The global awakening to sustainability has already begun. And why not? Loss of biodiversity, worsening climate conditions and inequality in income distribution are the prime challenges propelling this change. Businesses have an unprecedented part to play here. Gone are the days when running a business was all about crafting the best products and services and making profits. Today, a business has to proactively gain clarity on the ESG compliance that is pertinent to the functioning of the company.
ESG in business denotes the environmental, social and governance aspects concerning sustainability. In recent years, the ESG acronym has gained popularity in the finance and investment sector, paving the way for a wider range of issues that need risk-mitigating steps. It’s worth mentioning here that all the ESG issues rampant at any given time may not be relevant to a particular business. Elements like the nature of business activities, location, and the environment within which the value chain operates, play a critical role in determining this. In other words, what a business is doing, where it is going and how it is doing are factored in when considering ESG compliance.
Even though ESG and sustainability are used synonymously, there is a difference in their perspective and objectives. Sustainability is a wider concept that guides a company on how it should run the business. It also highlights the balance between the company and the ecosystem within which it works. On the other hand, ESG is inclusive of sustainability-related business concepts that influence the company’s access to capital, risk management, and overall performance.
The ESG best practices a company follows are crucial for myriad reasons. No business can walk alone as it counteracts the basic principle of how it works. Therefore, all the players involved in it, right from the investors to the employees and even the consumers want the companies to show transparency in the impact it is creating in the ecosystem. That makes ESG compliance a fundamental precondition in 2024.
Apart from this absolute necessity, there are certain advantages of adhering to ESG standards. From the business standpoint, ESG compliance is useful since both functional and financial performance are influenced by how these aspects are managed. In simpler words, investments in research and development, revenues, expenses, and operational costs have a direct influence on the ESG issues of the company. Therefore, managing them properly impacts the long-term financial gains, capital, and reputation that the company earns.
ESG standards are meant to help businesses identify opportunities, work on their weaknesses and monitor the progress of their ESG initiatives. It’s a form of audit that businesses conduct with internal management and external stakeholders to assess performance. The primary questions that are answered here include:
- What are the environmental and social issues directly influencing the company?
- How are some inherent risks linked with these issues?
- How is the company organizing itself concerning these ESG issues and governance systems?
- How are these problems communicated among the senior managing team, employees, consumers, and external stakeholdersE?
The elementary point is to determine which threats and opportunities are most relevant. For this, an adept ESG consulting service can be of immense help to you. The next step is to measure the expectations of the largest stakeholders for your business. For instance, certain investors will want a business to be transparent about whether the ESG data is aligned with the recommendations of the governing authorities. According to a study conducted by PwC, 76 per cent of consumers reported that they wouldn’t prefer companies that don’t treat the environment, communities and employees right.
There can be thousands of ESG compliance regulations around the globe, but all may not be suited to a business. Opting for the right structure is an important part of setting the path to success. There are several globally accepted frameworks and a reputed consulting service can help you select the right framework. When a business integrates ESG reporting into their overall framework, it becomes easier to build consistency and stability in the efforts. With sustainability practices and governance initiatives in place, the business can further create a comprehensive picture of overall value creation.
Reporting material data must be done on time and have a structured and relevant detailing. Transparency in reporting about a company’s ESG posture is a major aspect that offers both context and explanations for the metrics. It also helps in highlighting the areas where business operations intersect with environmental, economic and social aspects so that companies can measure risks and mitigate them.
The expectations of stakeholders at different stages are continuously evolving. Today it’s most important to stay updated about the emerging trends which can include using advanced technologies like artificial intelligence, augmented reality, blockchain and a lot more. This, in turn, will improve accountability and transparency between the company and its stakeholders and they will take an active part in advocacy campaigns and product development processes.
Bringing innovation to stakeholder engagement will also emphasize diversity, inclusion, equity, and human rights. As a result, new opportunities open and businesses can strengthen their relationships with the stakeholders to ensure ESG best practices.
ESG audits are a critical instrument not only for the investors but also for the consumers and the business as well. It is the fulcrum on which the balance between ESG and compliance rests. And truth be told, if a business is not measuring the risks and opportunities, it won’t be able to manage them as well. Conducting audits at regular intervals offers insight into how well the business can cope with the issues and manage them. This can be attributed to the fact that a company’s environmental risks have a direct impact on the share price and in the long run, this could hinder securing the requisite funding.
ESG compliance is never the last-minute exertions that a business puts in a fiscal year but the sum of little effort in becoming sustainable. It is an ongoing process that needs constant monitoring and adaptation. There should always be access to standardized metrics for measuring these endeavors across businesses as well as industries. And businesses have to upgrade their policies to be in harmony with ongoing trends and evolving stakeholders’ expectations. Having a culture of ongoing improvement helps a company to be responsive and open in the face of new challenges.
Being armed with an accurate ESG audit means that the business corporation is well aware of its ESG score which is calculated based on how the company is performing on the ESG parameters. Essentially companies are expected to have ESG compliance for building a brand focused on the best sustainable practices rather than profit creation only. With a resourceful ESG consulting service, a company can identify and evaluate ESG issues and opportunities and track whether the practices are in line with the CSR reports. Above all, it helps in maximizing the impact of a company on the consumers and the planet we live in.