Andersen

Environmental, social, governance (ESG for short), hence topics relating to climate protection, social issues and corporate governance, are currently being discussed intensively in public and at the political level. Companies that want to be competitive in the future will increasingly have to deal with ESG aspects to consider the effects of their business models on the environment and society and vice versa (“double materiality”). The climate crisis and unsustainable consumption of resources lead to a multitude of financial and material risks. At the same time, demand from financial service providers' customers for sustainable investments is increasing. This rises the demand on sustainability reporting and a adequate risk management in companies. The diverse ESG challenges for the economy were the subject of a current survey.

Survey on ESG challenges

Together with other companies and institutions, including the Federal Association of German Banks, the Bertelsmann Foundation, the Luxembourg Stock Exchange, Flossbach von Storch AG, The New Institute and the German Accounting Standards Committee (DRSC) ) as cooperation partners, Andersen supported the planning and Implementation of a survey on "ESG challenges for large companies in Germany" by the Official Monetary and Financial Institutions Forum (OMFIF. As part of the survey carried out by Forsa, 104 medium-sized and 32 listed companies were asked about the conversion to a climate-neutral, sustainable economy and associated challenges.

Medium-sized companies are very optimistic

According to the survey medium-sized companies are particularly confident: Three quarters of the medium-sized companies surveyed expect equal advantages and disadvantages for their business from Brussels climate protection policy. Half of the medium-sized companies even assume that it will be advantageous for their business in the bottom line.  These results are remarkable because for the medium-sized companies the corona crisis and the associated consequences are still by far the most important challenge during the next 12 months (45%), followed by the challenges of sustainable business (29%). Listed companies are a little more skeptical of Brussels' climate protection policy: Almost 60% expect both advantages and disadvantages because of the EU green deal; nevertheless, a third tends to expect advantages. Despite the outcome of the corona pandemic listed companies already see compliance with the new sustainability reporting obligations as the most important upcoming challenge (34%); only 31% see overcoming the corona crisis and its consequences as more important.

Encouragement to expand non-financial reporting

One of the biggest surprises of the survey: three quarters of the medium-sized companies surveyed welcome the fact that the EU wants to extend non-financial reporting to them as well. However, only half of the medium-sized companies had already heard of it. These results are to be understood as an opportunity for politics. "However, politicians should not sit back now, but encourage and support SMEs in their transformation, that is also a clearly expressed demand of the companies surveyed," says Janine von Wolfersdorff, head of the study and member of the OMFIF Central Advisory Board.

First hints to the "taxonomy rates"

For the first time, the survey also provided information on the “taxonomy rates” among German listed companies. The EU taxonomy describes and classifies sustainable economic activities; companies must report on this for the first time from 2022 for the reporting year 2021. Almost half of the companies that provided figures within the survey currently estimate the share of their sales revenues as well as investments in taxonomy-compliant activities at up to 10 percent, and around 5 percent even at up to 50 percent. A large majority of the listed companies are also assuming an increase in these taxonomy ratios for sales revenues and capital expenditure over the next five years (88% and 78%, respectively). That shows the potential for sustainable finance.

Scenario analyzes according to the Paris Agreement

The Paris Agreement provides a global framework for combating climate change: global warming is to be kept well below 2 degrees in the long term compared to pre-industrial times. In order to significantly reduce the risks and consequences of climate change, it was agreed that further measures should limit the temperature rise to 1.5 degrees. The implementation of the climate protection goals is likely to have a significant impact on the net assets, financial conditions and the results of operations of the companies. According to the survey, the effects of the Paris Climate Agreement on the net assets, financial conditions and the results of operations have so far hardly been analyzed by the companies: Only 12 percent of the medium-sized companies surveyed have already carried out scenario analyzes based on the Paris Agreement in order to assess the effects of the 1.5- or 2-degree target on their net assets, financial conditions and the results of operations; 18 percent planned this. The survey of the listed companies shows a similar picture: 9 percent of the surveyed listed companies have already carried out such an analysis and 25 percent plan to analyze the effects on the net assets, financial conditions and the results of operations. The survey shows that there is a lot of catching up to do here.

The full results of the study are available here.

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