ESG, or Environmental, Social, and Governance, is a concept gaining increasing significance in the business world. It is not just an acronym but a fundamental management model that incorporates environmental, social, and governance factors. As social awareness and investor expectations grow, ESG has become an integral element of corporate strategies worldwide. Adopting an ESG approach enables companies not only to meet external expectations but also to build lasting value, contributing to both financial and social success.
What is ESG?
Sustainable development concepts are not new, and while they set trends in business, their origins trace back to 1972 when the UN conference first addressed issues related to the depletion of natural resources. However, it wasn't until the 1992 Earth Summit in Rio de Janeiro that the topics of environmental and socio-economic development were seriously discussed together. ESG transcends traditional business models, encompassing three key areas: Environmental, Social, and Governance. Each of these components holds significant importance for modern businesses and their investors.
Environmental Aspect
The environmental aspect focuses on the impact of a company’s activities on the natural environment. In an era of increasingly visible climate change and growing concern for ecology, companies are evaluated based on their environmental practices. Investors who understand that long-term economic success is tied to sustainable use of natural resources and minimizing negative impacts on ecosystems can not only significantly reduce costs, both in terms of environmental reporting and business operations, but also attract investors and customers for whom environmental values are a priority.
Social Aspect
The social aspect of an ESG strategy pertains to the company’s relationships with employees, local communities, suppliers, and customers. Businesses that prioritize these relationships strive to meet the expectations of their employees and business partners, while also engaging in activities that benefit local communities. Promoting equality, diversity, and social initiatives is crucial for building a company’s reputation and can help attract new investors and highly qualified talent.
Governance Aspect
The governance aspect focuses on management structures, business ethics, and transparency in actions. Companies that adopt good governance practices build investor trust, which translates into financial stability. Transparency, accountability of management, and adherence to ethical principles are key criteria for evaluating potential investments. Additionally, paying close attention to this aspect can significantly enhance a company’s efficiency.
ESG is not only a tool for social or environmental control but also an opportunity to create value beyond financial gains. Companies that actively integrate ESG into their strategies gain reputational benefits and secure their market position over the long term.
ESG Reporting
On December 16, 2022, the Corporate Sustainability Reporting Directive (CSRD) was published, coming into effect on January 5, 2023. It aims to increase transparency and corporate responsibility concerning climate challenges and rising social expectations. Under this directive, companies will be required to publish annual reports on their activities in environmental, social, and governance areas (ESG). This obligation will gradually extend, initially covering large financial institutions and companies, then eventually all businesses with a significant number of employees or high revenues.
EU member states, including Poland, have until July 6, 2024, to implement the directive into national law. The timeline for implementing these changes is as follows:
- From January 1, 2024, non-financial reporting will be mandatory for public interest companies that already report under the Non-Financial Reporting Directive (NFRD), i.e., the largest companies with over 500 employees.
- From January 1, 2025, the obligation to prepare ESG reports will extend to large companies employing 250 employees or with annual revenues exceeding €40 million, or a balance sheet total exceeding €20 million.
- From January 1, 2026, non-financial reporting will apply to small and medium-sized enterprises and other listed companies, small and non-complex credit institutions, and captive insurance undertakings.
The requirement to prepare reports under the CSRD directive may impact over 3,650 Polish companies, which could be particularly challenging for small and medium-sized enterprises. Implementing ESG processes may involve significant costs and work. At Ecothesis, we are here to assist you with this obligation.
What Should an ESG Report Include?
An ESG report is a comprehensive document that may pose certain challenges in preparation. In summary, it should contain information about the organization's actions and performance in the three key areas: environmental, social, and governance.
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Environmental Aspect may include:
- Greenhouse gas emissions,
- Energy consumption,
- Natural resource management policy,
- Environmental protection initiatives.
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Social Aspect addresses issues such as:
- Employment policy,
- Employee safety,
- Engagement in local communities,
- Promotion of equality and diversity.
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Governance Aspect should include:
- Management structures,
- Business ethics,
- Stakeholder relations,
- Transparency of operations.
The report should also present the organization’s goals, strategy, and progress in sustainable development efforts. Key performance indicators and reporting methodology are critical for stakeholders. It is essential to consider the legal framework and potential certification of the ESG report.
Benefits of Implementing ESG
Benefits of Implementing ESG
Understanding and implementing ESG principles is crucial for modern businesses. Adapting to new regulations not only helps companies better prepare for changes but also offers opportunities for real financial and social benefits. In Poland, ESG is often perceived as a threat rather than a business opportunity. However, companies that deeply understand and optimize ESG factors can outpace competitors and discover new business opportunities.
ESG reporting should be seen as an opportunity to adapt to the changing needs of the market and the environment in alignment with the ever-evolving natural world. Participating in Ecothesis’s ESG-related training can help companies better understand upcoming changes and respond effectively. We also support you in reporting – explore our offer.