Why small businesses should adopt sustainability reporting

Building a sustainable future for all requires the contribution of all stakeholders. Sustainability goals require concerted efforts from economic players.

While the regulations in sustainability reporting mainly focus on the big corporations, like multinationals and public interest entities, it is essential to consider the micro, small and medium sizes enterprises (MSMEs) in the economy as well.

The MSMEs account for between 60 and 80 percent of economic activity in many countries. They are usually the drivers of the economy in employment and growth.

However, they should embrace sustainability reporting considering critical concepts like materiality, proportionality and connectivity.

This way, they can produce sustainability reports that are succinct, balanced, address material topics and make business sense from a cost-benefit analysis. Some things to consider for MSMEs include the following.

First, MSMEs should increase their awareness of sustainability and ESG-related matters. It will enable them to appreciate the trends that could impact their businesses, including the risks and opportunities resulting from the sustainability and ESG-led economic transitions.

Having the correct information will enable them to plan better to reduce disruptions and ensure they are part of the conversations as new rules and regulations are formulated that might impact them adversely.

Secondly, while sustainability reporting for MSMEs might not be driven by regulatory compliance directly, the measurements of scope one and scope two emissions, for example, may be required as most MSMEs form part of the supply chain of big corporations that are required to report on their scope three emissions.

As a result, there has been a flurry of activities by these big corporations to get the required information on emissions data from their suppliers, most of which are MSMEs.

Therefore, to avoid business disruptions, it is pertinent that MSMEs begin to measure or at least keep track of the information required to measure emissions.

The evolving sustainable finance landscape is an area where MSMEs could play favourably.

Therefore, positioning themselves to attract these new funding sources requires them to report their impact on communities and lives.

MSMEs should assess the cost-benefit analysis when approaching sustainability reporting to ensure that it is proportional and focuses on material issues.

Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.