SMEs are struggling to build effective systems and processes for reporting on sustainability issues – despite facing greater demand for that information.

In a global study of more than 16,000 enterprises, Path for Growth: Bridging the SME Sustainability Reporting Gap found that requests to SMEs for sustainability-related data are rising in frequency and complexity.

However, the lack of time, expertise and budget means that many SMEs are not able to measure and track their sustainability performance appropriately. Only 7.7% currently run formal reporting programmes – and just 0.7% report on their social and governance impacts.

Highly engaged

Compiled from research led by Sage in partnership with PwC, the International Chamber of Commerce (ICC) and business advisory firm Strand Partners, the report suggests that SMEs are maintaining a keen interest in environmental, social and governance (ESG) matters.

More than eight in 10 (83%) say that sustainability is important to them – up from 76% last year – and 58% are already making statements and commitments to key stakeholders about their performance.

More than 60% say they are currently taking steps to become more sustainable, by tweaking their product and service lines (51%), reducing energy use (48%) and harnessing the circular economy (16%). In addition, one in five say that they are “highly engaged” with the sustainability agenda and talking externally about their impacts – albeit without accounting for them in formal reports.

But despite that enthusiasm, almost three-quarters (73%) of SMEs are concerned about the upfront costs of reporting, while 65% describe current reporting standards as “complex.” 

Ready and willing

The report says the vast majority of SMEs lack sustainability specialists within the business. “This means they may struggle to understand or respond accurately to requests for data,” it says.

At the same time, they are facing capacity and capability restrictions – often missing tools and resources to collect the large quantities of data needed to meet requirements and develop and implement a reporting system.

On a positive note, 21% of firms that are not currently reporting indicate that, with the right frameworks and support in place, they would be “ready and willing” to do so.

The key characteristics of those companies are that they believe sustainability is important to their business, have at least some, relevant policies in place and have made an external commitment about their environmental impacts.

On the basis of its findings, the report highlights potential in the coming years to triple the number of SMEs filing sustainability reports – an uplift that could add as many as 51m companies to the data pool.

With that in mind, it sets out eight recommendations:

For standard-setters

• Establish consistency in ESG terminology so SMEs can understand and respond to reporting requests more seamlessly.

• Work with governments to assess and grow the interoperability of emerging SME reporting standards with leading market standards – and clarify to what extent their requirements are shared.

• Provide user-friendly guides, templates and automated solutions that ease SMEs’ reporting burdens.

• Consider whether reporting requests are proportional for businesses with limited resources, and prioritise material issues to help firms focus on the right areas.

For governments

• Build data infrastructure to support SMEs and drive accuracy and transparency – for example, by developing shared tools and data repositories.

• Showcase to firms the value and benefits of sustainability reporting – such as access to markets, funding and cost efficiencies.

• Promote the use of affordable, automated technologies for sustainability reporting that lighten the burden for SMEs.

• Provide financial incentives for firms to invest in reporting, to offset upfront costs.

Sustainability Practice Leader Lynne Baber of report sponsor PwC UK says: “The critical contribution SMEs will make in how the world meets sustainability goals must be grounded in clear and reliable reporting, and the link between accurate reporting and effective and meaningful action is clear.”

Baber says the low percentage of SMEs saying that they are reporting on sustainability indicates a need for support in navigating such a complex process. “This will require collaboration across markets, industries and government leaders to develop tech-powered solutions that will make sustainability reporting more efficient and accessible.”

Sage Executive Vice President of Sustainability and Society Elisa Moscolin says the report highlights an indelible connection between reporting and action. “SMEs can’t fix what they can’t see.” Moscolin says Sage hopes “to partner closely with governing bodies and governments to make the reporting landscape more accessible for SMEs across the world”.

ICC Secretary-General John WH Denton adds: “By collectively focusing our attention on these key areas of action, we can enable SMEs to tackle the obstacles in their way to better understanding, managing and ultimately improving their sustainability performance.”

ICAEW Technical Manager, Corporate Reporting, Laura Woods says: “ICAEW has regularly urged standard-setters and policymakers to keep proportionality and scalability at the forefront of decisions about reporting requirements for both financial and non-financial reporting. This report reveals a genuine desire from SMEs to take positive action in the name of sustainability – but they need support from the whole reporting ecosystem.

“Other than proportionality considerations, accessibility is a key component of ensuring any future reporting requirements for smaller entities are written in a way that is clear and straightforward to understand.”