ESG: A New Standard for Companies in an Age of Sustainability

The concept of ESG has become increasingly important for the operation of companies, with investors and consumers having high expectations. But what’s behind the acronym and why should your company pay attention to it? Here are some answers to these questions and more, in a context where social and corporate awareness is growing in areas related to climate change, food crisis, water scarcity, conflicts and social inequality.

ESG stands for Environmental, Social, and Governance. It is a key standard that helps assess an organisation’s business practices in terms of sustainability and ethics. It also includes measuring the risks and opportunities of corporations in the areas in which they operate.

Society has become increasingly attentive to the actions of companies in terms of their environmental and social impact. Consumers want to know that companies care about the problems our planet is facing and are implementing solutions that minimise the negative impacts of their activities.

ESG-based sustainability means that business strategies take into account not only financial aspects, but also their environmental impact and social and corporate governance. Companies that adhere to these standards provide information, indicators and data in the ESG report that illustrates their impact in three key areas and identify the added value in their operations.

In the context of current public awareness, the concept of ESG has become increasingly common. However, it is worth noting that it is not just an acronym, but also a set of three key categories that are relevant in the context of assessing corporate actions. It is not only a business trend, but also part of the wider sustainability movement and emphasises the balance between economic, social and environmental aspects.

It is also worth referring here to the Sustainable Development Goals (SDGs) – also known as the Global Goals – adopted by the United Nations. These goals, which include the promotion of stable, sustainable economic growth, fit into the concept of ESG, creating a coherent picture of how companies should shape their strategies in an era of sustainable development. Therefore, it is worth considering how your company can align with these standards to not only survive, but thrive in the future.

The EU Regulates Sustainability: New Standards for Companies in ESG Reporting

The European Union continues to take steps towards sustainability by  introducing regulations that have a significant impact on companies. One of the key documents governing corporate sustainability reporting is Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU. Also known as the “CSRD”, this directive became effective on 5 January 2023:

“E” – Environment

• Climate change mitigation, covering scopes 1, 2 and, where applicable, scope 3 of greenhouse gas emissions;
• Climate change adaptation;
• Management of water and marine resources;
• Use of resources and the circular economy;
• Pollution control;
• Conservation of biodiversity and the ecosystem.

“S” – Social

• Equal treatment and equal opportunities for all, including gender equality, equal pay, training and skills development;
• Working conditions, job security, fair wages, social dialogue, freedom of association, existence of works councils and collective bargaining;
• Respect for human rights, fundamental freedoms and democratic norms.

“G” – Governance

• The role of the entity’s administrative, management and supervisory bodies in relation to sustainability;
• Internal control and risk management systems in relation to sustainability reporting;
• Business ethics and corporate culture, including anti-corruption, whistleblower protection and animal welfare;
• The entity’s activities and commitments related to political influence, including lobbying;
• Management and quality of relationships with customers, suppliers and communities.

These three main areas are universal for companies, regardless of their size, location or type of business. The introduction of such standards makes sustainability an integral part of the business strategies of all economic players. The CSRD sends a clear signal that the European Union attaches importance to sustainability and expects companies to be more socially and environmentally responsible and oriented.

ESG in Business: Key to Success and Sustainability

So why should ESG be a priority for businesses? ESG, or Environmental, Social, and Governance, is a three-tiered model of sustainability that has a number of benefits for businesses. Why is it worth taking a closer look at this approach?

Firstly, ESG is not just another shorthand fad. It is an opportunity to convince employees, creating a comfortable working environment for them, which in turn can have a significant impact on their motivation and commitment. Employees, seeing the company make a commitment to environmental, social and governance issues, will be more loyal and motivated to achieve common goals.

Secondly, the ESG approach is an opportunity to build a solid foundation of trust in the corporate environment. Companies that integrate these values into their operations become an attractive target for new investors. Trust opens the door to new investment opportunities, enabling dynamic corporate growth.

Importantly, ESG facilitates business relationships, especially in the international market. Shared values with business partners translate into more effective collaboration, eliminating barriers and building lasting relationships. It is worth noting that in the global marketplace, sustainability aspects are increasingly taken into account when making business decisions.

The impact of ESG on a company’s image is also not insignificant. In the eyes of potential customers, especially environmentally and socially conscious ones, a company that implements ESG standards becomes more attractive. Your branding gains strength and your company becomes perceived as reliable and credible.

In the long term, an ESG approach translates into gaining a high competitive advantage in the market. Companies that actively integrate these values are better prepared for social and environmental change, which becomes an important asset in a dynamically evolving business world. Therefore, it is worth looking at ESG not only as a standard, but above all as an opportunity for the sustainable success of your company.