In connection with the entry into force of a new EU directive last month, the annual reporting requirements of big companies in Estonia are now expanding to include a sustainability report with more than 1,000 questions. Entrepreneurs consider the new requirement, slated to cost them more than €100,000 annually, excessive.
How are companies mitigating climate change? How are they involving employees in management and ensuring a work-life balance? What have they done to promote a more ethical business and entrepreneurial culture?
The answers to these questions will soon be revealed, once some 250 of Estonia's biggest companies publish their annual reports — or, more specifically, the new sustainability reports included with them.
Tallink CEO Paavo Nõgene forwarded the nearly 1,000-line list of questions to the European Affairs Committee of the Riigikogu.
"Why are we allowing unnecessary bureaucracy to be imposed that will cost companies tens of thousands of euros and — let's be honest here — no one will likely use to any smart or reasonable end?" Nõgene wrote. "That is, if no one's planning on recruiting an additional buildingful of officials in every member state."
Adopted last December, the EU's Corporate Sustainability Reporting Directive (CSRD) entered into force last month. The new annual reporting requirement imposed by the directive will apply to companies with more than 250 employees and a net turnover of more than €40 million.
Aire Rihe, an adviser in the Ministry of the Environment's Department of Environmental Management, recalled that both Europe and Estonia have set themselves climate targets, the achieving of which will require capital.
"And these new conditions for disclosure are tied to us knowing how capital is moving toward more environmentally sustainable activities," Rihe explained. "And the reason why the finance sector and bigger companies specifically are involved in that is tied to the fact that they are the ones making the biggest decisions and who have the greatest capacity to implement them."
More than €100,000 a year
Tallinna Kaubamaja Grupp CEO Raul Puusepp confirmed that dealing with the environment and sustainability are important, but added that the new report has sparked quite a bit of confusion as well.
"Right now I do think this is unreasonably burdensome and detailed for businesses," Puusepp said. "And apparently none of us will be able to fill this out 100 percent properly for years to come."
A few years ago, the European Commission estimated that, depending on a company's size and area of activity, filling out the sustainability report could cost some €60,000-100,000.
As an audit of the report is required as well, adding another €40,000-75,000 to the total cost.
Puusepp called on politicians responsible one way or another for transposing such directives on the national level to actually read them and, if at all possible, reflect on them as well.
"Right now it's as though there's maybe around a dozen officials in various ministries in Estonia handling this, and politicians are simply passing it in passing in the Riigikogu without having taken a closer look at what it is and what it actually means for businesses," he said.
Rihe said that the sustainability report includes up to 1,100 fields that can be filled out, but stressed that not all companies will have to fill in every single blank.
"If we're talking about a full-scale industrial enterprise, then of course they'll have to fill out quite a lot of data," she explained. "But in the case of a service business, for example, then their impacts will likely be quite different. In that case, they may have significantly fewer fields to fill in."
In the case of the financial sector, she added, this will depend on the type of portfolio the financial institution has, the types of companies it supports or with whom it cooperates.
Investors asking about sustainability as well
Estonian Employers' Confederation (ETK) chief Arto Aas, meanwhile, believes that these reporting requirements will slowly make their way beyond just big businesses.
"One big business can have several thousand subcontractors and business partners," Aas explained. "And when they're required to submit very detailed reporting throughout the supply chain, then they inevitably have to start requesting their partners for that same data, and it'll snowball from there, all the way out to the smallest companies."
In a similar vein, the European Commission claims that standardizing reporting requirements will ultimately save businesses' money. When introducing the directive, the Commission noted that many investors are already inquiring prior to providing funding regarding a business' environmental policy and working conditions.
Both clients and shareholders are becoming increasingly demanding to that end as well, and so if every company had to come up with its own reporting forms, this would ultimately end up costing more money overall, the Commission found.
Will the state use this data?
Puusepp acknowledged that this additional info could be beneficial to investors and banks.
"But unfortunately I don't really believe that it would impact politicians' or the state's decision-making processes," he added.
"I haven't heard any answers about whether they are capable of using this data," Aas said. "While to date this reporting has been incomplete or very superficial, now it seems as though the pendulum has been driven in a big frenzy to the other extreme. That the reports will be so detailed and massive that absolutely nobody will be able to manage to read them."
Rihe, however, confirmed that the info received from businesses is very important to policymakers.
"Once this data becomes more systematic and standardized, the EU has set as a target that this data will be aggregated into a single database, it will be machine-readable and it can essentially be used as the basis for additional analysis for improving either state or regional environmental policy planning," the ministry official said.
According to Rihe, Estonia is also developing a digital tool that will help businesses compile their sustainability reports.
Editor: Aili Vahtla