Accountants will play a critical role in helping SMEs manage the impact of new sustainability reporting requirements on their supply chains. Niamh Brennan, Louise Gorman and Seán O’Reilly explain why The EU’s Corporate Sustainability Reporting Directive (CSRD) was transposed into Irish law in July 2024. Those in management and accounting functions in some of Ireland’s large companies have struggled to interpret the Directive’s requirements.  The legislation will require reports under European Sustainability Reporting Standards (ESRS) from 1 January 2025 for the 2024 financial reporting year.  In recent years, many large companies have voluntarily reported sustainability information under the Global Reporting Initiative (GRI) and the Taskforce for Climate-related Financial Disclosures (TCFD) frameworks.  Moreover, the environmental topics covered by the ESRS are derived from the EU Green Taxonomy, with which large entities in certain sectors have already reported alignment. This alignment prepares them for the CSRD requirements to some extent.  Listed SMEs will not come within the scope of the CSRD until 2027 (for the 2026 financial year), with an opt-out for two further years to 2029 (for the 2028 financial year).  Nonetheless, many SMEs, both listed and unlisted, will experience the effects of sustainability reporting requirements before these dates. Significance of the value chain The ESRS require disclosures on material environmental, social and governance topics. Such disclosures must detail the undertakings’ own operations as well as those throughout their value chain.  The value chain refers to the full range of activities, resources and relationships related to the undertakings’ business model and the external environment in which they operate.  In Ireland, many large companies’ activities, resources and relationships involve SMEs. Examples include financial services institutions with SME customers, and food and beverage producers with SME suppliers.  The implication of such relationships, in ESRS terms, is that large companies must gather sustainability information from SME value chain partners. Reporting challenges for SMEs  We have conducted two research studies on sustainability reporting for Irish SMEs. Our first study employed the GRI framework, and our second used the EU Green Taxonomy, to assess SMEs’ reporting preparedness.  Mindful of SMEs’ strong reliance on their Chartered Accountants for reporting and advisory needs, we engaged with professional Irish accounting practitioners to gain insights into the challenges they face.  Both studies were conducted in 2022 in anticipation of the publication of the ESRS by the European Financial Reporting Advisory Group (EFRAG). Our findings are highly relevant now that sustainability reporting is legally mandated. The findings of both studies indicate that cost is the greatest barrier encountered by SMEs.  In particular, set-up costs, ongoing data management expenses and potential operational changes, are likely to prevent the average SME from collecting and reporting accurate and reliable sustainability data.  Resources, particularly human resources and associated training costs, also pose a substantial impediment to implementing a sustainability reporting system. Related to this, both studies identify a significant sustainability knowledge gap within SMEs.  While an implicit understanding of the importance of environmental and social sustainability exists, many SME managers and employees have not received education on the necessary topics or metrics which must be disclosed, many of which are scientific or highly specialist in nature.   Finally, access to the necessary technology to manage and report sustainability information is limited. Appropriate data management and reporting systems have only recently become available, at a price point that typically only large companies can currently afford.  With these issues in mind, future problems are envisaged as large undertakings request sustainability data from SME customers and suppliers for ESRS reporting. Supports for SMEs Supports could help to alleviate the challenges facing SMEs over the coming years. Our research found that national or EU governmental grants, tax incentives or carbon credits may assist SMEs in overcoming cost-related challenges.  The accounting practitioners in our studies also recognised that education and training in sustainability reporting for SME management and relevant employees may need to be subsidised.  Beyond financial supports, participants in our study indicated that simplified disclosure requirements would be appropriate for SMEs.  Since we reported these opinions from our study, EFRAG has published an exposure draft of Voluntary SME (VSME) sustainability reporting standards for small non-listed enterprises.  The exposure draft presents a modular approach that SMEs can adopt on a phased basis.  Alongside simplified reporting requirements, another non-financial support deemed suitable by our respondents was the establishment of a state-sponsored or equivalent body to provide SMEs with consultancy, resources and tools for sustainability reporting.  The Department of Enterprise Trade and Employment’s recently established National Enterprise Hub represents a valuable opportunity to aid Irish SMEs in meeting sustainability data demands from larger companies. The path ahead for SMEs In the immediate term, large undertakings collecting sustainability data from smaller value chain parties can avail of transitional provisions when data is not available in the first two to three years of reporting.  Nonetheless, such reliefs are limited amidst a strong impetus across Europe to set and achieve Greenhouse Gas emissions’ reduction targets in line with the Paris Agreement.  Without data from value chain parties, measures of Scope 3 emissions reported by large undertakings under the climate change standard, ESRS E1 Climate Change, will be inaccurate and misleading.  At a time when greenwashing is considered almost akin to financial fraud by the general public, large undertakings may impose pressures on small enterprises to produce relevant measurements, even if regulators do not.  Failure to do so may cost SMEs valuable business relationships. Disclosures required under ESRS E4 Biodiversity and Ecosystems will also impact Irish SMEs in value chains in sectors such as agri-food. With the Circular Economy Act signed into Irish law in 2022, reporting on the circular economy under ESRS E5 Resource Use and Circular Economy may be deemed a material topic for many companies.  ESRS E5 requires extensive discloses on product lifecycles and may well also necessitate data collection from SME suppliers as well as from SME consumers.  In fact, it is important not to consider SMEs solely from a supplier perspective. In terms of social sustainability, ESRS S4 Consumers and End-Users sets out reporting requirements on consumers’ use of goods and services, with a particular emphasis on health and safety.  SMEs intermediating between large companies and end-consumers will also be required to report upstream to larger companies in value chains.  Additionally, ESRS S2 Workers in the Value Chain requires large undertakings to report on the composition of suppliers’ and customers’ workforces, as well as their working conditions. Sources of support Our research findings, coupled with an analysis of the ESRS requirements, clearly indicate that support for SMEs is vital to ensure they retain strong positions within value chains in Ireland and across the EU.  Prompt development of the VSME standards is essential. Without standardisation, SMEs face requests from multiple supply chain stakeholders to provide various types of data in different formats.  The introduction of the VSME standards in a manner that encompasses guidance to larger firms on best practice in data collection from smaller value chain partners may ease the reporting challenges for undertakings of all sizes.  The role the accounting profession will play is integral, as smaller entities will need sustainability reporting alongside traditional accounting services.  Chartered Accountants Ireland offers advice, education and representation for members in the area of sustainability reporting.  As these requirements becomes a priority for SMEs, the Institute will continue to provide support to Chartered Accountants navigating the nuances of this major development in accounting and reporting. Niamh Brennan is Michael MacCormac Professor of Management at University College Dublin Louise Gorman is Assistant Professor at Trinity College Dublin  Seán O’Reilly is Assistant Professor at University College Dublin

Companies complying with the Corporate Sustainability Reporting Directive could see real business benefits, but the right mindset is crucial, write David Connolly and Alba Boshnjaku At its core the Corporate Sustainability Reporting Directive (CSRD) is a reporting requirement, but it should not be viewed merely as a compliance exercise.  Companies within the scope of the Directive will be reporting in a standardised way. This means that sustainability statements could become a powerful tool for communicating more effectively with their stakeholders.  The CSRD could potentially enable these companies to build trust, enhance their reputation and strengthen their accountability.  This scenario is not dissimilar to existing accounting standards, whereby the requirement for companies to report financial information to investors, lenders and other stakeholders, has facilitated better and more transparent comparability between businesses operating in the same industry. Ignoring sustainability is no longer an option. Companies must be aware of, and report on, the impacts they have on people and the environment, as well as the sustainability-related risks and opportunities they face in the short, medium and long term.  Therefore, the CSRD gives companies an opportunity to understand what matters to them and their stakeholders. It allows them to re-evaluate their business to gain a competitive edge and potentially attract new customers, talent and capital, thereby strengthening their strategic resilience.   C-suite executives should recognise the potential the CSRD has to help steer their organisation towards a future that balances profitability with environmental and social responsibility governed by robust control frameworks.  Before exploring the potential benefits, however, let’s first revisit some of the key concepts of the CSRD. Europe: leading the way in sustainability reporting  An estimated 40,000 companies based in the European Union will be brought within scope of the CSRD on a phased basis, starting this year and continuing through 2028. Reporting obligations apply to all large and listed companies, including small and medium sized entities (SMEs), except for listed micro-enterprises. The size category into which an undertaking or group falls is defined by establishing thresholds in relation to net turnover, gross value and average number of employees during the financial year.  A large undertaking or a large group will, for example, exceed at least two of the three following criteria: balance sheet totalling €25 million; net turnover of €50 million; an average of 250 employees.  These criteria, including the ones for SMEs, are established in the Accounting Directive at EU level and transposed in national legislation, which companies must consult to determine whether they are captured within the scope of the CSRD. Certain non-EU companies with listed subsidiaries or significant operations in the EU market are also required to report. Non-EU companies that fall under the scope of the CSRD need to have: Net turnover of more than €150 million in the EU for each of the last two consecutive financial years;  A large or listed EU subsidiary, or EU branch, generating over €40 million in the EU. The requirement for certain non-EU companies to report will impact some companies established in Northern Ireland where they meet the relevant threshold criteria.  Ireland transposed the CSRD in the Companies Act in July 2024. Companies should carefully consider the relevant provisions to determine whether they fall within scope. The first wave of companies (large, listed companies with over 500 employees) have already mobilised their teams to get disclosure ready as they will be publishing their sustainability statements in the first quarter of 2025 for the current financial year.  Companies within the scope of the Directive must prepare their sustainability statements in line with the European Sustainability Reporting Standards (ESRS). The first set of twelve sector-agnostic standards have been adopted by the European Commission and are directly applicable to all EU member states.  Sector-specific standards are under development and proportionate standards for listed small and medium-sized entities are also expected.  Two of the standards – ESRS 1 and ESRS 2 – are cross-cutting and mandatory for all. The remainder, structured under Environmental, Social and Governance (ESG) pillars, are subject to the outcome of the materiality assessment. Companies will need to undertake a double materiality assessment to decide what they will need to report on.  They will have to identify and assess the impacts of their business on people and the environment (impact materiality) and the risks and opportunities the outside world poses to their business (financial materiality).  As part of this process, companies will need to understand the business and regulatory environment in which they operate and map their value chain. The value chain is defined as the full range of activities, resources and relationships related to the undertaking’s business model and the external environment in which it operates.  The value chain encompasses the activities, resources and relationships the undertaking uses and relies on to create its products or services from conception to delivery, consumption and end-of-life.  As part of their double materiality risk assessment, companies will also need to identify material- and sustainability-related impacts, risks or opportunities relating to their value chain across time horizons.  Once they have identified their material matters, they will then need to identify the material disclosures and data points to be reported in the sustainability statement.  The sustainability statement will be subject to limited assurance, with added responsibilities for audit board committees. Companies will need to implement robust control frameworks that ensure high quality, reliable and comparable sustainability information. The CSRD: a competitive edge  The CSRD offers an opportunity for companies to gain a competitive edge, because it requires that they report, not only on the material impacts they have on people and the environment, but also on the potential risks and opportunities they face.  For example, supply chain disruptions caused by climate change or dependencies on scarce natural resources could lead to operational risks for companies, which could then take the form of credit risks for financial institutions. Similarly, negative impacts on employees or affected communities could lead to litigation and reputational damage. On the flipside, investment in green technology or innovation could generate profit and add shareholder value.  By treating double materiality assessments as a box-ticking exercise, companies will miss the opportunity to better understand their business and make more informed strategic decisions.  A thorough, data-driven assessment should take into consideration value chain relationships, sector and geographical exposures. Supported by stakeholder insights, this approach can help a company to identify the existing and anticipated effects of sustainability on its business model and strategy, including risks or opportunities related to its financial position, cash flow and access to capital.  The double materiality assessment is dynamic and requires companies to think and assess what is material, not only this year, but in the medium to long term – and how this will impact its wider business plans and strategy.  For C-Suite executives, the results of the double materiality assessment could yield insights that enhance efficiency, improve performance and help them set realistic targets, all while demonstrating their company’s commitment to transparency. Opportunity for increased internal accountability  Under the CSRD, companies will need to report on the processes they have in place to identify and manage material sustainability matters. The preparation process will trigger important internal questions that require owners and demand accountability.  Are our policies and actions effective? How are we tracking the effectiveness of our targets? Is our data accurate? How robust is our internal control framework? Is sustainability integrated into our risk management process? What is the role of the Board in sustainability reporting?  These are only a small fraction of the questions companies will need to ask themselves to ensure that their reports are CSRD-compliant. These are also questions that could help companies become efficient and foster a transparent and risk-focused culture.  Further, reported sustainability information, such as financial reporting, will need to be reliable, accurate and comparable. What gets measured gets done.  By having to define baselines and measure progress from year to year, companies must ensure that time and resources are adequately allocated to set the business up for success.  Communicating what matters to stay ahead  Companies will have to report on what is material and relevant to stakeholders and, with stakeholder expectations evolving, ongoing engagement will be key.  Investors, employees, customers, suppliers and the public at large are becoming more aware of the sustainability impacts of companies, so they can make informed, ethical decisions.  Some stakeholders will be more interested in the sustainability credentials of companies than others. While customers and employees will take account of sustainability when deciding where they spend their money or where they work, funders and regulators will have more than a passing interest.  In 2023, according to the latest World Investment Report, the value of sustainable investment products, both bond and equity, reached more than $7 trillion, up 20 per cent on the previous year. Both investors and lenders rely on accurate and transparent information to make informed decisions, meet their own reporting requirements, and mitigate greenwashing risks. C-suite executives should be prepared to answer their questions. Regulatory requirements are becoming increasingly onerous across industries and regulatory bodies worldwide are pushing for uniformity and transparency in sustainability reporting.  While climate change has dominated the regulatory agenda in recent years, other environmental and social issues are also coming into focus, including human rights and labour practices within supply chains.  As new requirements are introduced globally – for example, IFRS sustainability disclosures –businesses operating across jurisdictions will need to think about interoperability to ensure consistent messaging and compliance.  By understanding who the users of the sustainability information are, and what they need to know, companies have scope to build trustworthy relationships that could benefit their market position, value and access to capital, while also ensuring compliance. Cultivating a winning mindset With the right mindset, companies complying with the CSRD could see real business benefits. The CSRD is a function of the European Union’s wider Green Deal, designed to revitalise and transform the European economy by decoupling economic growth from resource use to ensure long-term sustainability.  This will require a focus on innovation, new technology, sustainable products and services, responsible and sustainable business practices, employment and supply chains.  So, while companies prepare for their first year of CSRD reporting, C-suite executives should be thinking about potential opportunities and risks, emerging material sustainability issues, and how they can use sustainability reporting to improve their strategic resilience and business value.  David Connolly, FCA, is a Director in EY Financial Services Climate Change and Sustainability Services (CCaSS) Alba Boshnjaku is a Manager in EY Financial Services CCaSS, specialising in ESG reporting

Daniel O’Donovan considers the urgent need to resolve interpretative questions that have emerged following the transposition of the Corporate Sustainability Reporting Directive into Irish law The European Union (Corporate Sustainability Reporting) Regulations 2024 (the Regulations), also known as S.I. No. 336 of 2024, transposes the Corporate Sustainability Reporting Directive (CSRD) into Irish law.  This legislation marks a significant step in aligning Ireland’s corporate reporting framework with the EU’s broader sustainability goals, as outlined in the European Green Deal and the EU Action Plan for Financing Sustainable Growth. The Regulations were signed into law during the summer and came into effect on 6 July 2024. Their principal objective is to integrate the new corporate sustainability reporting obligations with Ireland’s existing financial reporting framework.  It is estimated that about 1,000 Irish companies will fall into the scope of these Regulations. The Regulations will be phased in over the next few years and will generally apply to public interest entities and companies qualifying as large under section 280H of Companies Act 2014.  Companies regulated by the Central Bank of Ireland qualify as large under this section, for example. It is welcome to see the implementing legislation. Ireland is among the first countries in the European Union to have implemented the CSRD, thus giving businesses in Ireland as much time as possible in the circumstances to assess its impact.   The impacted entities have been assessing the obligations in the legislation since it came into effect.  As with any implementation of such a complex European directive, some interpretative questions in relation to the implementing legislation have emerged. What follows are some of the key interpretative questions that have emerged to date. The definition of “Applicable Company” Several questions arise from the definition of “applicable company” in Section 1586 of the Regulations.  The definition refers to a provision contained in Part 6 of Companies Act 2014 to define its boundaries and, in particular, draws on the definition of a large company in section 280H of the Companies Act 2014.  This appears to have unintended consequences because an ineligible entity is a large company.  For example, certain small and medium entities and micro-entities that fall within the definition of an ineligible entity may be included in year two of reporting pursuant to section 1587(1)(b), reporting on 2025 sustainability information, rather than being in year three of reporting pursuant to section 1587(1)(c), reporting on 2026 sustainability information.  Exemptions for certain subsidiaries Section 1594 of the Regulations provides an exemption for certain subsidiaries. However, the exemption appears to be more restrictive than the equivalent in the CSRD, because it appears to be limited to Irish subsidiaries of Irish holding companies and excludes Irish subsidiaries of EU holding companies. See first table below.  In addition, it appears that all subsidiaries that are themselves large public-interest entities (listed and non-listed entities) are precluded from taking the exemption – whereas the CSRD only excludes large subsidiaries listed on an EU-regulated market. Exemptions for certain holding companies that are subsidiaries Section 1598 of the Regulations provides an exemption for holding companies that are themselves subsidiaries, where: a higher parent undertaking prepares a directors’ report under Part 6; or  a non-EU higher parent provides a group report either in accordance with the sustainability standards or in a manner recognised as equivalent to them.  However, as “third country” in the Regulations is defined to exclude Member States, it appears that there is no exemption for holding companies that are subsidiaries of an EU parent. See second table below.  Further, this exemption appears to be restricted further than the CSRD, because all large public-interest entities are prohibited from availing of the exemption, whereas the CSRD only excludes large public-interest entities that are listed on an EU-regulated market. Transitional provisions for consolidated reporting The Regulations permits, in section 1607, a subsidiarity of a third country undertaking to report on a consolidated basis on behalf of a group until 2030 (artificial consolidation).  However, it appears that this provision only applies to financial years commencing on or after 1 January 2028 by virtue of its placement in Chapter 3 of the Regulations.  As such, companies that wish to avail of this provision may be unable to do so during a significant portion of the transitional period. Supporting sustainability ambitions The EU and Ireland’s shared ambition to lead in sustainability reporting, transitioning to a sustainable economy and economic model, it comes with an ambitious timeline.  For example, the period between the effective date of the Regulations and the end of the first period on which year one companies will report on sustainability, in accordance with the European Sustainability Reporting Standards, is just six months.  We believe that a stable and clear legal framework is essential for businesses to thrive in Ireland.  Ensuring that outstanding CSRD transposition matters are resolved promptly will help maintain Ireland’s strong reputation as an excellent place to do business.  It is in the public interest to provide companies with the clarity they need to comply with new laws effectively. We welcome The European Union (Corporate Sustainability Reporting)(No.2) Regulations 2024 (S.I. No. 498 of 2024) signed into law on 1 October. S.I. 498 of 2024 resolves some of the interpretative questions set out above, aligning: The exemption for subsidiaries that are themselves large public-interest entities with the CSRD, which only excludes large subsidiaries listed on an EU-regulated market from the exemption; The exemption for holding companies that are subsidiaries, with the CSRD, which only excludes large public-interest entities listed on an EU-regulated market from the exemption; and The commencement of the transitional provision regarding artificial consolidation with the CSRD, now available immediately. Significant questions remain to be resolved, however.  Accountants are committed to meeting the new sustainability reporting requirements, but we recognise that implementing the CSRD into Irish law is complex and that the necessary resources and expertise to prepare detailed and complex reports, and to obtain assurance on those reports, are still developing in the Irish market. By working together, we can ensure businesses have the support they need to meet these sustainability ambitions, aligning with the CSRD’s goals for 2024 and beyond. Time is running short. As the clock strikes the 11th hour, companies need to have clarity on the interpretative questions discussed in this article as a matter of urgency. Continued imminent engagement between the legislators and the legislates is critical to resolving these matters and ensuring our sustainability reporting ambitions are successfully achieved. Daniel O’Donovan is a Partner with KPMG and leads the firm’s Audit and Assurance Methodology Team

Accountants have a critical role to play in assisting companies, both large and small, to get on their sustainability journey, writes Dee Moran Sustainability reporting is a term that is getting much more traction and interest than in the past and with due cause. From an environmental perspective, the latest report from the Environmental Protection Agency is encouraging in that Ireland’s emissions in 2023 were below the 1990 baseline for the first time in three decades.  However, the report also states that the Climate Act objective of achieving a 51 percent reduction by 2030 will not be achieved unless all sectors meet their indicative reductions.  Therefore, it is critical that we, as accountants, play our part in assisting entities to up their game, particularly in the area of sustainability reporting.  It has become clear in the past year or so that our members’ interest in this area has increased hugely.  Having over 600 members attend our two recent sustainability webinars is testament to this, as are the numbers signing up to the Institute’s certificate and diploma programmes in this area.  The transposition of the Corporate Sustainability Reporting Directive (CSRD) into Irish law on 5 July 2024 requires companies, depending on their size, to begin reporting from 1 January 2024.  Whilst the subsequent publication of the statutory instrument, (S.I. 336/2024) has been very welcome, there remain some areas that require clarification on interpretation before we can begin to write technical guidance for members.  In this special report, Daniel O’Donovan outlines these interpretations in a very clear and concise manner.  We have engaged with the Department of Enterprise, Trade and Employment and Minister Peter Burke, TD, FCA, on these interpretive questions, and other matters that require clarification. An amending statutory instrument, S.I. 498/2024, was signed into Irish law on 1 October 2024. While the S.I. provides some clarifications, outlined in Daniel O’Donovan’s article, there still remain questions that must be answered regarding the transposition. It is important that there is a shared understanding of the legislation, which will allow preparers to set up the processes and procedures necessary to report and comply with the CSRD.  In this special report, EY’s David Connolly and Alba Boshnjaku outline some of the requirements of the CSRD, and why ignoring sustainability is no longer an option for businesses.  They also discuss the importance of an entity having the right mindset, and that companies complying with the CSRD could see real business benefits and additional opportunities.  While approximately 1,000 companies in Ireland will eventually have to comply with the CSRD, there are thousands of other entities that will have to prepare to report on their sustainability information if they are in the value chain of an in-scope company.  This will place an additional burden on SMEs and a recent study undertaken by Niamh Brennan and Sean O’Reilly from UCD, and Louise Gorman from Trinity College Dublin outlines some of these challenges, and how accountants can assist them in managing the impact. A brief explanation of the research is outlined in their article. As accountants, we have a critical role to play in assisting companies, both large and small, to get on their sustainability journey.  We encourage you to upskill and be prepared to play a role in this journey.   Dee Moran is Professional Accountancy Lead at Chartered Accountants Ireland

EU Commission President Ursula von der Leyen will need to summon all her powers of persuasion if she is to deliver on her second term priority to improve EU competitiveness, writes Judy Dempsey Ursula von der Leyen is no pushover. During her first term as head of the EU Commission, the bloc’s powerful executive, she has focused on competition, trade, energy, data protection and climate change, stamping her own indelible mark on the job.  She has been hands-on. Colleagues who have worked with her note her need for control. Delegating has not been von der Leyen’s métier – nor communication, aside from her passionate support for Ukraine.  Her second term is not going to be easy. Yes, von der Leyen has commissioners on board who are aligned with her own conservative political leaning. Yes, she has a few, very experienced commissioners who served under her first term, if not before. And yes, she has her agenda – competitiveness – as her main focus. The number of newly appointed commissioners alone shows how determined von der Leyen is to bolster EU competitiveness in response to shifting global demands, including the rise of artificial intelligence.  Her second term will not be plain sailing, however – for three reasons.  First, many of her 27 commissioners have overlapping dossiers. This will inevitably lead to turf battles. Continued collegiality is not a given.  Second, the EU is obsessed with regulation. Its bureaucratic and regulatory processes often stifle innovation, and this will continue to be the case. Third is the role of EU member states. In recent years, with a few big exceptions, von der Leyen has dealt with countries that prefer to use the EU Council representing member states for their own agenda and interests. This is bad news for von der Leyen. France, and particularly Germany, have increasingly pushed their national interests before that of Europe. It has always been so, but France and Germany, the historic engine of EU integration, are no longer in sync.  French President Emmanual Macron – now a beleaguered leader who only recently formed a government after months of stalemate – wields little influence in the EU.  Macron’s big ideas about making Europe ready to take care of its own security and defence, and his warnings about the need to defend the essential values that make Europe what is today, have had so little traction. This is no thanks to Germany, where Chancellor Olaf Scholz has failed to engage intellectually with either France or the EU.  Scholz’s policies on immigration (border controls on Schengen countries), more monetary integration (blocking a banking union) and more political integration (blocking treaty change to get rid of some veto powers of the member states), point to a squabbling coalition of Social Democrats, pro-business Free Democrats and Greens, all holding up European integration.  They also confirm a German leader reluctant to embrace bigger-picture thinking for Europe’s future. EU member states opposing greater integration can hide behind Berlin. This is why Germany’s political and economic clout used to matter, and for the right reasons. It is different now – to the detriment of the EU and von der Leyen’s goals. Judy Dempsey is Non-resident Senior Fellow at Carnegie Europe *Disclaimer: The views expressed in this column published in the October/November 2024 issue of Accountancy Ireland are the author’s own. The views of contributors to Accountancy Ireland may differ from official Institute policies and do not reflect the views of Chartered Accountants Ireland, its Council, its committees, or the editor.

As the Strategic Banking Corporation of Ireland celebrates its 10th anniversary, Chief Executive June Butler, FCA, tells us about its evolution and the outlook for SMEs today The Strategic Banking Corporation of Ireland (SBCI) was established in 2014 following Ireland’s exit from the EU-IMF programme, which was initiated to support the Irish economy due to the onset of the global financial crisis in 2008. Launched formally on 31 October 2014 by the Department of Finance and the National Treasury Management Agency, the aim of the SBCI at the outset was to ensure businesses could access funding where the private sector could not provide it. Today, the SBCI aims to help Ireland’s SMEs continue to grow, innovate and prosper. June Butler, FCA, was appointed Chief Executive of the SBCI in September 2021.  Tell us about the SBCI, what it does and how it has evolved over the last decade?  Starting out in 2014, the purpose of the SBCI was three-fold: to make access to finance easier for SMEs; bring down the cost of borrowing; and increase competition in the market, giving businesses more finance options. We have really evolved from our initial start-up phase as a provider of low-cost funding to On-Lending Partners to become a promoter and distributor of risk-sharing lending products that meet SMEs’ current financing needs. One of our key strengths is our ability to act as a conduit for EU-wide supports and bring them to the Irish market for the benefit of SMEs here. We have been successful in promoting competition in the SME financing market, by supporting new entrants and helping non-bank lenders diversify their product offering. We now have close to 40 On-Lending Partners, ranging in size from the main banks to smaller providers and Credit Unions. We provide our partners with low-cost funding and, because we can access lower-cost funding from a variety of sources, we can pass this benefit on to them, and they can then pass it onto their SME clients by way of reduced interest rates. Since the SBCI was first established in 2014, we have channelled more than €4 billion in low-cost flexible funding to over 60,000 SMEs in Ireland. You also offer risk-sharing guarantee schemes – how do they work in practical terms? Our business model has expanded from purely providing low-cost liquidity and wholesale funding at the outset to now offering risk-sharing schemes.  We do this in partnership with Government departments, which also provide funding for these schemes, alongside the banks, non-banks and Credit Unions that distribute them.  We have introduced several risk-sharing guarantee schemes, whereby we share the credit risk with the lender. The key benefit here is the availability of lower-cost and longer-term loans for businesses.  Our risk-sharing schemes also reduce the need for security for businesses, which helps more of them access loans because it reduces a “blocker” they might otherwise have faced when seeking finance. We access counter-guarantees from either the European Investment Bank (EIB) or the European Investment Fund. We structure this into a guarantee-type product whereby we provide an 80 percent guarantee to both bank and non-bank lenders. This means they can then provide better funding access to SMEs. Can you tell us about some of the loan schemes you have launched in recent years? In more recent years, I think we have been instrumental in responding to various crises that have limited the availability of credit to businesses in Ireland. Where there is uncertainty, the availability of credit tends to tighten up and our role here is counter-cyclical: we step in to provide guarantee schemes to make sure that credit continues to flow to businesses. We launched the Brexit Loan Scheme in March 2018, for example, in partnership with the Department of Enterprise, Trade and Employment and the Department of Agriculture, Food and the Marine. It was a €300 million scheme aimed at helping SMEs implement necessary changes to address the challenges posed by Brexit. We offered an 80 percent guarantee and that scheme was supported by the InnovFin SME Guarantee Facility, with financial backing from the EU under Horizon 2020 Financial Instruments. We launched the Ukraine Credit Guarantee Scheme in January 2023 – again, in partnership with the Department of Enterprise, Trade and Employment and the Department of Agriculture, Food and the Marine. That scheme facilitated the provision of working capital and medium-term investment finance to businesses adversely affected by the conflict in Ukraine, facing supply chain disruptions and increased input costs. Other examples include the Covid-19 Working Capital Loan Scheme, launched in March 2020, and our Covid-19 Credit Guarantee Scheme, which offered an 80 percent guarantee to participating lenders for SME loans. If you look back to the pandemic and its impact on everyone, including SMEs, there was so much uncertainty in the economy at that time.  Many businesses had to close their doors, but they still needed working capital. There were businesses that spotted opportunities to expand or take advantage of opportunities that arose. That is where we were able to step in with a State-backed guarantee scheme.  The reactive aspect of our role in supporting SMEs and the wider economy is very important. When there is a crisis, and the flow of credit slows, we can step in, make sure the flow of business funding continues, and encourage lenders to provide it. We also take a more strategic view of gaps in the market. Our Growth and Sustainability Loan Scheme, for example, supports SMEs, including farmers and fishers, investing in growth, resilience and climate action. It has been designed to encourage longer-term strategic investment. The SBCI has more recently moved into consumer lending. Can you tell us more about this? Just this year, we have evolved into providing a consumer lending product for the first time, launching a new low-cost Home Energy Upgrade Loan Scheme. The €500 million scheme is designed to help homeowners invest in energy efficiency.  They can borrow between €5,000 and €75,000 on an unsecured basis for a term of up to 10 years, availing of interest rates significantly lower than those available elsewhere in the market. We worked with the Department of the Environment, Climate and Communications on this scheme, which is underpinned by a loan guarantee from the EIB Group and a Government-funded interest rate subsidy. It is the first scheme of its kind for both Ireland and the EIB Group.  Our aim here is to address a gap in the consumer lending market and help promote Ireland’s energy transition by providing low-cost finance for homeowners who want to retrofit their properties to help with both energy efficiency and decarbonisation.  We have also just launched a new Green Transition Finance product for Irish businesses in partnership with Business Venture Partners. It is a €50 million debt fund to support Irish businesses investing in sustainable and green projects and assets, as well as those already operating in a sustainable manner. The loans on offer under this scheme range from €500,000 to €5 million for terms up to 10 years, with competitive interest rates and flexible repayment terms. What is your take on the outlook for SMEs in Ireland today, 10 years after the SBCI was launched?  It is a tale of two halves. On one side, there are a lot of opportunities out there for businesses to explore right now in areas such as digital transformation. Lots of businesses came a long way on this front during the pandemic, when we were working remotely and connecting and doing business online. During that period, we saw investment in things like e-commerce platforms and digital marketing, but there is still quite a way to go.  Digital tools and technologies can really help businesses with customer engagement and efficiency through investment in automated manufacturing and back-office functions, for example.  The second opportunity I would highlight for SMEs relates to sustainability. We are seeing that the SMEs investing in sustainability – be it solar panels, heat pumps or retrofitting their offices – are absolutely reducing costs. This kind of investment has a direct impact on the bottom line, and it is attractive to consumers who are increasingly prioritising green credentials when they choose products and services. The third opportunity for SMEs lies in export markets. We are seeing a lot of smaller businesses looking to identify new revenue streams and they often lie in markets outside Ireland. On the flipside, SMEs in 2024 are facing the challenges of labour market pressures, rising input costs and inflation. All these factors create pressure. The banking landscape has change significantly in the past five years, with the exit of KBC and Ulster Bank from the Irish market impacting the availability of finance.  We have worked hard to establish partnerships with more non-bank finance providers, such as Finance Ireland, Fexco and Linked Finance, so SMEs can have more access to alternative finance options. We are also focusing on Credit Union partnerships. Credit Unions have a national footprint, they are known and trusted in their local communities, and they are now developing into providers of SME finance, which we welcome. The need to focus on attracting new finance entrants, and helping existing players expand their product offering, is important to us at the SBCI.  Talk us through your own career path as a Chartered Accountant prior to taking up your current role with the SBCI. I studied law at Trinity College Dublin and, after that, trained as a Chartered Accountant with PwC. When I left practice in 2003, I joined Bank of Ireland. I started in the Group Internal Audit division and then spent many years in finance in a variety of roles. My last role with Bank of Ireland was in the Business Banking division and it was at that stage that I really developed a passion for working with Irish businesses.  I got to know them. I got to see how driven and innovative they are, so I was honoured when the board of the SBCI selected me for this role, which is also focused on serving Irish businesses, just from a different angle. What do you enjoy most about your role as Chief Executive of the SBCI? I really enjoy working with Irish businesses and feeling like we are genuinely making a difference, because our role is to fill the finance gaps for SMEs and make it easier for businesses to access funding for a whole range of reasons, be it working capital or finance for expansion or exporting into new markets. Every day, we see the benefit of what we are doing. We often hear that SMEs are the lifeblood of the Irish economy, and they really are. They provide significant employment, contribute to their communities and the whole team at the SBCI feels like we are making a difference to this critical sector every day. The part of my job I enjoy most is meeting the people we are helping – be they businesses owners, farmers or fishers – and hearing about the positive impact of what we do. We support a broad cross-section of the SME sector.