LAW ADVICES | 28 November 2023
The report "Under the Weight of ESG: Reporting Costs for Small and Medium-sized Enterprises in Poland."
As of January 2023, the Corporate Sustainability Reporting Directive (CSRD) came into effect, introducing new regulations in non-financial reporting. Many businesses will be obligated to disclose their activities related to ESG (Environmental, Social, and Corporate Governance) issues. An ESG report allows organizations to present their initiatives concerning environmental, social responsibility, and corporate governance matters.
The report "Under the Burden of ESG: Reporting Costs for Small and Medium-sized Enterprises in Poland" states that ESG reports will become mandatory starting January 1, 2024. Initially, this obligation will apply to large enterprises and publicly traded companies with annual revenues exceeding PLN 170 million net and an annual balance sheet total (assets and liabilities) of PLN 85 million. In subsequent years, the group of companies required to report will expand, with the obligation encompassing all companies operating within the European Union by 2026.
Adam Abramowicz, the spokesperson for Small and Medium-sized Enterprises (SMEs), expresses a critical stance on the new ESG reporting regulations. He views the situation as highly precarious, not only because businesses may struggle to align their operations with ESG principles in time but also due to potential financial constraints. The threat lies in the increased operational costs associated with the necessity of creating ESG reports. The spokesperson for SMEs emphasizes that Europe faces significant international competition from the United States, China, and India. Imposing additional ESG-related costs on companies in the European Union may decrease their competitiveness, especially when other countries do not have such obligations. In his opinion, market forces, or more specifically, consumer choices, should drive changes in companies. If consumers opt for products and services from environmentally friendly businesses, entrepreneurs will adapt to market expectations, Adam Abramowicz suggests.
Public debate in Poland on ESG reporting often overlooks the issue of the costs associated with these regulations. The focus tends to be on general statements about the significant challenge and opportunities for businesses related to disclosing such data. Particularly lacking in the public discourse are arguments based on economic analyses and data, as well as the perspective and opinions of companies, especially SMEs, that will bear the costs of these regulations.
The report, "Under the Burden of ESG: Reporting Costs for Small and Medium-sized Enterprises in Poland," prepared by Damian Olko on behalf of the Warsaw Enterprise Institute, aims to estimate the costs of ESG reporting under the CSRD directive that Polish companies, especially small and medium-sized enterprises, will incur. The analysis includes a scenario based on the adopted CSRD regulation and an alternative scenario assuming the extension of the CSRD directive to all small and medium-sized enterprises, excluding sole proprietors with up to 9 employees.
This analysis fills a gap in existing studies regarding the costs of ESG reporting in Poland and presents the further consequences of the adopted CSRD directive, aligning with the concept of stakeholder capitalism. The report also provides a critical assessment of the impact analysis methodology commissioned by the European Financial Reporting Advisory Group (EFRAG) because the applied approach raises serious doubts about the results, depicting the impact of the CSRD regulation on SMEs in value chains. The document includes recommendations based on the estimated costs for SMEs and available publications.
The report "Under the Burden of ESG: Reporting Costs for Small and Medium-sized Enterprises in Poland" is available HERE.