It is working on an integrated strategy to help exporting SMEs prepare for ESG requirements. What strategy is this? What does it consist of? Who is eligible?
The European Union recently announced a set of new environmental and social sustainability reporting obligations, the so-called ESG criteria, which will gradually cover more than 55,000 companies between 2024 and 2028. We recognize that these obligations pose a challenge for SMEs in general, but even more so for SMEs with an export profile, as these reporting and certification mechanisms will need to be internationally recognised. As there is currently no common understanding of the international instruments to be used, it is necessary to cooperate in particular with exporting SMEs and to create the conditions for them to remain competitive in foreign markets. In fact, qualification in ESG is and will increasingly become an essential part of the internationalization of the Portuguese economy.
To this end, we are working on a strategy that consists of raising awareness of the problem and, above all, raising awareness and contributing to the requirements that exporting SMEs will have to meet: in broadband training for companies in environmental sustainability and social, in the diagnosis and identification of difficulties, followed by specific training programs relevant to their economic activities, and in streamlining ESG performance reporting and communication processes.
It is also important to point out that the new European directive of December 2022 extends the sustainability reporting requirements to environmental, social and governance factors. In a first phase, already in 2024, the directive will directly affect large companies, companies listed on EU regulated securities markets and public interest companies that exceed the average number of 500 employees. In 2027, SMEs are called upon to present their sustainability reports based on the previous year’s results. Publication of sustainability information, as part of management reports, will be in digital format and this information must be verified by a third party.
That is, in the case of non-listed exporting SMEs, ESG requirements must be identified in 2026 to be reported in 2027. And we all know that three years go by…
How did ESG become a factor of choice? How is it valued by external markets and the customer? And how does it score on the banking side and other financiers?
The United Nations’ most recent report on the Sustainable Development Goals for 2022 states that the world is experiencing a confluence of crises that threaten the very existence of humanity.
Therefore, I would not say that ESG practices have become a factor of choice for companies. I would say they were initially seen as an investment issue related to the responsible investment principles promoted by the United Nations. Then they evolved into a requirement for access to capital. And they are now seen as catalysts for change that affect everyone – governments, businesses, civil society, families and each of us.
It should be noted that in a fundamental area for the economy, such as access to finance, consultants and financial asset managers are launching funds and other investment vehicles that target companies that are environmentally sustainable and uphold ESG principles. Board members of pension funds also include ESG responsibility as a selection criterion for the investments they make, etc. And gradually ESG is becoming a determining factor in assessing the reputation and value of organisations. And not only shareholders and investors, but also consumers are increasingly demanding that companies adopt ESG practices and goals.
Moreover, in the case of exporting SMEs, the trend of the international market will follow in this direction, as clearly shown by the latest World Economic Forum report on preparing for the future of SMEs, which will be more future-proof as more committed to ESG practices (ranked second in ten factors).
The ESG model has become an asset that enables exporting SMEs to boost their competitiveness and attract investment, while benefiting society and the environment. These concerns become ends in themselves, under penalty of endangering their assets and investments.
The bank itself is subject to climate stress tests. In your opinion, will you prefer to finance projects that are increasingly compliant with ESG rules in the future?
Banks already assess the risk of funding in terms of companies’ ESG practices and outcomes, and leading banks assume that organizations that consistently act in light of ESG practices represent a sound investment and are assigned a risk profile. Therefore, they have access to financing on better terms.
I note that, according to the European Sustainable Finance Reporting Directive, from next year banks must disclose qualitative and quantitative information about their ESG policies and the risks they are exposed to. In other words, even banks that had not yet incorporated ESG into their credit policies will have to do so.
In several regions, such as the United States, there are ESG deniers who refuse to enforce these rules. How to use diplomacy to convince these markets of the usefulness of these practices?
I think the most important thing is to emphasize that there is already evidence that, in addition to all the unequivocal merits, green and sustainable investments also have a potential return, in the medium and long term, even higher than an investment that does not validate the questions of ESG. Therefore, it is this path that we must walk with the most skeptical.
Which main markets are Portugal’s partners in this ESG pursuit?
All markets with an active and inclusive ESG policy, namely the countries of the European Union.
How will AICEP be involved in the implementation of this strategy that you are now announcing?
AICEP’s mission is to help exporting SMEs have the necessary tools for the success of their internationalization. This also includes awareness, positioning and general training, diagnosis and specific training, ESG reporting/communication and access to internationally recognized certification mechanisms. This is done in collaboration with other relevant government services, civil society organisations, the business community and business confederations.
How many SMEs do you hope to reach with this strategy?
All exporting SMEs that need help from AICEP and the many partners we work with.
Source: DN
