ESG: Opportunity or Administrative Burden for Czech Firms?

With the rollout of the EU’s Corporate Sustainability Reporting Directive (CSRD), ESG (Environmental, Social, and Governance) reporting is becoming a reality for many Czech businesses. While large companies are already navigating the framework, SMEs are now feeling the pressure—often indirectly—through supply chain demands from multinational partners.

Critics argue that ESG reporting is overly complex and imposes a disproportionate burden, especially on SMEs. The Confederation of Employers’ and Entrepreneurs’ Associations of the Czech Republic (KZPS) warns that the framework could weaken the competitiveness of Czech firms. Many SMEs lack the capacity to meet detailed information requests, such as recycled material percentages or Scope 3 emissions, leading to lost contracts to faster, often less transparent, global competitors.

KZPS views ESG more as an administrative hurdle than a tool for added value. The required dual materiality analysis is vague and subjective, risking inconsistent results and greenwashing. The Confederation calls for a simplified, minimal implementation of the directive in the Czech Republic, tailored to SME capabilities. Among their recommendations: separating ESG from financial reporting, limiting auditors’ roles, and dropping the requirement to report on entire supply chains.

Additional concerns include the upcoming EU directive on environmental claims, which could impose heavy penalties for unverifiable marketing—potentially hitting SMEs hardest due to the high cost of third-party verification.

Despite the challenges, ESG does present opportunities—access to green financing, improved risk management, and enhanced investor trust. But without clearer rules and stronger support, ESG risks becoming more of a burden than a benefit.

KZPS continues to represent Czech employers and push for realistic, SME-friendly ESG implementation—ensuring that sustainability supports competitiveness, rather than undermining it.

Source: KZPS declaration in connection with the implementation of ESG reporting