EU Seeks Input From Small Businesses On ESG And Green Financing

Green finance and environmental, social and governance are the focus of a new survey organized by SMEunited and Eurochambres. The collected data will be used by the Platform on Sustainable Finance, an advisory body established by the European Commission to assess the European Union’s sustainable finance policies. While a survey conducted by members of an advisory group may not seem noteworthy, it indicates a broader movement in the development of sustainability and ESG.

ESG is a type of financial investing where non-financial factors are considered. Most of the controversy relating to ESG is under the social category, where companies have engaged in policies that some deem to be political and not within the scope of best business practices. However, the environmental category is driving the regulatory development. As ESG reporting standards are being drafted, they are focusing primarily on sustainability efforts by companies.

On a global scale, these efforts generally align with the net zero goals of the Paris Agreement. In the leadup to COP26, the 2021 United Nations Climate Change Conference, an emphasis was added on the funding of green initiatives. That theme continued in 2022’s COP27 and is being renewed as COP28 approaches.

Climate financing is not focused solely on the infrastructure and resilience projects of governments. It also takes into consideration sustainable investments of businesses. As the business sector priorities environmentally friendly policies, the availability of financing for those projects is gaining importance. There are also calls for a realignment of priorities of major lending organizations to dedicate more funding towards environmental projects, therefore reducing available funding for other projects.

Focus on this area will continue to increase as ESG reporting becomes standardized, requiring companies to document their sustainability actions. The development of global ESG reporting standards is currently focused on publicly traded companies. However, the European Union will eventually require small, privately held companies to participate in reporting. The Platform on Sustainable Finance’s SME Questionnaire on Sustainable Finance is clearly a precursor to those requirements. As the European Union is leading the development of ESG reporting standards, American companies should take note of their processes as they may soon be applied to the U.S.