline any measures they have taken or propose to take to shrink this gap. As this report must be published on an annual basis, it will quickly become apparent as to which companies are taking real measures to promote equality and equal opportunity in the area of pay and benefits and which are just paying lip service.
As this legislation is due to extend to companies with 50 or more employees in 2025, we recommend that all companies get on top of this data next year at the very latest. This will ensure you are ready to respond to questions on gender equality from potential employees and interested stakeholders who will over time start to become accustomed to companies transparently disclosing this data as a norm.
Section 2 Gender Pay Gap Information in the Gender Pay Gap Information Act 2021 states exactly what employers must disclose in their gender pay gap report. It is not overly onerous but it does require you to have some form of management information system which allows you access remuneration and benefits information for all of your employees and workers.
Sustainability Plan
Now you know what key areas to focus on next year, it’s time to review how’s best to deliver these. If you are a micro company or SME, chances are you do not have unlimited resources or budgets. In addition, your teams, while they might be enthused about taking on new challenges, are probably under pressure to keep the day-to-day show on the road so may not have the capacity to absorb too much change at once. Therefore we recommend you approach these sequentially, taking one initiative per quarter. You may find that each initiative may also involve different team members which again will lighten the load for your company overall.
Before diving straight into delivery of GHG accounting in Q1, it’s important you take some time to mentally prepare for the road ahead and to mobilise your team. Therefore we recommend spending the first quarter of your delivery plan preparing, up-skilling and mobilising your team.
Preparing, up-skilling and mobilising your team involves getting to grips with the three different topics involved, communicating to your team what it is you would like to achieve, up-skilling through your own research or training, planning your delivery (certainly the first phase of this, if not all) and mobilising your team. We recommend doing this in this last quarter of 2024 so you can hit the ground running in 2025. We also always recommend using the formality of a project structure for each phase of delivery as it helps keep the team informed as to progress and accountable for delivery.
Getting to grips with each topic can be done in a number of ways. RBESG’s STS Plan, as well as providing you with templates and a step-by-step guide to deliver your sustainability initiatives, provides a context section which explains each of the major ESG topics that are of concern to companies. Alternatively, you could check out the Resources page of our website which contains lots of informative articles and useful links to the the international instruments and frameworks that underpin your sustainability requirements for each topic, such as the UN Guiding Principles on Business and Human Rights, the Irish Gender Pay Gap Information Act, the GHG Protocol, the UN Sustainable Development Goals, Science Based Targets Initiative and many more. There is also a Tools section which provides links to a section of online GHG calculators such as the Irish Government’s Climate Toolkit for Business.
It’s also a really good idea to see what your staff already know. Many may be pursuing sustainability-related interests outside of work and would be delighted for the opportunity to bring their passion into the work environment.
Once then all three initiatives are delivered, we urge you not to stop there. The key enabler of ongoing sustainability is the ability to identify, assess, and manage your impact on an ongoing basis, while prioritising your response in line with your capacity and capability. This is why we recommend you undergo an ESG materiality assessment in Q4 of 2025.
An ESG materiality assessment is a due diligence exercise which involves you identifying and assessing your impact on ESG topics and assessing the impact of these topics on your company’s financial performance and position. For example, when it comes to climate change, assessing your impact involves understanding your volume of GHG emissions, whereas assessing how you are impacted involves looking at how the physical and transitional risks associated with climate change such as extreme weather events, rising energy and insurance costs, stranded assets etc., affect your business. An ESG materiality assessment also involves engaging stakeholders to assess how they perceive your impact and to understand how you can best create shared value for all of those you affect or are affected by.
It is this process which will ultimately enable you to develop your sustainability strategy for the short-, medium- and long-term.
Additional Help
We hope you have found this article useful in helping you identify key sustainability deliverables for next year. If you are ready to start out on your sustainability journey, but still a bit unsure, please drop us a line or give us a call. While our mission is to empower you to go it alone, we would also be delighted to help you on this journey with additional in-person support and guidance. Using external experts as a sounding-board or helping hand along the way can really lighten the burden and ensure that you remain laser-focused in delivering effective sustainability change that aligns with international requirements and recommendations and industry best practice and norms.
If you would like to chat, you can schedule a complimentary 1:1 with us through the booking form on our website, call us on +353 1 516 1064 or email us on info@rbesg.com. We’d love to hear from you!
