Overview of the Primary Drivers for Climate Reporting in the Norwegian SME Market

Get an Overview of the Primary Drivers for Climate and Sustainability Reporting in the Norwegian SME Market

Introduction

Why climate and sustainability reporting – what is the long-term goal? Small and medium-sized enterprises (SMEs) play a vital role in the transition to a more sustainable and inclusive economy. By addressing environmental, social, and governance (ESG) challenges—such as greenhouse gas emissions—these companies can strengthen their competitiveness and better prepare for the future. Climate and sustainability reporting helps businesses meet the requirements of investors and lenders, while simultaneously providing necessary data to larger corporations requesting sustainability information from their suppliers. This makes it easier for SMEs to access financing and compete in an increasingly challenging market that often favors large corporations.

What is Sustainability Reporting?

Sustainability reporting involves documenting and sharing standardized information about how a company impacts the environment, society, and how it is governed (often referred to as ESG – Environmental, Social, and Governance). Companies that report transparently provide customers, investors, and other stakeholders with a better understanding of the company’s impact, risks, opportunities, and performance.

What is Climate Reporting?

Climate reporting involves mapping greenhouse gas emissions across the company’s entire operations. While it is just one part of sustainability reporting, it is often time-consuming and complex. Climate reporting is typically divided into “Scopes,” which categorize direct and indirect emissions:

Scope 1 covers the company’s direct emissions from production and transport. This can include fuel combustion in factories to produce energy, production and process emissions, refrigerant leaks, and the use of company-owned vehicles.
Scope 2 covers the company’s indirect emissions from purchased energy, including electricity consumption, district heating, steam, and cooling.
Scope 3 addresses indirect emissions from the company’s value chain. This includes all emissions from business travel, events, and the purchase and sale of goods and services (both up- and downstream).

In most cases, climate reporting requires robust management of all areas affecting emissions—such as energy consumption, fuel use, and procurement. Historically, this has involved significant manual labor, often requiring full-time resources that only the largest companies could afford.

Why is Climate and Sustainability Reporting Important for SMEs?

Climate and sustainability reporting is becoming increasingly essential for the survival of SMEs. It helps them compete against larger firms with better sustainability scores, win tenders, retain key contracts with major customers, reduce risk for partners, and protect their reputation.

By working systematically with climate and sustainability, businesses contribute to solving global problems while becoming more resilient. Here are the primary reasons why SMEs should report:

Requirements from Partners and Customers: Large corporations are already mandated to report on sustainability, which affects smaller businesses in their value chain. SMEs may be asked to demonstrate how they reduce sustainability risks to maintain these partnerships.
Access to Financing: Banks and investors increasingly set sustainability criteria for loans and investments. SMEs that document their efforts have a better chance of securing capital and obtaining favorable terms.
Consumer and Employee Expectations: Today’s consumers and employees expect companies to take responsibility for environmental and social issues. Transparency builds trust and a strong brand.
Legal Requirements: The EU and Norway have passed laws requiring sustainability considerations in business, such as in public procurement. Even if an SME is not directly mandated to report, they will be affected as large companies must collect data from their suppliers.
Climate Change Impacts: Extreme weather, supply chain disruptions, and damaged infrastructure pose real risks. Systematic sustainability work helps SMEs prepare for these risks while uncovering new opportunities for innovation.

How Does Sustainability Reporting Work?

Sustainability reporting consists of three main components: frameworks, standards, and protocols.

Frameworks: High-level guidelines that help companies identify what to report (e.g., GRI or CSRD). They aim to improve transparency and accountability.
Standards: Detailed instructions on what must be reported, such as specific metrics for emissions or water use. The most prominent today is the ESRS (European Sustainability Reporting Standards).
Protocols: Practical methods or tools for how to collect and calculate data consistently. The most well-known is the GHG Protocol.

In short: Frameworks explain why (principles), standards tell you what (requirements), and protocols show you how (methods).

Who Must Report Today?

The largest listed companies have included sustainability in their annual reports for years. The scope of the EU’s CSRD is expanding; from January 1, 2024, all companies with more than 250 employees, high turnover, and/or significant equity are included. These firms must submit reports for the 2024 fiscal year in 2025. This affects approximately 2,000 companies in Norway, plus all their subsidiaries.

There are over 650,000 SMEs in Norway. While it is uncertain exactly how many are indirectly affected by these mandates today, the number is growing. We expect most businesses will encounter reporting requirements by the end of 2027.

Practical Implications for Norwegian SMEs

1. Applying for Bank Loans

Banks face regulatory requirements to collect sustainability data from customers.

EU Taxonomy & GAR: Banks must report their “Green Asset Ratio” (GAR). It is cheaper for banks to lend to “green” projects, which can translate into better interest rates for you.
Green Loans: Many banks now offer differentiated terms for projects that reduce emissions or energy use.
Risk Assessment: As large corporations, banks must report on their own value chains, meaning they will request climate accounts from borrowers to assess risk.

2. Reporting to Owners

Financial investors are also subject to the EU Taxonomy. SMEs with professional investors will encounter demands for both direct (Scope 1 and 2) and indirect (Scope 3) climate data. Within corporate groups, the CSRD is the strongest driver, as parent companies must account for all subsidiaries in detail.

3. Winning Contracts and Retaining Large Customers

This is where most SMEs meet reporting demands today.

Value Chain Accountability: Large customers are legally obliged (via CSRD, the Norwegian Transparency Act, or CSDDD) to account for risks in their supply chain.
Code of Conduct: Most large companies bake “Code of Conduct” clauses into contracts. Some require certifications like Eco-Lighthouse (Miljøfyrtårn), ISO 14001, or SBTi.
The Transparency Act: Companies with 50+ employees may be directly covered, but all are affected indirectly as customers seek to identify risks regarding human rights and working conditions.

4. Public Procurement and Tenders

Public entities in Norway are now mandated to weigh climate and environment at 30% in most tenders. While certifications are often used as qualification requirements, a specific climate budget for a project can earn you points and win you the contract.

The Role of the ERP Provider

ERP systems already contain much of the data needed for sustainability reporting. Data in these systems is traceable and standardized, which is a major advantage for auditors and banks.

Accounting Data as a Starting Point: The general ledger provides a standardized overview of spending, which is an excellent basis for estimating emissions. Using audited financial data significantly reduces the risk of error compared to manual spreadsheets.
Integration and Automation: The next step involves integrating smart power meters and expense systems for business travel. This replaces estimates with actual activity data (kWh, kilometers).

The ERP provider is an expert in their own system and serves as a vital partner in guiding customers toward accurate sustainability accounting. The potential for efficiency and increased competitiveness for SMEs is enormous.

Summary

It is vital for SMEs to prepare for the requirements coming from various stakeholders. These challenges are already here: lack of security for “green” loans, lack of capacity to apply for grants, and losing tenders to larger competitors with established management systems.

Ducky Climate Reporting aims to help small and medium-sized enterprises maintain their competitiveness and simplify the transition to becoming a greener business.