Regardless of how you stand on the subject and what opinion you have formed so far; you will not be able to avoid this topic!
ESG - short for Environment, Social, Governance, expresses expectations of companies about their environmental and social behavior, as well as compliance with the laws in the countries where the company operates. The term ESG has replaced CSR in the discussion. This puts more emphasis on the environmental side and governance. At the same time, the core, corporate responsibility, is pushed into the background with the term ESG.
Companies are required to report on the extent to which they meet expectations. However, neither expectations nor reporting requirements are regulated in one place and uniformly.
In addition to legal standards, the expectations of various stakeholders, from investors and banks to politicians and the public, customers and suppliers, and employees in particular, build up pressure on companies.
How differently is ESG already affecting companies today?
For some companies, e.g. capital market-oriented companies, there is already an obligation to report on these topics in a comprehensible and mandatory manner, e.g. in the non-financial statement.
Other companies report on their position and a corresponding rating by rating agencies to achieve more favorable conditions on the capital market or to find investors. We have already seen voluntary commitments to CO2 neutrality. Banks are increasingly starting to ask about the attitude of borrowers, as credit institutions in turn must report on their investment portfolio. Still other companies are facing increased inquiries about their own stance in the human resources market.
Finally, the EU funds in the Green Deal and the discussions about the assessment of nuclear and gas power plants as EU taxonomy compliant should have made it clear to every entrepreneur and manager that something has started to move here that questions our previous ways of acting.
What developments do companies need to prepare for?
The mechanism of politics and public administration is relatively simple to describe. Companies are supposed to report in ever greater detail on their environmental behavior, social conduct, and compliance with the law so that capital providers can "invest in good companies." What is meant by good has long depended on the assessment of rating agencies, which have been much more divergent than we have been used to with financial ratings. The EU taxonomy, however, tries to draw the lines in a much more comprehensible and "scientific" way, and one can vividly imagine the lobbyist tug-of-war. In the end, however, there are criteria that separate good from bad.
If one follows the current discussions, it is also to be expected that the specifications, transparency requirements and expectations will be much more detailed for all three pillars of the ESG. As an example, the Commission's website suggests that the measures will not meet the 2050 CO2 target. The introduction of a social taxonomy has already been discussed.
The extensive disclosure of the EU taxonomy alone, the transparency requirements from the Supply Chain Act and the discussion of standards in the newly founded International Sustainability Standards Board, the counterpart to the IASB, show a clear direction: Companies need to disclose significantly more information on all aspects of ESG and set binding targets to meet responsibility.
Why does ESG need to be integrated into management?
Anyone who reports publicly on issues and is expected to set goals knows that organizations need to be focused on these goals in management to be able to report on the achievement of the goals, on the improvement of the set-up in the following year.
This, and hopefully the realization that business as usual will not work, raises the question of how ESG can be integrated into management and how business models can be further developed to make the transformation of our economy successful for the good of all of us.
4C GROUP has always taken a holistic approach to corporate management, in which all instruments are considered with their effects in terms of effectiveness on objectives. Therefore, ESG must be consistently integrated from the strategy to the operational management systems.
Our core thesis is that ESG will eventually become such an integral part of all management processes that it can no longer be separated. "The purpose of business is to profitably solve problems of people and planet, and not profit from causing problems" (*British Academy). Therefore, we want to provide you with important impulses, basic information, and classifications via this platform.
