Implementing the European Union Green Taxonomy: implications for small- and medium-sized enterprises

ABSTRACT

This research investigates accounting practitioners’ perceptions of the feasibility of implementing the EU Green Taxonomy (“the Taxonomy”) for Small- and Medium-Sized Enterprises (SMEs) and assesses the reporting challenges, supports required and SME benefits from the provision of Taxonomy disclosures. We approach our study from the perspectives of institutional theory and legitimacy theory. We adopt a novel methodology to explore our research questions using two case studies to engage 192 SME accounting practitioners in completing a survey questionnaire. We differentiate respondents in terms of “performers” and “conformers”. Our findings suggest that accounting practitioners believe the Taxonomy requirements to be feasible. From a legitimacy theory perspective, the data suggests both symbolic and substantive actions may be taken in providing Taxonomy disclosures. We also find evidence to suggest that where implementation costs are substantial, accounting practitioners believe that SMEs will only align with the Taxonomy when coerced to do so, consistent with institutional theory. Our findings add to the growing literature on the Taxonomy by showing that the quality of disclosures is contingent on targeted provision of government funding and resources to SMEs and their accounting practitioners.

Highlights

• Surveyed SME accounting practitioners on the feasibility of the EU Green Taxonomy.

• Novel methodology using two case studies to engage SME accounting practitioners.

• SME Accounting practitioners believe the Taxonomy requirements to be feasible.

• Resource constraints may lead to meaningless disclosures and potential greenwashing.

KEYWORDS:

• Environmental accounting
• environmental sustainability reporting
• EU green taxonomy
• small- and medium-sized accounting practitioners
• small- and medium-sized enterprises

1. Introduction

The intention behind the EU Green Taxonomy (“the Taxonomy”) is to urge climate change mitigation and adaption and to achieve additional environmental objectives from Taxonomy alignment. A primary rationale for SMEs to report Taxonomy alignment is value-chain related. As pressure grows to reduce Scope 3 greenhouse gas emissions (European Commission, 2021a), SMEs verifying their environmental impact to larger suppliers (Centobelli et al., 2021; Graafland, 2018) and customers (Machado et al., 2020) can achieve stronger positions in supply chains. Our study focuses on the role of SME accounting practitioners in implementing the Taxonomy.

SMEs have typically relied on their accounting practitioners for their reporting requirements (Nigri & Del Baldo, 2018) as well as for consultancy and advice, particularly in implementing new initiatives and processes (Jarvis & Rigby, 2011). Several studies highlight the important role of accounting practitioners, often referred to as the SMEs’ “most trusted advisor” (Arnold, 2021; Blackburn et al., 2010; European Federation of Accountants and Auditors for SMEs (EFAA), 2018; Spence et al., 2012). As SMEs face uncertainty, business owners increasingly turn to their most trusted advisors to ensure long-term viability. Accounting practitioners are well-positioned to add value and ensure their clients can survive in an environmentally sustainable manner (Arnold, 2021).

IFAC (2021) highlights the opportunities for accounting practitioners in reporting environmental sustainability information for their SME clients. IFAC further maintains that accounting practitioners will naturally influence reporting environmental sustainability information to external stakeholders and business partners. The EFAA (2018) survey of the non-financial reporting requirements for European SMEs supports this view and encourages accounting practitioners to prepare for future implementation of environmental sustainability reporting. Nonetheless, the role of accounting practitioners in the introduction and practice of environmental sustainability reporting has been largely overlooked (Humphrey et al., 2017; Rinaldi et al., 2018). SMEs represent 90% of businesses globally (World Bank, 2022). Measuring SMEs’ environmental impact is a rational step towards achieving the European Commission’s (2020a) 2030 climate ambitions.

We employ a survey questionnaire to assess the opinions of 192 accounting practitioners on the feasibility of implementing the Taxonomy for SMEs (research question (RQ) 1), and the supports required to minimise reporting challenges and generate benefits for SMEs (RQ2). Our third research question examines how accounting practitioners’ opinions on feasibility are influenced by the challenges they envisage, the supports they deem necessary and the potential benefits they expect to accrue from Taxonomy disclosures (RQ3).

Our findings suggest that accounting practitioners believe the Taxonomy requirements to be feasible. From a legitimacy theory perspective, the data suggests both symbolic and substantive actions may be taken in providing Taxonomy disclosures. Consistent with institutional theory, we also find evidence to suggest that where implementation costs are substantial, accounting practitioners believe that SMEs will only align with the Taxonomy when coerced to do so. Given implementation costs, our findings highlight the need for resources. The limitations of current IT systems to capture and manage the requisite data add to the challenge. Government grants and incentives appear attractive to many accounting practitioners to assist their SME clients in implementing the Taxonomy. The evidence also suggests an important role for education in accelerating Taxonomy adoption. We find that a major non-regulatory benefit of Taxonomy implementation may be a potential reduction in costs, along with savings for businesses.

The study contributes to the environmental sustainability reporting literature which, despite its growing focus on Taxonomy disclosures (Hoepner et al., 2023), has yet to examine the implications for SMEs. It also adopts a novel methodological approach in that we acquaint survey respondents with the Taxonomy disclosures using a case study. Finally, the study informs emerging policy on Taxonomy disclosures for SMEs by highlighting the financial and non-financial supports required to assure successful implementation.

The paper is structured as follows: Section 2 considers the context of the research. Section 3 overviews the theoretical positioning of the paper and prior research. We introduce our methodology in Section 4 and report findings in Section 5. Section 6 concludes the paper.

2. Context of the research

EU Regulation 2020/852 establishes the basis for the Taxonomy by setting conditions that an economic activity must meet to qualify as environmentally sustainable. The Taxonomy regulation became operational in July 2020 for certain larger entities. In April 2021, the European Commission (2022a) adopted a Corporate Sustainability Reporting Directive, which widens the scope of the reporting obligations to certain SMEs with securities listed on EU regulated markets, capturing an estimated 49,000 companies (European Commission, 2022b). EU-level discussion suggests that it may be 2026 (European Commission, 2021b) before sustainability reporting requirements directly impact SMEs. However, the requirements are likely to have a trickle down effect on SMEs due to their place in larger entities’ value chains. As one respondent (Respondent 132) observed “I think this will be driven by larger entities. They will not supply firms or provide access to finance with any firms who are not environmentally sustainable.” Another respondent (Respondent 128) added “It is going to be driven by the bigger suppliers but again, they must be flexible and provide greater supports to the suppliers and the smaller guys.” Thus, the capacity for SMEs to engage in sustainability reporting merits timely and focused consideration. Indirect pressures from larger companies in supply chains to provide basic measures of environmental impact are likely to amplify reporting demands on SMEs in the short term (Centobelli et al., 2021; Graafland, 2018; Johnson & Schaltegger, 2016).

The Taxonomy is a classification system that establishes a list of environmentally sustainable economic activities. The Taxonomy addresses six environmental objectives: (i) Climate change mitigation; (ii) Climate change adaptation; (iii) The sustainable use and protection of water and marine resources; (iv) The transition to a circular economy; (v) Pollution prevention and control and (vi) The protection and restoration of biodiversity and ecosystems. For an economic activity to classify as environmentally sustainable, Article 3 of the Taxonomy regulation requires an economic activity to meet four overarching conditions: (i) Making a substantial contribution to at least one environmental objective; (ii) Doing no significant harm to any of the environmental objectives; (iii) Complying with minimum safeguards and (iv) Complying with certain technical screening criteria. The reporting requirements require companies to report in their annual reports the extent to which their activities are covered by the Taxonomy and the extent to which they comply with the Taxonomy criteria, called “Taxonomy alignment”.

The Taxonomy proposes key performance indicators (KPIs) to measure company alignment with the Taxonomy. Companies are required to publish the proportion of their turnover, capital expenditure and operational expenditure that relates to activities covered by the Taxonomy.

3. Theory and prior literature

This section considers the theoretical positioning of our paper and prior research concerning feasibility, supports, reporting challenges and SME benefits implied by the Taxonomy, culminating in examining the influence of reporting challenges and supports on feasibility.

3.1. Theoretical positioning

Our study adopts two related theories in examining the implementation of the Taxonomy in SMEs. Both legitimacy theory and institutional theory provide appropriate lenses through which to consider the rationale for the provision of relevant disclosures by smaller firms.

From a legitimacy theory perspective, SMEs operate in a competitive business environment, increasingly concerned with environmental risks. They face the task, not only of creating awareness of their existence (Ashforth & Gibbs, 1990), but also of achieving social acceptability among stakeholders (Michelon, 2011; Suchman, 1995). This entails conveying that their activities conform to societal norms of desirability and appropriateness. By virtue of their size and often vulnerable positions in supply chains, SMEs continuously aim to strengthen their legitimacy (Russo & Perrini, 2010). This has been particularly apparent in financial reporting and related narratives (Tang & Tang, 2016), for which SMEs typically contract accounting practitioners (Nigri & Del Baldo, 2018). Legitimacy theory suggests that environmental disclosures may be substantive or symbolic (Deegan, 2002, 2014). In the case of substantive disclosures, they are based on considered investment in environmentally sustainable business practices, whereas with symbolic disclosures, they often serve merely as window-dressing. Indeed, a dominant strand of the literature which considers disclosures through a legitimacy theoretical lens converges on impression management and greenwashing (Cho et al., 2015; Merkl-Davies & Brennan, 2007). Disclosures may be selective as part of a strategy to gain legitimacy by disproportionately revealing beneficial performance indicators, perhaps to obscure suboptimal overall performance (Marquez, 2016). Legitimacy theory suggests that environmental disclosures create opportunities for symbolic action by firms (Liesen et al., 2015), while others will genuinely commit to taking substantive action and report in an accurate and transparent manner (Perez-Batres et al., 2012). As such, those engaging in substantive action will “perform” in their reporting activities, while those engaging in symbolic gestures may merely mimic the disclosures of genuinely sustainable firms and “conform” to environmental reporting norms perhaps through greenwashing. We refer to the former group as “performers” and we expect such entities to value education and training as a support in aligning with the Taxonomy. We refer to the latter group as “conformers” who we expect to be reluctant to initiate action voluntarily, waiting to be supported or even mandated by governmental/legislative authorities to engage in Taxonomy disclosures.

Given their limited resources, in an uncertain economic landscape, many SMEs cannot afford to invest in Taxonomy disclosures unless compelled to do so. In this context, we acknowledge the institutional pressures on SMEs to maintain legitimacy (Deegan & Unerman, 2006). While some SMEs may have the resources and/or rationale to voluntarily provide Taxonomy disclosures, others will gradually be forced to do so due to institutional isomorphism (Di Maggio & Powell, 1983). Institutional theory makes several predictions. SMEs may follow peer trends and disclose Taxonomy alignment through mimetic isomorphism. This is an action we would expect from “conformers”. This is often associated with competitive pressures to accommodate to stakeholders’ expectations (García-Sánchez & Araújo-Bernardo, 2020). Alternatively, as environmental responsibility evolves into organisational cultures, and is increasingly encouraged by policymakers, SMEs may realise the business and regulatory benefits of voluntarily adopting the Taxonomy and disclosing alignment through normative isomorphism (Carungu et al., 2021), a practice “performers” are more likely to adopt. However, for some, particularly for SMEs facing acute resource constraints or those engaged in activities misaligned with the Taxonomy objectives, coercive isomorphism may result (Clemens & Douglas, 2006). Coercive isomorphism and associated decoupling behaviour, whereby only superficial disclosures may be provided to conform to regulations, creates the risk of greenwashing.

3.2. Feasibility

As SMEs represent a large proportion of global businesses, it is crucial to consider the feasibility of Taxonomy implementation for these businesses along the dimensions of cost and willingness to engage. Furthermore, data availability, understandability, accuracy and reliability, as well as firms’ data capturing capabilities, are fundamental and merit examination (Safari & Areeb, 2020). Ultimately, the feasibility of providing the requisite Taxonomy disclosures for SMEs, and more pertinently, their accounting practitioners, deserve attention should there be an obligation or expectation for SMEs to align with the Taxonomy in the future.

Döhlen Wedin (2023) observes that there is no agreed understanding of what feasibility means. She discusses the Intergovernmental Panel on Climate Change (IPCC) (2018, p. 549) definition:

The degree to which climate goals and response options are considered possible and/or desirable. Feasibility depends on geophysical, ecological, technological, economic, social and institutional conditions for change. Conditions underpinning feasibility are dynamic, spatially variable, and may vary between different groups.

On the one hand, Döhlen Wedin (2023) considers feasibility to be something that can be done in practice, which is the simple approach we take in this paper.

At the EU level, policymakers have been hesitant to mandate sustainability reporting for SMEs, largely due to opposition from member states that believe such a requirement imposes costs which smaller businesses cannot afford (Kinderman, 2020). Many SME accounting practitioners lack formalised education and training in environmental sustainability measurement and reporting (Cho et al., 2020; Lamberton, 2005; Thoradeniya et al., 2015). The potential costs of this upskilling, with additional workload costs, mean that adoption of the Taxonomy by SMEs may not be financially feasible.

SMEs’ willingness to engage creates a challenge that extends beyond accounting practitioners. The quality of disclosures accounting practitioners provide is contingent on their clients’ co-operation. Scarcity of resources is a major barrier to the uptake of sustainability initiatives in smaller companies (Ismail et al., 2011; Johnson & Schaltegger, 2016). SMEs typically lack the time and funding to educate their staff or to recruit sufficiently experienced and educated specialist personnel. Since SMEs cannot achieve economies of scale on a level comparable to larger companies, many are reluctant to risk investment, as the costs will likely outweigh the economic benefits derived (Arena & Azzone, 2012). This problem is exacerbated by inaccessibility to necessary capital (Ismail et al., 2011). Hence, a fundamental feasibility concern regarding the widescale implementation of the Taxonomy is resource scarcity in SMEs.

Data availability relies on SMEs’ data management systems. SMEs with environmental management systems are in the minority, with ISO 14000 environmental management adopters perhaps providing the best examples (Garengo & Biazzo, 2013). Compounding the problem is information systems tend to be tailored to the requirements of larger companies (Mbuyisa & Leonard, 2015). Central to both the accuracy of the KPIs reported under the Taxonomy, and to accounting practitioners’ professional obligation to provide a true-and-fair view of the company’s financial position, is the availability of environmental data relevant to financial performance (Unerman et al., 2018). Due to SME data aggregation and management limitations, accounting practitioners may be faced with inconsistent and inaccurate data with negative implications for the reliability of resulting measures. This threat to the feasibility of SMEs implementing the Taxonomy needs to be addressed with urgency due to the potential consequences for the integrity of disclosures.

At present, implementation of the Taxonomy by SMEs assumes an “opt-in” approach such that the feasibility of accurately reporting KPIs, and assessment of the Taxonomy’s objectives on a “contribution” or “do no significant harm” basis for SMEs, has yet to be properly interrogated. Requirements may be refined for SMEs in the future (Hainz et al., 2021). Nonetheless, KPIs related to turnover, capital expenditure and operational expenditure have long been applied to SMEs (Wouters & Wilderom, 2008). Taxonomy disclosures may ultimately be feasible for many SMEs despite implementation costs, unwillingness to engage, and data integrity concerns. A comprehensive and thorough assessment of feasibility requires consideration of these concerns alongside the Taxonomy’s specific disclosure requirements. We assess these issues from the accounting practitioners’ perspective, as the primary rapporteur for the SME. Accordingly, our first research question (RQ) is:

RQ1: How do accounting practitioners assess the practical and reporting feasibility of implementing the EU Green Taxonomy in SMEs?

3.3. Supports, reporting challenges, SME benefits

This section considers the supports, reporting challenges and SME benefits from the Taxonomy.

3.3.1. Supports

Since the literature reviewed thus far suggests that neither SME management nor accounting practitioners are yet fully technically literate in environmental sustainability/the measurement of environmental impact, it is perhaps not surprising that academics and professionals call for enhanced education and training in sustainability reporting via Higher Education Institutions (HEIs) and through Continuous Professional Development (CPD) (Cho et al., 2020; Lamberton, 2005; Thoradeniya et al., 2015). However, such instruction is costly.

These challenges considered, there is little ambiguity about the need to support SMEs in transitioning to the green economy and minimising the costs of aligning with the Taxonomy. Governments have a clear role to play as part of their general mandates to promote enterprise alongside environmental protection. Thus far, such support appears to have come indirectly from the banking sector through “green” lending (European Commission, 2021c). Projects such as the Civitas Initiative¹ serve an important role in supporting European SMEs. Yet, their reach to support all European SMEs is questionable and the provision of supports across EU member states needs to be harmonised (Durst & Gerstlberger, 2021).

Pressures on SMEs from larger companies in supply chains to provide basic measures of environmental impact (Centobelli et al., 2021; Graafland, 2018; Johnson & Schaltegger, 2016) present a further potential source of support for smaller companies. Emerging empirical evidence indicates that larger companies assist SMEs to develop their activities in an environmentally sustainable manner (Jo & Kwon, 2021; Machado et al., 2020). This non-financial support has intangible benefits which may greatly exceed any financial aid provided by banks or state bodies.

3.3.2. Minimising reporting challenges

Given SME data capturing issues, coupled with the inability of many accounting software packages to accommodate environmental data, technological costs are substantial. These costs in a SME business landscape, in which many resource-poor companies are preoccupied with meeting rising operational expenses, limit SME interest, economic or otherwise, to innovate sustainable business practices. Hence, SMEs have little incentive or ability to engage in the disclosure process (O’Reilly, 2020).

Any opportunities to minimise SMEs’ costs in aligning with the Taxonomy require careful consideration and advice. SMEs’ financial and strategic advice has typically been provided by accounting practitioners (Arnold, 2021; EFAA, 2018; Spence et al., 2012). Accordingly, accounting practitioners are in a unique position to assess how supports can most effectively be employed to minimise SME costs of Taxonomy implementation.

3.3.3 SME benefits

Challenges and costs associated with sustainability reporting, are self-evident, although several authors identify benefits for SMEs. Arena and Azzone (2012) argue that SMEs derive financial benefits by adopting more sustainable choices. Benefits to include improved reputation, improved stakeholder relations, access to capital, and increased innovation and efficiency (Permatasari & Gunawan, 2023) and risk reduction, internal organisational benefits, competitive advantage, reputation and legitimacy and synergistic value creation (Rodríguez-Gutiérrez et al., 2021). SMEs that monitor and report their environmental sustainability performance have also been found to enjoy benefits such as product innovation (Muñoz-Pascual et al., 2019) and participation in new business networks (Abbas et al., 2019). Access to cheaper debt finance might be another benefit. While the literature endorses such an approach (Cariola et al., 2020), there is evidence to suggest that lenders perceive environmental investment as risky (Cui et al., 2018). These considerations culminate in our second RQ:

RQ2: What supports do accounting practitioners consider necessary to minimize reporting challenges and to generate benefits for SMEs?

3.4. Influences of reporting challenges and supports required on feasibility

We examine how accounting practitioners’ views on the feasibility of the Taxonomy vary with their perceptions of the reporting challenges and supports required. Adams and McNicholas (2007) study the relationship between sustainability reporting corporate processes, the hurdles organisations face, and how improved organisational accountability benefits sustainability. Resource limitations hamper these processes. Borga et al. (2009) consider the relation between feasibility, simplified disclosure requirements and public/government funding. Andersson and Arvidsson (2022) argue that feasibility may be limited by firms’ lack of understanding. Opferkuch et al. (2023) call for more simplified disclosure requirements, clearer guidelines, and support from suppliers and customers. To a lesser extent, they consider that data availability and resources influence feasibility. Dumay et al. (2017) also suggest that simplified or flexible disclosure requirements influence feasibility. These considerations culminate in our third RQ:

RQ3: How are accounting practitioners’ attitudes towards feasibility influenced by their perceptions of reporting challenges and supports required?

4. Methodology

In this section, we describe our sample of survey respondents, the case study materials, the survey instrument and how we administered the materials.

4.1. Survey respondents

We collaborated with four professional accountancy bodies in Ireland, who deliver online information and training programs for their members. The professional accountancy bodies invited their members, who advise and provide financial management assistance to SMEs, to attend virtual sessions to participate in this research. These events were for SME accounting practitioner members only and were delivered in April and May 2022. We first conducted a pilot study with a group of ACCA members. In total, 505 SME accounting practitioners attended the four virtual training sessions, resulting in 192 fully completed responses, a response rate of 38%. We excluded incomplete and partially completed surveys. We obtained 49, 35, 80, 28 responses from ACCA, Chartered Accountants Ireland, CPA Ireland, Chartered Institute of Management Accountants Ireland members respectively.

4.2. Case study materials and survey instrument

We developed two case studies (Online Appendix 1a; Online Appendix 1b). We sourced our first case study from the technical report on the Taxonomy by the EU Technical Expert Group on Sustainable Finance (2020, p. 31). As shown in Online Appendix 1a, it focuses on a cement company. The case study details the alignment with the Taxonomy under turnover, capital expenditure and operational expenditure. We amended the amounts in this case from €500 million to €500,000, to reflect our SME context. We developed a second case study (Online Appendix 1b) based on the manufacture of low carbon technologies. This case was first piloted with a member of the EU Taxonomy Technical Expert Group on Sustainable Finance. The Technical Expert Group, which comprises 35 members from civil society, academia, business, the finance sector, and EU and international public bodies, assisted in developing the Taxonomy (European Commission, 2020b). Drawing on her experience in working with the Technical Expert Group and broader experience in sustainable finance and sustainability reporting, the member offered advice to improve the accuracy of the case and later confirmed it as a valid representation of Taxonomy implementation. These two case studies provided survey respondents with a basic overview of the practicalities of the Taxonomy and how SMEs may report their alignment. Each case study comprises four parts:

1. An introduction to the case.

2. A table illustrating how the Taxonomy would be implemented in practice against the elements of the Taxonomy: Taxonomy area, Economic activity, KPI, Alignment with the six Taxonomy Objectives (see Section 2 earlier). This table provided survey respondents with insights into how SME economic/business activities, turnover and expenditures can be reported under the Taxonomy. Our case studies consider the relevant disclosures in each of the four overarching conditions (see Section 2) required for an economic activity to classify as environmentally sustainable. The reporting template in each case includes a cell or a box for each objective denoted by the letter C where the economic activity’s contribution to the objective can be indicated. Similarly, we include a section denoted by the letter D where the entity does no harm to any other objective can be confirmed.

3. The required additional narrative disclosures to ensure SMEs have established the minimum social safeguards in the Taxonomy, including narrative disclosures pertaining to the “do no significant harm” assessment.

4. Footnotes providing guidance on the Taxonomy.

In designing the research, we considered that it would provide greater clarity and candour to present accounting practitioners with case studies on the potential practical implementation of the Taxonomy, rather than ask questions in the abstract. Our case study approach has two advantages: (1) We show how the Taxonomy can form the basis for SMEs to report alignment, and (2) We ask accounting practitioners to provide information on specific case studies, rather than subjective views on an abstract concept of the Taxonomy.

Alongside our two case studies, we developed a self-administered survey instrument (see Online Appendix 2). To draw the elements of our research design together, we developed an analytical framework of the feasibility dimensions of SMEs implementing the Taxonomy, aligned with our research questions (Figure 1). The survey instrument in Online Appendix 2 reflects the analytical framework and comprises 16 questions, nine closed-ended questions, and seven open-ended questions providing survey respondents with an opportunity to add free-form written commentary. Our dataset comprises accounting practitioners’ survey responses.

Figure 1. Analytical framework: Influences on, dimensions of feasibility. Key: Shading represents the three influences of feasibility.

4.3. Administering the case study materials and survey instrument

Two authors presented the materials after a brief seminar on the background to the Taxonomy, delivered via Zoom. In administering the surveys, we provided survey respondents with a high-level overview of the Taxonomy and trends in sustainability reporting. We then undertook a walk-through of the case studies and highlighted the practicalities of implementing the Taxonomy, including explanations as to how to report Taxonomy KPIs, disclosing whether SMEs are contributing, or doing no significant harm, to the achievement of the Taxonomy’s objectives, as well as discussing the additional narrative disclosures required. In each virtual session, we presented one of the two case studies. The presenters provided an opportunity for questions and answers and shared the survey instrument. Attendees completed the survey while on the Zoom call. Sessions typically lasted 45 min, ranging from 30 min to an hour in length. We used Survey Monkey to deliver the questionnaire and collect data.

5. Findings and discussion

This section presents our findings, cross-referenced to our RQs. We augment our narrative with respondents’ comments to open-ended survey questions to reflect their views on aspects of the Taxonomy.

5.1. Feasibility of taxonomy implementation for SMEs (RQ1)

To address RQ1, we include survey questions on three aspects concerning the feasibility of Taxonomy implementation for SMEs: (1) practical feasibility, (2) KPI feasibility and (3) feasibility of reporting Taxonomy objectives.

5.1.1. Practical dimensions

We first asked survey respondents to assess six considerations on the feasibility of the Taxonomy on a ranking scale of 1–5 (see Table 1). A majority (61% – Item 2, ranking 1 and 2) of accounting practitioners view the suitability of existing systems to capture and manage data to be a barrier to implementation. Costs are the second-highest impediment to the Taxonomy, with 57% (Item 1, ranking 1 and 2) of respondents perceiving costs as a barrier/prohibitive to implementation. In respect of the other feasibility considerations, 46%, 42%, 42% and 29% (Item 3, 4, 6 and 5, ranking 1 and 2) of respondents indicate the Taxonomy is infeasible, from a client-willingness-to-engage perspective, an understandability-of-data perspective, a data-reliability-and-accuracy perspective, and a data-availability perspective respectively. In summary, accounting practitioners are of the opinion that data is available and may be accurately reported, but that resourcing is the major impediment to implementation for SMEs, perhaps justifying why respondents perceive that 46% of SME clients may not fully engage with the disclosure process.

Table 1. Feasibility of the Taxonomy (RQ1).

(1 = not feasible; 5 = highly feasible)	1		2		3		4		5		Total
Item	N	%	N	%	N	%	N	%	N	%	N	%
1. Cost of implementation	50	26	59	31	59	30	15	8	9	5	192	100
2. Suitability of existing systems to capture and manage data	49	26	67	35	51	26	18	9	7	4	192	100
3. Clients’ willingness to engage	29	15	60	31	53	28	40	21	10	5	192	100
4. Understandability of data	19	10	61	32	68	35	40	21	4	2	192	100
5. Availability of data	19	10	37	19	71	37	58	30	7	4	192	100
6. Reliability and accuracy of data	15	8	66	34	64	34	41	21	6	3	192	100

5.1.2. Reporting dimensions

In relation to the specific Taxonomy KPIs (see Table 2), most respondents (89% – Item 2) believe reporting the percentage of Taxonomy aligned capital expenditure is feasible. As some SMEs may not have much capital expenditure in a given financial period, reporting alignment with the Taxonomy should be relatively straightforward. Table 2 shows that 64% and 61% (Items 3 and 1) of respondents state that it is feasible to align reporting operational expenditure and turnover with the Taxonomy respectively. The lower perceived feasibility of turnover and operational expenditure KPIs is to be expected, as there are generally more transactions for these items and capturing this data may be more challenging and costly.

Table 2. KPI feasibility with the Taxonomy (RQ1).

	Yes		No		Total
Item	N	%	N	%	N	%
1. % of Turnover	118	61	39	74	100	192
2. % of Capital expenditure	170	89	11	22	100	192
3. % of Operational Expenditure	123	64	36	69	100	192

We then assess the feasibility of reporting companies’ contribution to, or doing no significant harm to, the six Taxonomy objectives (see Table 3). We find that for climate change mitigation/adaption (Items 1 and 2), 77%/71% of respondents respectively believe it is feasible to report clients’ contribution to, and to confirm adherence to the principle of “do no significant harm”. Accounting practitioners appear to have considerable knowledge in more well-established areas with many respondents indicating disclosures on the objectives concerning water (68% – Item 3) and pollution (57% – Item 5) feasible. However, we find that fewer respondents believe it is feasible to provide disclosures concerning the more complex areas of ecosystems (49% – Item 6) and the circular economy (46% – Item 4).

Table 3. Feasibility in assessing a firm’s contribution to, or doing no significant harm to (RQ1).

	Yes		No		Total
Item	N	%	%	N	N	%
1. Climate change mitigation	148	77	44	23	192	100
2. Climate change adaptation	136	71	56	29	192	100
3. Water	130	68	62	32	192	100
4. Circular economy	88	46	104	54	192	100
5. Pollution	109	57	83	43	192	100
6. Ecosystems	95	49	97	51	192	100

5.2. Minimising reporting challenges and generating benefits for SMEs (RQ2)

5.2.1. Reporting challenges

To assess how reporting and implementation challenges can be minimised for SMEs, we first examine the biggest resource- and reporting-related challenges for these companies (see Table 4). Accounting practitioners’ perception of the main challenges for SMEs are lack of knowledge or education, lack of resources and lack of data-capturing capabilities. Table 4 shows that 31% of respondents indicate a lack of knowledge or education as the greatest impediment to implementing the Taxonomy for their SME clients. A further 31% report lack of resources as the greatest challenge and 17% rank lack of data-capturing capabilities and technology as the greatest impediment. This questions the role of accounting software packages and invoice generators in their ability to capture the data accurately. Relatively fewer accounting practitioners rank lack of clients’ incentives and interest as challenges. These findings are encouraging in the context of voluntary disclosures for SMEs.

Table 4. Biggest reporting challenges for SMEs (RQ1).

Ranking (1 = most feasible, 6 = least feasible)	1		2		3		4		5		6		Total
Item	N	%	N	%	N	%	N	%	N	%	N	%	N	Average Score
1. Lack of knowledge/education	60	31	57	30	41	21	25	15	8	4	1	1	192	4.68
2. Lack of resources	59	31	40	21	38	20	32	17	19	10	4	2	192	4.40
3. Lack of data capturing/technology	33	17	47	24	47	24	36	19	24	13	5	2	192	4.08
4. Lack of incentive	18	9	30	15	45	23	73	38	20	10	6	3	192	3.66
5. Lack of interest	18	10	16	8	17	9	21	11	113	59	7	4	192	2.88
6. Other	11	5	6	3	6	3	6	3	0	0	163	86	192	10.57

Several respondents elaborate on their rankings. Respondent comment 1 highlights the challenge arising from the reporting requirements and the need for support. For SMEs, as opposed to large entities, the “fragmented” nature of the regulations and their “complex[ity]” are particularly challenging.

Respondent comment 1

Many SMEs find it difficult to participate with ESG reporting frameworks because they are fragmented and often complex. Early-stage businesses are time-constrained and lack the same resources. They just cannot afford to hire a consulting firm or a data analysis team. A support from larger entities and collaboration would be a win-win for both organizations. (Source: Respondent 92)

Respondent comment 2 highlights costs as a “roadblock” to implementation. Throughout the comments, respondents express concern that “consulting firm[s]” (Respondent comment 1) or “consultants” (Respondent comment 2) will take advantage of the lack of knowledge in the SME sector. As accounting practitioners are themselves consultants, we believe they mean bigger consulting firms (e.g. the “Big Four” professional service firms) and may feel threatened by such firms encroaching on their work.

Respondent comment 2

For SME's, I imagine cost of implementation would be the biggest roadblock. The need to employ consultants and the costs involved at the outset would deter SMPs [Small- and Medium-sized accounting Practitioners] because clients will be unwilling to absorb additional reporting costs. (Source: Respondent 55)

Respondent comment 3 emphasises “education” and “training” needs, implicitly preferring such support over employing the services of consultants (see also Respondent comment 6). We label these respondents “performers”.

Respondent comment 3

Support (without paying consultants) - will there be government supports to educate/train/advise (likely not which will result in further cost). Education is key to gain buy-in and comfort. There could be some easy wins to compliance but how will this be shared – needs government initiative. (2) Audit requirement (not yet determined at what level) but again it is adding a cost. (Source: Respondent 118)

Respondents also comment on various issues such as time, “data”, “technology” and lack of preparedness by regulators (see Respondent comment 4).

Respondent comment 4

Any form of regulatory reporting will be cumbersome, take longer to implement, create issues for data and technology infrastructure. It will be far more costly to implement and get right than people think. Across EU likely not fully harmonized either. Regulators need to be ready to capture disclosures – often they are not. (Source: Respondent 136)

5.2.2. Financial supports

Minimisation of reporting challenges, perhaps unsurprisingly, rests heavily on the provision of financial supports for SMEs. In assessing potential financial supports, we invited survey respondents to rank what they believe are the most appropriate and applicable financial supports for SMEs to implement the Taxonomy and ultimately reduce costs (see Table 5). A majority (67%) of respondents indicate government/EU grants, tax incentives or carbon credits to be the most beneficial way of reducing costs. Some survey respondents raise concern that state-sponsored funding and grants would be consumed on engaging consultants (e.g. respondent comment 2 above) and would effectively eliminate the financial support received. This provides the basis to argue for a structured approach to the provision of government funding. Table 5 also denotes that education is a priority for many accounting practitioners, with respondents ranking subsidised private education as one of the main methods of minimising reporting challenges for SMEs.

Table 5. Financial supports in reducing costs (RQ2).

Ranking (1 = most feasible, 5 = least feasible)	1		2		3		4		5		Total
Item	N	%	N	%	N	%	N	%	N	%	N	Average score
1. Government or EU grants/tax incentives or carbon credits	129	67	38	20	16	8	6	3	3	2	192	4.48
2. Education (subsidised)	27	15	52	27	69	35	44	23	0	0	192	3.33
3. Funded/open-source IT solutions to aid data capture and management	25	13	61	31	56	29	47	25	3	2	192	3.30
4. Supports from larger entities elsewhere in the supply chain (favourable credit terms)	11	6	38	20	53	28	81	42	9	4	192	2.81
5. Other	7	4	0	0	2	1	2	1	181	94	192	1.18

It is clear from previous studies (Cho et al., 2020; Lamberton, 2005; Thoradeniya et al., 2015), and from our findings discussed in Section 5.1, that lack of education is a primary concern (e.g. respondent comment 5). Funding education appears to be expected from HEIs and professional accountancy bodies. Among those that do not prioritise government funding or funded educational programs, accounting practitioners favour funding for, or provision of, open-sourced IT solutions to assist in capturing data as a mechanism for minimising SME costs. As noted, accounting software packages and technology are perhaps overlooked as crucial SME supports. Somewhat surprisingly, accounting practitioners least prioritise financial supports from larger entities elsewhere in supply chains, such as favourable credit terms from financial institutions or suppliers. Indeed, it would appear that there are two schools of thought among accounting practitioners, with one set of responses indicating an expectation for government to play a role in providing financial support directly to SMEs, while another suggests a need for investment in education to ensure successful implementation. The themes of education and consultants are reflected in respondent comments 5 and 6.

Respondent comment 5

Government education “system” that takes into account: knowledge (understanding the why and what), systems and supports (understanding the how) – This will be an open cheque book to the firms if the government don’t step in and create a foundational education for SMEs. (Source: Respondent 118)

Respondent comment 6

Government supports are crucial but these supports can be eaten up by “consultants” in this area. (Source: Respondent 128)

5.2.3. Non-financial supports

Supports of a non-financial nature also have an important role in minimising the costs of Taxonomy implementation across SMEs. In assessing this, we asked survey respondents to indicate what non-financial supports they believe to be the most appropriate and applicable. In line with the administrative challenges facing SMEs, and consistent with evidence indicating that the greatest challenge for SMEs is lack of personnel and time (European Commission, 2020d), accounting practitioners consider SMEs to be impeded by excessive administration in running their businesses. Unsurprisingly, respondents believe that SMEs should be required to adhere to a simplified version of the Taxonomy (see, for example, respondent comments 1 and 4 above). As indicated in Table 6, 39% (Item 1) of respondents ranked simplified disclosure requirements as the most appropriate and beneficial non-financial support to minimise costs for SMEs. While respondents generally viewed the Taxonomy as feasible to implement, there is a lack of knowledge and resourcing for any form of SME sustainability reporting, such that simplicity appears preferred as an element of any measures to introduce the Taxonomy. Just 22% (Item 2) of accounting practitioners specify that the establishment of a government or non-government body could assist with the transition to reporting Taxonomy alignment. Commentary on this item reflects a view that such a specialised agency could potentially assist in establishing the correct infrastructure for companies to engage with the Taxonomy, as well as providing specialised training courses.

Table 6. Non-financial supports in reducing costs (RQ2).

Ranking (1 = most feasible, 5 = least feasible)	1		2		3		4		5		6		Total
Item	N	%	N	%	N	%	N	%	N	%	N	%	N	Average Score
1. Simplified disclosure requirements (EU Green Taxonomy)	75	39	42	22	27	14	23	12	17	9	8	4	192	4.59
2. Establishment of government or NGO specialised agency to assist	42	22	46	24	29	15	29	15	37	19	9	5	192	4.03
3. Education (Availability of CPD programs)	32	17	41	21	41	21	55	29	21	11	2	1	192	4.00
4. Education (Provision of suitably educated graduates from HEIs)	20	10	30	16	46	24	52	27	41	21	3	2	192	3.62
5. Supports from larger entities elsewhere in the supply chain (Disclosure assistance)	23	12	32	17	48	25	27	14	59	30	3	2	192	3.60
6. Other	5	3	0	0	0	0	3	1	15	8	169	88	192	1.24

Once again, education is the preferred support, as 27% (Items 3 and 4) of respondents rank education, both in terms of CPD programs and the provision of suitably educated graduates from HEIs, as an appropriate aid in minimising reporting challenges. Some respondents (12% – Item 5) regard supports from larger companies elsewhere in the supply chain, such as disclosure assistance, as a method of minimising reporting challenges. These findings reflect a dominant role for government regulators in phasing in Taxonomy disclosure requirements for SMEs, while a smaller, yet sizeable, group of survey respondents advocate that education and training are essential tools in implementing the Taxonomy in a manner that would perhaps minimise the associated costs in the longer term.

While some respondents call for government support of education (e.g. respondent comments 3, 5), others want the reporting requirements to be easier (e.g. Respondent comment 7). We label these respondents “conformers”. Respondent comment 8 refers to the Big Four professional services firms, as consultants, taking advantage of the new regulations to generate revenue for themselves.

Respondent comment 7

Simplified disclosures are essential. Otherwise it is too costly and not feasible at all for firms to implement. If it is made simple or included in day-to-day running of businesses or included in receipts/invoices then it becomes easy to implement. The problem is the understanding on water, ecosystems, etc. and obtaining expert opinions, [is] impossible for SMEs. (Source: Respondent 128)

Respondent comment 8

Need to provide tangible supports to relieve administrative burden … No doubt the top 4 firms will launch their own departments to assist with this. (Source: Respondent 182)

5.2.4. Non-regulatory benefits for SMEs

The EU Taxonomy will remain voluntary for SMEs until a possible extension of the proposed Corporate Sustainability Reporting Directive becomes effective for some SMEs in 2026, at which point regulatory compliance should benefit companies. We thus focus on potential non-regulatory benefits arising from implementation of the Taxonomy. Similar to the previous survey items, we invited accounting practitioners to rank the non-regulatory benefits for SMEs. Given high energy costs when the survey was administered, it is unsurprising that the main benefit expressed of implementing the Taxonomy is reduced costs (e.g. reduced energy bills, reduced waste management costs, lower costs in replacing fixed assets). Table 7 shows that 43% of accounting practitioners view Taxonomy disclosures as a guide for better management of capital and operational expenditure, thereby reducing their costs. A minority (31%) of accounting practitioners rank enhancement of company image as a chief benefit. This, perhaps worrying from a greenwashing perspective, indicates that whilst there may be considerable environmental and societal benefits in adopting the Taxonomy, accounting practitioners perceive that managing stakeholders’ impression of the company is a priority to SMEs. The potentially concerning implications for the integrity of the reports produced suggest that accounting for environmental sustainability may well need to be accompanied by auditing of Taxonomy disclosures, in a phased approach at least. Just over 14% (Items 3 and 4, Table 7) of accounting practitioners consider Taxonomy disclosures would enable SMEs to gain competitive advantage and increase productivity in an environmentally friendly manner.

Table 7. Non-regulatory benefits for SMEs in providing voluntary disclosures that are aligned with the EU Green Taxonomy (RQ2).

Ranking (1 = most feasible, 5 = least feasible)	1		2		3		4		5		6		7		Total
Item	N	%	N	%	N	%	N	%	N	%	N	%	N	%	N	Average Score
1. Reduced costs (e.g. reduced energy bills, reduced waste management costs, lower costs in replacing fixed assets)	82	43	41	21	33	17	14	7	10	6	6	3	6	3	192	5.66
2. Enhancement of company image	60	31	45	24	29	15	11	5	20	10	9	5	18	10	192	5.09
3. Greater competitive advantage	7	4	30	16	42	22	47	24	36	19	21	11	9	4	192	4.10
4. Increased productivity in an environmentally friendly manner	19	10	23	12	16	8	48	25	41	21	31	16	14	8	192	3.86
5. Access to finance	9	5	29	15	38	20	17	9	24	13	43	22	32	16	192	3.57
6. Increased demands from consumer and suppliers	15	8	12	7	28	14	40	21	22	11	25	13	50	26	192	3.57
7. Attraction and retention of employees	9	5	16	8	11	6	24	12	42	22	49	26	41	21	192	3.00

It seems that accounting practitioners view external considerations such as access to cheaper sources of finance, increased demand from consumers and suppliers, and the ability to attract and retain employees as least beneficial to SMEs. Only a small percentage (18%) (Items 5, 6, and 7, Table 7) of respondents selected any of the three benefits as the primary benefit in implementing the Taxonomy. While cost-related benefits appear to be most strongly anticipated by accounting practitioners, many express the view that disclosures will, to some extent, be an exercise aimed at strengthening SMEs’ public profiles.

Some respondents acknowledge that the Taxonomy will bring benefits, as indicated by Respondent comment 9 and 10, although we advise caution to the robustness of available evidence as the basis for this comment.

Respondent comment 9

What gets measured gets done and it could help businesses to become more efficient entities. (Source: Respondent 88)

Respondent comment 10

ESG reporting and measures have been found to improve efficiencies, lower costs, and increase staff productivity. Furthermore, businesses with good sustainability strategies are more likely to have a positive reputation and gain the trust of their employees and suppliers. (Source: Respondent 92)

5.3. Attitudes towards feasibility and perceptions on supports and reporting challenges (RQ3)

We examine the relation between perceptions of feasibility and reporting challenges and supports. Specifically, we test how perceptions of feasibility (Survey questions 2–4) vary with perceptions of reporting challenges (Survey question 5) and supports required (Survey questions 7 and 9). We conducted one-way ANOVA (analysis of variance) tests to examine significant differences in attitudes towards feasibility, based on perceptions of reporting challenges and supports required. For those results that indicate statistically significant differences in attitudes towards feasibility, we also conduct Turkey post-hoc tests to confirm that the significant results are robust and not driven by Type I error. The Tukey post-hoc tests confirmed our ANOVA findings.

We report significant results in Table 8. We find that those who consider lack of education a reporting challenge consider the Taxonomy to be feasible, while those who consider a lack of resources to be a reporting challenge, consider the Taxonomy to be infeasible. We also find that those who express a need for financial support for education, consider the Taxonomy to be feasible, while those who express a need for government/EU grants/tax incentives/carbon credits by way of financial support, consider the Taxonomy to be infeasible. Finally, those who express a need for non-financial support in the form of education, consider the Taxonomy to be feasible, while those who express a need for non-financial support in the form of simplified disclosure requirements, consider the Taxonomy to be infeasible.

Table 8. Variance in feasibility assessments with perceptions of supports and reporting challenges.

	Dimension of feasibility	UNDERSTAND	COST	KPI	OBJECTIVES
Perceived reporting challenges
LACK_EDU vs RESOURCE	ANOVA F (4,179)	2.880*	8.010***	8.760***	4.830***
Perceived financial supports required
EDU_FUND vs GOV_FUND	ANOVA F (3,180)	3.860*	5.600***	4.490**	1.540
Perceived non-financial supports required
EDU_HEI vs REGULATE	ANOVA F (4,179)	1.990	3.170*	3.980**	1.840

Variable definitions: UNDERSTAND: Feasibility of Taxonomy implementation from a data understandability perspective (Survey Q2, Scale 1–5); COST: Feasibility of Taxonomy implementation from a cost perspective (Survey Q2, Scale 1–5); KPI: The number of Taxonomy KPIs indicated as feasible to report (Survey Q3, number of KPIs); OBJECTIVES: The number of Taxonomy objectives indicated as feasible to report (Survey Q4, number of objectives); LACK_EDU: Lack of education as a Taxonomy reporting challenge (Survey Q5, Scale 1–6); RESOURCE: Lack of resources as a Taxonomy reporting challenge (Survey Q5, Scale 1–6); EDU_FUND: Subsidised education as a financial support in implementing the Taxonomy (Survey Q7, Scale 1–5); GOV_FUND: Government or EU Grants/Tax Incentives or Carbon Credits as a financial support in implementing the Taxonomy (Survey Q7, Scale 1–5); EDU_HEI: Provision of suitably educated graduates from HEIs as a non-financial support in implementing the Taxonomy (Survey Q9, Scale 1–6); REGULATE: Simplified Taxonomy disclosure requirements as a non-financial support in implementing the Taxonomy (Survey Q9, Scale 1–6).

*** Significant at the 1% level; ** Significant at the 5% level; *Significant at the 10% level.

The tendency for respondents who acknowledge the need for education on the Taxonomy to regard its implementation as feasible is noteworthy. This contrasts with those who indicate a lack of resources and a need for government supports, financial and regulatory, and consider taxonomy implementation as infeasible. Considered within our analytical framework, these results suggest that accounting practitioners who seek education appear more committed to engaging with the Taxonomy and providing substantive disclosures (“performers”), while those who exhibit some reliance on government intervention may simply conform to providing standardised disclosures (“conformers”).

Respondent comment 11 displays an understanding of the requirements. Respondent 3 is clearly literate and educated in the area. This highlights the potential value of knowledgeable parties advising SMEs. Respondent 3 wants to take substantive action.

Respondent comment 11

I work in corporate finance where we also have started to support clients on sustainability reporting and data modelling. We work with clients on sustainability reporting for TCFD [Task Force on Climate-Related Financial Disclosures] and some of the other frameworks discussed today that could be over €1bn in revenue and they all struggle to gather the data necessary to meet climate-related disclosures so I would be concerned at how SMEs can gather it considering they can often struggle to get the data to split out their financials into product views. That being said, I think a robust data model sitting behind the taxonomy that will support the majority of SMEs in mapping their business to typical KPIs and benchmarks within a similar NACE [Nomenclature of Economic Activities] code business that will then allow the SME to tweak based on their on valuations, operating model and metrics would significantly help reduce the burden and costs. This is likely to drive into SME’s who don’t have teams to deploy for sustainability reporting. (Source: Respondent 3)

Respondent comment 12 shows a reluctance (“already bombarded”) to engage with the Taxonomy. Respondent 55, a “conformer”, may take a box-ticking approach and do the minimum to comply.

Respondent comment 12

Whilst I personally think it is required, my concern is that SMEs and SMPs are already bombarded with increased regulation and administration as a result. This, in my opinion, has increased significantly in the past three years to the point that accountants and SMEs are struggling to meet existing obligations. I do believe this has to be seriously taken into account in the level and detail of reporting that is required. (Source: Respondent 55)

Respondent comment 13 ties together many respondent views, blending notions of performance and conformance: The need for suitable training in reporting, complex reporting requirements not suitable for SMEs and simplified reporting.

Respondent comment 13

A lack of knowledge and training will result in very bad reporting. Clients are not trained in this area either, so data capture will be difficult. Dropping these reporting requirements into a set of accounts is not the area for SMEs. A separate annual report, standardized to one page, which must be published by every SME should be brought in and suitability qualified people, supplied from the graduate pool, engaged to complete these annual reports. (Source: Respondent 57)

6. Conclusion

Environmental responsibility is becoming increasingly important for companies of all sizes, with attendant reporting and disclosure implications. While SMEs do not currently face regulatory reporting requirements akin to those required of larger entities, EU-level discussion suggests the Corporate Sustainability Reporting Directive requirements may be extended to capture more companies in 2026, including SMEs. Irrespective, SMEs are likely to engage progressively with sustainability disclosures for economic and environmental reasons, not least due to supply chain and public pressures.

From an accounting practitioner perspective, we examine the feasibility of implementing the Taxonomy for SMEs. We further explore the supports accounting practitioners consider necessary to minimise the associated reporting challenges and the potential benefits envisaged. We do this by adopting a novel methodological approach using a case study to inform survey respondents before asking them to complete a self-administered survey questionnaire.

Our study produces several findings which are of consequence to future research, policy formation and practice in the area of sustainability reporting and, more specifically, are of import amidst the widespread adoption of the EU Green Taxonomy. Our findings highlight the requirement for resourcing supports as the costs of implementation are substantial, and current IT systems appear incapable of capturing and managing the requisite data. We uncover encouraging evidence to indicate the viability of Taxonomy disclosures for SMEs. Overcoming the cost- and resource-related obstacles is central to broad adoption. We find that accounting practitioners deem the KPIs and criteria in the Taxonomy largely feasible to report, contingent on educational, technological and financial support. Many accounting practitioners welcome government grants and incentives to assist their SME clients in implementing the Taxonomy.

Many accounting practitioners have a strong desire for education and training to enhance their environmental literacy and familiarity with the Taxonomy. Others seek more general government support in the form of grants and leniency in disclosure requirements on transposition of EU Taxonomy regulation 2020/852 (European Commission, 2020c) into national law. The observed divergence in opinions of accounting practitioners, as discussed in Section 5.2, forms the essence of our conclusion, with a majority (67% – Table 5) of respondents favouring government support to be the most beneficial way of reducing costs (“conformers”), while only 15% favour education (“performers”). We approach our study through the dual lenses of legitimacy theory and institutional theory. We find evidence to support both perspectives. We find a willingness among respondents to develop the knowledge and skills necessary to support their SME clients to provide Taxonomy disclosures. Concurrently, our evidence also suggests a contrasting attitude, which does not reflect such a strong appetite for development of expertise on environmental sustainability. Relative to those accountants who indicate a preference for educational supports, a larger cohort of respondents express an expectation that government and regulators take action by providing financial support and guidelines tailored to the SME sector. These views conform more with institutional theory. For this larger contingent of our sample (“conformers”), institutional theory would predict conformity through coercive isomorphism. In effect, many SMEs may not turn to accounting practitioners for reporting assistance until it is mandated in legislative terms. The best explanation for this finding emerging from our evidence is a lack of resources to meet the costs associated with voluntary reporting.

Fewer accounting practitioners call for education and training than those calling for government support. Viewed through the legitimacy theoretical lens, substantive, rather than symbolic, action would be expected from such practitioners (“performers”). Notwithstanding the relatively smaller representation of this opinion within our sample, we believe education and training of accounting practitioners may stimulate an early opt-in to the Taxonomy, albeit in a minority of better-resourced SMEs. This then brings into question the role of governments and professional accountancy bodies, which will have a big role to play in the development and implementation of environmental reporting. We argue for co-operation and collaboration in devising a system of education, training and supports. There is a clear role for the professional accountancy bodies to act as leaders in this area, providing specialised training, aided by online tools such as webinars and virtual workshops. Inevitably, recent graduate recruits will input in guiding these developments. Accordingly, the provision of the requisite tools and skillsets to enhance the knowledge and understanding of accounting students is a critical role of HEIs. Universities have the capabilities to implement change through curriculum re-engineering and augmentation.

It would of course be naïve and ineffective to overlook the majority of SMEs facing resource constraints and appearing in need of state sponsorship to engage with the Taxonomy. We draw on our finding that a major non-regulatory benefit yielded by Taxonomy implementation may be reduction in costs and potential savings for businesses. Government investment in SMEs on environmental sustainability and related disclosures may generate long-term returns for capital and operational expenditure, alongside the intended consequence of more environmentally responsible business practice.

Accordingly, our study concludes that accounting practitioners seek to accommodate a diverse range of SME clients, some of whom will engage fully with Taxonomy disclosures. For other SMEs, our findings suggest that any aid provided, or guidelines issued, should promote a realisation among SMEs as to the potential value which may be yielded by Taxonomy alignment and hence avoid it being considered a mere compliance exercise.

Our study contributes to the literature in several respects. First, we provide evidence to support both legitimacy theory and institutional theory in the context of the EU Green Taxonomy. By doing so, we add to prior work which has considered other means of sustainability reporting in SMEs through a legitimacy theoretical lens (Chelli et al., 2018; Liesen et al., 2015; Michelon, 2011) and to that which has examined it from an institutional theoretical perspective (Carungu et al., 2021; Clemens & Douglas, 2006; García-Sánchez & Araújo-Bernardo, 2020). Second, we adopt a novel methodological approach to explore our RQs by engaging survey respondents with the topic using case studies. Such an approach, to the best of our knowledge, has heretofore not been adopted. Finally, we uncover evidence from an accounting perspective which may be used to inform the development of policy on Taxonomy disclosures for SMEs. We believe our research has practical value in an SME landscape where adequate internal reporting and finance functions are limited to the largest companies, yet the views of accounting practitioners engaged by SMEs are rarely sought in this context.

Our study has several limitations. First, our survey was distributed only to accounting practitioners in Ireland. It would be valuable to examine other countries throughout Europe to assess cultural differences in environmental practices and the ability to implement the Taxonomy in other countries. Second, as sustainability reporting is in its infancy, and operates voluntarily in SMEs, it is still too early to obtain informed responses in some cases. A longitudinal survey, or re-examining our survey over a period of time, could be beneficial to assess the long-term benefits and costs of implementing the Taxonomy. Third, while we tried to be as objective as possible, our two case studies, and how we described these to our potential respondents, may have influenced their responses. Finally, it could be appropriate to extend the survey to SMEs to ascertain their views on sustainability reporting. However, this approach has challenges, given incomplete data on the total SME population, and SME owners’ potential lack of awareness of environmental and sustainability reporting issues. One caveat with this approach is that smaller SMEs may not have a finance function and will request their accounting practitioners to complete the survey (Blackburn et al., 2010; Spence et al., 2012). There are potentially fruitful future research avenues to pursue in gaining insights from both SMEs and their accounting practitioners on a pan-European scale over the coming years as Taxonomy alignment and related reporting activities increase. Our study has taken an initial step in this respect and encourages others to more fully incorporate the views of accounting practitioners as SMEs play greater roles in mitigating climate change and reporting their performance in doing so.

Acknowledgements

We would like to thank the two anonymous reviewers and the handling editor who handled the process expertly. The reviewers provided valuable contributions which improved the quality of our work. We also acknowledge helpful assistance from ACCA Ireland, Chartered Accountants Ireland, CPA Ireland, and CIMA Ireland for providing us with the opportunity to present our case studies and distribute our survey to their members via online workshops.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 http://civitas.eu/about.