The Danish Government’s Automating Sustainability Reporting initiative is a four-year pilot aiming to digitise and streamline sustainability reporting for SMEs. It addresses key challenges such as fragmented data sources, manual reporting processes, and the lack of standardised formats, which limit SMEs’ capacity to meet growing sustainability data demands from key stakeholders. The programme is developing standardised digital data formats and creating common infrastructure for seamless data sharing. Through automating the collection, processing and reporting of sustainability-related data, the programme aims to reduce the administrative burdens associated with reporting, helping SMEs to increase efficiency, and prepare them for evolving sustainability regulations.
Danish Business Authority – Automated Sustainability Reporting initiative
Abstract
The Danish Government (Danish Business Authority, DBA) is piloting a project on Automating Sustainability Reporting for SMEs, as a four-year initiative. This is in response to the large-scale costs associated with sustainability reporting, especially related to data collection and processing. A study conducted by the DBA estimates that the implementation of European sustainability reporting legislation, specifically through the Corporate Sustainability Reporting Directive (CSRD), will cost Danish companies approximately 6 billion DKK (about EUR 805 million).1
The key challenges related to the collection and processing of sustainability-related data include the large variety of data inputs from both value chain partners and external databases, the strong reliance on manual processes, as well as the lack of standardised systems and data formats for exchanging information. SMEs face particular difficulties in the area of sustainability reporting, due to their limited experience and capacity in managing climate-related data, with over 74% of Danish micro and small enterprises not currently collecting ESG data.
The Danish government initiative aims to address these issues through digitising and structuring the collection, processing and sharing of sustainability-related data. More specifically, the initiative aims to:
Utilise standardised digital data formats for data collection, improving data interoperability;
Provide improved access to external databases required by companies, such as climate emission factors for emissions accounting;
Facilitate the sharing of these data through developing common infrastructure for open data exchange.
The project has received 27 million DKK in funding from the Danish government, with additional co-funding from the EU.
Whilst the initiative is being piloted in Denmark, it has an international perspective, aiming to foster data standardisation across borders. As such, the Danish Business Authority has already been in contact with neighbouring Nordic countries, as well as with the European Commission. The overarching goal is to create data interoperability across the EU market.
The initiative emerged in light of new EU regulations on sustainability reporting, such as the Corporate Sustainability Reporting Directive (CSRD), the Sustainability-Related Disclosure Regulation (SFDR), the EU Taxonomy Regulation on Sustainable Finance and the Corporate Sustainability Due Diligence Directive (CSDDD) and the Ecodesign for Sustainable Products Regulation (ESPR).
Whilst these regulations mainly impose legal requirements on large undertakings, the requirements for sustainability-related data from their value chains are also likely to impact SMEs, acting as sub-suppliers or business partners. As such, SMEs are likely to experience increasing demands from key stakeholders on providing sustainability related data.
The Automating Sustainability Reporting initiative is strongly aligned with Denmark’s broader digitalisation ambitions, including efforts to automate business reporting practices, as well as Denmark’s National Strategy for Digitalisation. The pilot initiative complements other programmes offered by the DBA, such as the Danish Climate Compass, providing a carbon footprint calculator for SMEs, as well as its Business Hubs, offering one-to-one guidance to SMEs on sustainability reporting.
Close collaboration with relevant stakeholders: The initiative is currently piloting several core elements aimed at streamlining sustainability reporting. This includes developing common standardised digital data formats, for example, by offering a common digital data format for the voluntary sustainability reporting standard for SMEs (VSME) and by adapting electronic invoices (e-invoices) to directly integrate more detailed product data and emissions data into procurement processes, thereby simplifying data collection and processing. Efforts are also underway to enhance access to external data, such as through a database for emission factors and other sustainability-related inputs required by companies. In addition, a common open infrastructure for data exchange is being piloted to enable seamless data sharing. To facilitate this close collaboration with the private sector, both with IT-systems providers, who are providing solutions for effective sustainability reporting, as well as the companies themselves, who will undergo the sustainability reporting has been crucial.
A number of challenges have also been encountered including:
Lack of standardised methodologies: The initial prototype focuses on climate accounting. As it is currently the most advanced domain within sustainability reporting, it offers clear quantitative and standardised metrics, such as calculating GHG emissions, facilitated by the GHG Protocol Standard. As a result, climate accounting has already been successfully integrated into electronic invoicing and embedded within the data infrastructure. The aim is to explore the possible use of e-invoices for data collection towards other environmental reporting domains in the future. However, a key identified challenge is the lack of harmonised international methodological standards for certain indicators, such as biodiversity. This complicates the development of standardised data and automated reporting for these types of indicators.
The nascent character of digitalisation: Especially when applied to the domain of sustainability reporting, digital maturity is a challenge.
Varying maturity levels in digitalisation across the EU: Due to the globalised and cross-border nature of value chains, the success of the initiative is dependent on close collaboration with other EU Member States. However, the varying maturity levels of EU member states on digitalisation pose an additional challenge to achieving effective interoperability and standardisation.
For the project to be successful, several key factors need to be in place, including:
Strong stakeholder collaboration: Particularly for the development of a common data infrastructure, which requires the involvement of reporting companies, IT-systems providers and public standard setters across each phase of the initiative.
Cross border collaboration: To ensure widespread dissemination and uptake of the digital standards internationally, collaboration with other Member States and receiving political backing for the initiative, especially on the EU level, will be essential.
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← 1. https://erhvervsstyrelsen.dk/sites/default/files/2024-03/AMVAB%20-%20CSRD.pdf. Note: This estimate is based on the previous CSRD scope and ESRS standards. With the proposed changes from the European Commission under Omnibus I, reducing scope and reporting burdens, the total cost is now expected to be considerably lower.
