ESG – What do You Need to Know?

ESG stands for Environmental, Social, and Governance. Stakeholders, specially investors, often consider these factors when making important decisions. ESG factors are not just about compliance or risk management. They are about creating long-term value and promoting corporate responsibility.  

Many companies already publish ESG reports, but with the introduction of the Corporate Sustainability Reporting Directive (CSRD) in the EU, ESG reporting will become mandatory for most companies, revolutionising the current practices. 

ESG and The Corporate Sustainability Reporting Directive, CSRD 

Understanding the difference and relationship between ESG and CSRD is crucial. ESG is a concept that focuses on sustainability but is not a defined set of rules. CSRD mandates companies to produce a standardised sustainability report, essentially an ESG report.  

The ESRS reporting requirements for CSRD are built on the foundation of ESG. The ESRS are mandatory disclosure standards that companies obliged to report under CSRD must adhere to, focusing on reporting on environmental, social, and governance related sustainability matters. 

Although several frameworks and standards exist for reporting ESG information, EU companies are mandated to report according to CSRD and do not need to choose a reporting standard. One well-known framework is the Global Reporting Initiative (GRI), which aligns closely with CSRD regarding how impacts are considered.  

What are the three ESG key factors?

ESG consists of three essential factors. The first factor is environmental responsibility — companies’ impacts on the environment, nature and ecosystems. The second factor is social impact, where companies are accountable for their effects on society, such as their employees’ well-being and value chain. The third factor is governance, which pertains to good governance practices, such as adhering to principles of transparency and openness in company management. 

These factors make up a loose frame for assessment criteria. The reporting requirements vary depending on the specific reporting standard or framework used. Generally, the requirements for reported information are similar. For example, they may include reporting one’s carbon footprint in detail or evaluating a company’s adherence to human rights across the value chain. 

E — The environmental factors 

The “E” in ESG stands for Environmental and covers companies’ responsibility towards the planet, including energy use, waste disposal, and environmental impacts. Some key issues include carbon emissions, energy consumption, climate change effects, pollution, waste disposal, renewable energy, and resource depletion. 

S — The social factors 

The “S” in ESG stands for Social, reflecting a company’s responsibility to its employees and the communities in which it operates. This includes working conditions, labour rights, diversity, discrimination prevention, diversity promotion, respect for human rights, and community relations. 

G — The governance factors 

The “G” in ESG stands for governance, which refers to how a company is directed and controlled. It involves balancing stakeholders’ interests like shareholders, management, customers, and the community. Some key topics under governance include executive compensation, shareholder rights, corruption and bribery prevention, and board structure. 

Why does ESG matter for companies?

ESG reporting helps investors by offering crucial data for making informed decisions. It highlights a company’s sustainability, appealing to a broad investor base and ensuring stable funding. ESG also benefits other stakeholders, such as employees and communities, by showcasing a company’s dedication to ethical practices and sustainability. This boosts the company’s reputation and strengthens stakeholder relationships. 

ESG factors are crucial for a company’s value chain, covering its operations, suppliers, and stakeholders. By assessing the value chain, companies can identify opportunities for innovation and mitigate risks. For example, encouraging sustainable practices among suppliers can improve the supply chain and brand image. 

ESG management responsibilities for companies

ESG reporting is vital for management to fully understand all aspects and impacts of their business while ensuring compliance with regulations like the CSRD in the EU. It requires a genuine commitment to integrating ESG principles into company culture, not just checking compliance boxes. ESG insights are invaluable for strategic decision-making, highlighting strengths, weaknesses, and potential risks, thus fostering proactive problem-solving. 

Furthermore, ESG reporting is more than a regulatory must; it’s a strategic tool enhancing financial performance, stakeholder relations, and risk management, highlighting its role in sustainable business leadership. It aids in risk management by identifying and mitigating risks from environmental to labour issues. It enhances corporate accountability, pushing for positive social and environmental impact and boosting the company’s reputation, stakeholder relationships, and long-term success. 

ESG is about more than just doing the right thing. It’s about doing the smart thing. ESG reporting aids company leaders by providing a comprehensive overview of performance beyond finances. This supports strategic decisions and highlights improvement areas, facilitating progress tracking.  

Ecobio Manager – upgrade from ESG software to all-in-one CSRD software

The ESG standards and frameworks can be complicated to navigate. Specialised software for sustainability reporting is needed to achieve the best results and compliance with, in the case of EU, CSRD.  

Ecobio Manager has been designed to help companies streamline sustainability reporting, achieve compliance with CSRD and reach their ESG goals.  

Ecobio Manager assists companies in  

• Classifying and reporting their corporate sustainability according to the EU Taxonomy in the required format. 
•  Preparing Corporate Sustainability Reporting from Double Materiality assessment towards data collection and reporting.  

In addition, the software provides comprehensive solutions chemical management, legal compliance assessment, and risk management. It enables companies to manage their corporate sustainability carefully, covering all critical parts of their value chain. 

Ecobio Manager is a strategic partner supporting companies in their sustainability journey. We help companies navigate the complexities of CSRD turning challenges into opportunities for growth and success.