Environmental, Social, and Corporate Governance (ESG) is increasingly seen as essential for doing business. But translating good intentions into action requires standards, metrics, and regulations. Compliance practitioners can help organizations navigate this change.
ESG risk and regulation are evolving rapidly, as are social values and expectations. There has been a growing recent emphasis on the importance of a holistic approach and embedding often overlooked social factors—aka the “S”—into ESG programs.
In 1970, Milton Friedman famously argued that the social responsibility of a business is to increase its profits. However, in recent decades, businesses have increasingly recognized the importance of sustainability and social responsibility. This is due to many factors, including consumer and investor demand, government regulation, and guidance from intergovernmental organizations. As a result, sustainable development and corporate social responsibility have become increasingly mainstream.
In 2022, Larry Fink, CEO of BlackRock, said stakeholder capitalism is not about politics, but about mutually beneficial relationships between a company and its employees, customers, suppliers, and communities. This is the power of capitalism, he argued.
The Need for Standardized ESG Reporting
Times have changed. Now, investors are increasingly looking at non-financial performance and businesses are publishing sustainability reports to evidence their green credentials. However, these reports are often inconsistent, with some companies accused of greenwashing.
As consumers and investors demand more transparency, companies are moving toward standardized reporting on CSR and sustainable development. This will help ensure all stakeholders have access to the same information, making it easier to make well-informed decisions.
The Challenges and Opportunites of ESG
Although companies have been trying to embed sustainability into their strategy and operations for decades, it has been difficult to measure and disclose performance. Global standards are emerging to help companies do this, but this is a landscape that’s rapidly evolving.
Many ESG reporting frameworks have focused on climate risk, with some calling to scrap ESG altogether. However, ESG programs can benefit companies in many ways, such as attracting talent, winning customer trust, and maintaining compliance.
Environmental risks and impacts should not be considered in isolation. A company’s true sustainability profile can only be understood by considering all risks and impacts, including social and governance factors.
The Evolving Landscape of ESG
New legislation and reporting frameworks are emerging that take a more holistic view of ESG risk. These requirements are reflected in the new EU Corporate Sustainability Reporting Directive (CSRD), which came into force in January 2023. The Directive covers an estimated 49,000 companies operating across the EU. The first reports are due in 2025 for the 2024 financial year.
Double materiality is a concept that requires businesses to consider both the impact of sustainability issues on their performance and the impact of their activities on the environment and society.
Not all issues are material to all businesses. The materiality of an issue depends on factors such as the size of the company, the sector within which it operates, its scope of operations, and its geographic footprint. Companies, according to many frameworks and standards like CSRD and EU Sustainability Reporting Standards (ESRS), are required to complete a materiality assessment to determine what information they should be reporting.
The Benefits and Challenges of Sustainable Business Practices
Many companies are now committed to sustainable business practices. These practices can lead to a range of benefits, including reduced costs, increased investment, and a better reputation.
Sustainability reporting is moving from voluntary to mandatory, but companies still face challenges in navigating a complex and evolving landscape.
Building a Culture of Sustainability
Culture is more important than strategy for ESG programs. To build a strong culture of sustainability, organizations need to move their employees from awareness to understanding to advocacy.
To move stakeholders around the ESG cycle, organizations should:
- Signal the importance of ESG by appointing a senior-level leader and engaging the C-suite
- Make sustainability pay by tying incentive programs to ESG performance
- Inspire and explain ESG issues through communication and education
- Do what you say and say what you do—avoid greenwashing
How SAI360 Can Help You Build a More Sustainable Organization
Those enterprises that flourish will have seamless, connected, and integrated ESG strategies—ones that support and complement their GRC (Governance, Risk and Compliance), EHS&S (Environment, Health, Safety and Sustainability), and Corporate Learning programs.
SAI360 can support your organization’s ESG strategy with a comprehensive portfolio of training and awareness solutions available in 60+ languages. Best practices in key topic areas include:
- ESG framework
- ESG for suppliers and third parties
- ESG Code of Conduct
- Diversity, Equity & Inclusion (DE&I)
- Psychological Health and Safety
- Modern Slavery/Human Rights
- Workshop toolkits and webinars
SAI360’s ESG Risk Management platform provides a holistic view of risk, enabling effective cross-functional collaboration. The platform automates data collection and centralizes ESG risk data, making it easier for organizations to identify, assess, and mitigate ESG risks.
To find out more, set up a virtual coffee today with a member of our team: Speak with a Training & Ethics Learning Expert – SAI360