Are you ignoring ESG? You could lose money!
The public space is full of terms such as ESG, sustainability, Green Deal, CSR... Are you a bit confused about them too? Don't know what applies to you, what you have to do, what you should do and what doesn't apply to you?
No wonder. There is a lot of legislation that regulates this area. And more are in the pipeline.
But more importantly, ESG has a very strong impact on those who are not yet subject to any legal obligations. And if you ignore ESG, it can have a financial impact on you.
Author of the article: ARROWS (Mgr. Jiří Halaburt, LL.M., Mgr. Petra Macková, office@arws.cz, +420 245 007 740)
What is ESG?
ESG stands for the areas and aspects of activity that are assessed in assessing the sustainability and impact of private and public enterprises.
What do the letters stand for?
- Environmental (ESG) impact assesses how an organisation's activities affect the environment.
- Social impact refers to how the organisation, its activities, operations and products affect society, the interests of the people concerned (clients, consumers, employees), the protection of their rights, the life and functioning of local communities, etc.
- G is then an abbreviation of the term Governance. Underneath it is an assessment of how an organization's activities are regulated internally. How the organisation ensures compliance with regulation, legislation and ethical values and how it manages and controls its activities.
Who is directly affected by the ESG obligation?
ESG regulation is still evolving. At the moment, the obligation to address ESG impacts and principles falls on two groups of entities:
- Large companies (over 500 employees) that are a public interest entity under the Accounting Act. For example, one that has issued shares traded on a European regulated market, a health insurance company, a bank, etc. What do large companies have to do? Include in their non-financial reporting just the measurement of ESG factors.
- Some financial institutions, particularly banks and investment firms, are then required to include ESG risks or factors in their management system and product offering.
In the near future, these circles of directly regulated entities will expand.
And who is indirectly covered by ESG?
Are you not a large company under the Accounting Act, a health insurance company, a pension fund or a bank? You will still be impacted by ESG and need to address this area. It will affect you indirectly, but it can have a very significant impact on the financing of your business.
In fact, banks, investment companies and insurance companies incorporate ESG factors into their business. They take environmental, social impact and governance aspects into account when providing their financial products. In other words, they ask their business clients and suppliers how they themselves address ESG. Do they measure the impact of their activities, do they have at least some figures, reports, do they evaluate their subcontractors, how they protect workers' rights, the environment, etc.?
When dealing with operational financing, leasing, credit or insurance, your bank or insurance company may ask you, if they have not already done so, about ESG values. A late or vague answer will lead to late financing, or financing on worse terms, such as a more expensive loan or insurance policy.
On the other hand, is the bank or insurance company your customer? Or are you supplying your goods or services to a larger trading company or a business that has a parent company abroad? Such clients will also soon ask you how you manage your ESG risks, the impact of your activities on the environment, human rights or employee privacy. And they will want you to document what you are doing in this area, how you are measuring your performance and what steps you have planned to improve.
But information on how your activities impact on each ESG area is also a necessary part of applications for grants and public support. In virtually all areas and calls for proposals, you must document and be prepared to demonstrate at the time of the audit whether you have mapped the environmental impacts of your activities and have a plan to reduce them, etc.
How to do ESG quickly and efficiently?
There are several points in each of the ESG areas where you can start. Quickly and effectively assess and reduce the negative impacts of your business. Earn plus points, feel better, help others. And help yourself, your organization, too.
A few examples for all:
Environmental impacts can be reduced by reducing paper communication. With clients, employees, suppliers. Almost all documents, including legal ones, can now be signed electronically. Among other things, it is cheaper, faster and clearer. So why not get started?
Social responsibility, protection of human rights? Here too, there are more options, such as monitoring the gender pay gap and closing it, protecting employees' rights, being more flexible about part-time work, involving employees and clients in the development of new processes involving the processing of their personal data, and supporting local communities. Voluntary codes of ethics exist in many sectors which summarise good practice in the conduct of a particular activity and can be used as a reference.
In the area of internal governance, it is then possible, and effective for you, to set up a process to ensure that the business complies with all legal obligations. In other words, define and implement an appropriate compliance process. Map out the risks of regulatory breaches that are real in your business and set up processes and controls to prevent breaches.
We can help you get started
Not sure how to get started with ESG? And your clients, parent company or insurer really want something already?
We can help you. Together we will identify areas where you can quickly achieve visible success. We will set up a process to measure and evaluate the non-financial impacts of your activities and how to improve these impacts.
And beyond the individual factors, we'll help you document your activities. Setting up internal accountability for each area, training for staff and rules for how to demonstrate this activity, to clients, customers, investors, just anyone for whom it may be important.