In 2025, in addition to fincial results, a significant number of companies will also have to submit a so-called ESG report for 2024 to the tax office. In it, they will have to indicate in detail, including specific numbers, for example, what is their environmental impact or how much fair conditions in the company. In the Czech Republic, a large number of entrepreneurs do not take this seriously enough and there is a risk that they will come to this.
The largest domestic public companies, such as banks, car manufacturers and energy companies, were required to take into account ESG, that is, the company’s performance in the field of the environment (Environment), social responsibility (Social) and company magement (Governce). from 2017. From 2024, the obligation will concern several thousand Czech companies, and it is already clear that small companies, non-profit and public institutions will not leave ESG in the future.
Even the largest companies’ suppliers won’t avoid ESG in the first wave
How about companies? First of all, they answer that it will require a lot of work. And they are right. Numerous teams work on ESG reports in the largest Czech companies. They will have to set up the measurement and monitoring of dozens of quantities and topics, collect them continuously and, filly, record everything. In the future, the report will be subject to an independent audit.
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I would like to emphasize that the forthcoming directive only imposes an obligation to measure and report on ESG so that the main legal requirements can be met without any effort to ensure sustaibility or social responsibility in the company. Thus, the directive largely requires what every good business owner should do: measure the energy consumed, the amount of waste generated, know the corporate culture and its composition, be honest and transparent in magement and obligations to the state.
In a study I took part in this year, it turned out that compared to Western or Scandivian countries, a significant proportion of domestic small and medium-sized companies perceive ESG as unnecessary bureaucracy and would rather leave it as it is. But many of them will soon be surprised.
And that’s because, even if only large companies are required to report on ESG from 2025, their suppliers won’t avoid it either. In fact, data across the entire supply chain will need to be included in ESG reports, whether or not the supplier obligation to pay attention to ESG already applies. And therefore, it may happen that a number of suppliers from among small and medium enterprises will have to turn to ESG, otherwise the customer will replace them with a competitor. Already today there are large and well-known companies that take ESG into account when choosing suppliers. For example Lego, Ørsted or Microsoft are doing it and we will probably see it more and more often.
For companies that ship to Germany and do not yet pay much attention to ESG or even refuse it, the new LkSG law can be a big problem, which from January 1, 2023 requires all German companies with more than 3,000 employees to monitor compliance with human rights and environmental impacts, as well as throughout the supply chain. Considering that the largest share of domestic exports go to Germany and that a large part of Czech business does not turn to ESG, it is surprising how calm everyone is.
ESG skeptics have a drawback: they are usually not young.
From surveys and consulting work for domestic smaller and larger intertiol companies, I learned that today’s “good magers” often perceive ESG not even as an “annoying need”, but as an opportunity that can give them a competitive advantage in the long term. The younger generation is very sensitive to the environment and social responsibility. As they gain more and more market power and decision-making power year after year, ESG-owning companies will rank higher and higher in the market. And this is both on the consumer side and on the work side, because for the younger generation, the sustaibility and responsibility of the company is essential when choosing an employer.
Time does not favor entrepreneurs who do not want to turn to ESG. Basically it is about a different intergeneratiol approach to business, with the fact that the younger generations, sensitive to sustaibility and responsibility, will one day be in the majority.
The author is a business strategy consultant at the Faculty of Business Administration at the University of Economics in Prague.
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