ESG for SMEs: Can the Proposal 2021/0104 for a European Directive Help in the Early Detection of a Crisis?

Abstract

With the proposal for a European Directive 2021/0104, the number of entities who will be required to prepare a non-financial statement (NFS) has been broadened. The directive provides that small and medium-sized enterprises (SMEs) may also voluntarily opt for drawing up a non-financial statement. It is therefore important to identify reporting standards containing key performance indicators (KPIs), tailored to the characteristics and structure of SMEs. In addition to the potential advantages in terms of improvement in relationships with stakeholders, NFI could be relevant for an early diagnosis of crisis signals therefore, an early warning behavior. This paper, therefore, aims to analyze how non-financial information can be a valuable aid to all governance players in identifying those first signs of crisis. In Italy, Organismo Italiano Business Reporting (OIBR) is drafting a document that promotes the use and communication of non-financial information on the part of SMEs with the dual objective of demonstrating that corporate governance structure on the one hand, and management and accounting tools on the other should be adequately designed and functioning so as to prevent a company’s exposure to the risk of failing to operate as a going concern.

Environmental, Social, Governance & Financial Performance Disclosure for Large Firms: Is This Different for SME Firms?

“…Riva et al [107] concluded that the communication of non-financial information by SMEs has a dual objective. The disclosure demonstrated, firstly, the existence of a corporate governance structure and, secondly, represented a management and accounting tool had been designed to function adequately to ensure a firm operates as a going concern.…”

Editorial Entrepreneurial Finance for Green Innovative SMEs

“…However, at the same time, SMEs are also aware of their economic benefits while focusing on their green business [17], [18]. Thus, a critical triangulation of business survival during a turbulent economic condition, environmental protection, and, at the same time, a continuous innovation is a prime goal for any sector and any country [40]. On the one hand, green innovation invites risks, demands significant research and development (R&D) investment, and expert skill sharing for the SMEs.…”