Own your impacts: Whose responsibility is ESG?
Why should corporations proactively address Environmental, Social and Governance (ESG) issues? Because they can.
By AnsaradaFri Apr 21 2023CEO-CFO, Investors, Governance Risk and Compliance, Environmental Social and Governance
The current ESG context for companies is rapidly evolving, with pressure mounting from investors, regulators, and stakeholders alike to prioritize sustainability initiatives.
With the severity of the current climate demanding action, environmental, social, and governance factors are now a critical consideration for companies looking to maintain their social license to operate and attract investment.
Companies are under increasing pressure to reduce their carbon footprint, adopt sustainable practices, and disclose their ESG performance to stakeholders. In addition, investors are recognizing the materiality of ESG factors to financial performance, leading to a surge in demand for sustainable investment products.
ESG is becoming a critical factor for long-term success and sustainability. But why is it so important for companies – including small to medium enterprises – to get behind it? And why should the responsibility fall on them?
A 2016 report by the World Trade Organization showed that small and medium-sized enterprises (SMEs) made up over 90% of the business population, 60-70% of employment and 55% of GDP (developed economies). They aren’t just contributing to the economy – they are the economy.
Whether they like it or not, the corporate world is particularly well equipped to help address many of the dire environmental and social issues that we find ourselves facing today.
In her book Better Business, Better Future, Elisabet Lagerstedt writes that corporations have a responsibility to address the world’s ‘wicked problems’ because they can – 'through ingenuity, creativity, collaboration and resources that it can call forth more effectively and efficiently than other human organizations'.
It is precisely this group that has the scope and access to the resources, innovation and talent that will help solve these problems.
There are huge discrepancies in attitudes across regions, ranging all the way from ‘we must act now’ to ‘not my problem’. While Europe is leading the way in terms of mandatory ESG disclosures, other countries seem to be taking steps backwards.
Some views in the US are particularly troubling, with certain parties labeling ESG activity ‘woke capitalism’ and negating the benefits associated with sustainability action. There’s still a huge amount of debate on the severity of climate issues, and the stance that Wall Street should be taking. Asset management firm Vanguard was recently caught between the two sides of the debate, pulling out of the Net Zero Asset Managers initiative as a result.
There can be no denying that we’re on the precipice of a significant turning point, and far too many organizations haven’t grasped the ‘disrupt or be disrupted’ level of urgency that the sustainability revolution calls for. History has proven time and time again that all business models will eventually be disrupted by something new and more relevant – just as we’ve seen with the digital revolution in recent years.
Ultimately, nonchalance and inaction will result in the same way for all companies, whether they are openly opposed or not.
The European Union’s Corporate Sustainability Reporting Directive (CSRD) contains the most in-depth requirements for ESG disclosure with the largest scope seen to date, mandating ‘double materiality’ as a requirement.
Currently, it impacts 49,000 large companies – either based in the jurisdiction or operating within it – and that scope is set to broaden to encompass all small to medium-sized enterprises within the next three years.
As the regulatory environment continues to evolve around the world, companies will need to disclose more detailed information on their sustainability performance, impact, and risks, and to adopt more robust ESG practices and standards.
Those that take a proactive and strategic approach to sustainability reporting and ESG management will be better positioned to comply with these regulations and to reap the benefits of improved sustainability performance and stakeholder engagement.
Another recent regulatory change showing the shift toward sustainable practices is the German Supply Chain Due Diligence Act, which holds business leaders accountable across their entire supply chains – including those outside of Germany.
The legislation is a game-changer for ESG, with companies needing to take control and acknowledge that they are responsible for everything that happens with their suppliers, customers, and products, from beginning to end. As time goes on, it's becoming more difficult for companies to ignore the negative effects their business has on the environment and society. Natural disasters and shortages, like water scarcity, are starting to cost companies actual money.
Your responsibility as an SME may look very different in five years to how it does today.
The companies leading the way in sustainability initiatives are not dwelling on the risks or the problems – they are taking a harder look at the opportunities, which include significant efficiency and cost savings, innovation, growth, and deeper connection with society. Companies that prioritize ESG are more likely to attract investment, improve their reputation, and mitigate potential ESG risks.
By owning their impacts from end to end, companies can shift the focus and culture of their business and have a broader positive impact. But to enable transformation on such a large scale, this work must be done in partnership with their stakeholders: their customers, investors, community members, governments, suppliers and more. This is what will create a crucial multiplier effect.
Mandated ‘double materiality’ will soon be an expectation by stakeholders (if it isn’t already).
Undergoing a Materiality Assessment is a means to identify and prioritize the sustainability issues that are most significant to your company's operations and stakeholders to determine which ESG risks and opportunities should be acted on now, and which should be monitored and managed next. It is the all-important first step in establishing a framework for managing your ESG strategy moving forward.
With the severity of the current climate demanding action, environmental, social, and governance factors are now a critical consideration for companies looking to maintain their social license to operate and attract investment.
Companies are under increasing pressure to reduce their carbon footprint, adopt sustainable practices, and disclose their ESG performance to stakeholders. In addition, investors are recognizing the materiality of ESG factors to financial performance, leading to a surge in demand for sustainable investment products.
ESG is becoming a critical factor for long-term success and sustainability. But why is it so important for companies – including small to medium enterprises – to get behind it? And why should the responsibility fall on them?
Corporations are well equipped to make a difference
A 2016 report by the World Trade Organization showed that small and medium-sized enterprises (SMEs) made up over 90% of the business population, 60-70% of employment and 55% of GDP (developed economies). They aren’t just contributing to the economy – they are the economy.
Whether they like it or not, the corporate world is particularly well equipped to help address many of the dire environmental and social issues that we find ourselves facing today.
In her book Better Business, Better Future, Elisabet Lagerstedt writes that corporations have a responsibility to address the world’s ‘wicked problems’ because they can – 'through ingenuity, creativity, collaboration and resources that it can call forth more effectively and efficiently than other human organizations'.
It is precisely this group that has the scope and access to the resources, innovation and talent that will help solve these problems.
Who is opposed?
There are huge discrepancies in attitudes across regions, ranging all the way from ‘we must act now’ to ‘not my problem’. While Europe is leading the way in terms of mandatory ESG disclosures, other countries seem to be taking steps backwards.
Some views in the US are particularly troubling, with certain parties labeling ESG activity ‘woke capitalism’ and negating the benefits associated with sustainability action. There’s still a huge amount of debate on the severity of climate issues, and the stance that Wall Street should be taking. Asset management firm Vanguard was recently caught between the two sides of the debate, pulling out of the Net Zero Asset Managers initiative as a result.
There can be no denying that we’re on the precipice of a significant turning point, and far too many organizations haven’t grasped the ‘disrupt or be disrupted’ level of urgency that the sustainability revolution calls for. History has proven time and time again that all business models will eventually be disrupted by something new and more relevant – just as we’ve seen with the digital revolution in recent years.
Ultimately, nonchalance and inaction will result in the same way for all companies, whether they are openly opposed or not.
The regulatory environment is catching up
The European Union’s Corporate Sustainability Reporting Directive (CSRD) contains the most in-depth requirements for ESG disclosure with the largest scope seen to date, mandating ‘double materiality’ as a requirement.
Currently, it impacts 49,000 large companies – either based in the jurisdiction or operating within it – and that scope is set to broaden to encompass all small to medium-sized enterprises within the next three years.
As the regulatory environment continues to evolve around the world, companies will need to disclose more detailed information on their sustainability performance, impact, and risks, and to adopt more robust ESG practices and standards.
Those that take a proactive and strategic approach to sustainability reporting and ESG management will be better positioned to comply with these regulations and to reap the benefits of improved sustainability performance and stakeholder engagement.
Taking responsibility for ESG across supply chains
Another recent regulatory change showing the shift toward sustainable practices is the German Supply Chain Due Diligence Act, which holds business leaders accountable across their entire supply chains – including those outside of Germany.
The legislation is a game-changer for ESG, with companies needing to take control and acknowledge that they are responsible for everything that happens with their suppliers, customers, and products, from beginning to end. As time goes on, it's becoming more difficult for companies to ignore the negative effects their business has on the environment and society. Natural disasters and shortages, like water scarcity, are starting to cost companies actual money.
Your responsibility as an SME may look very different in five years to how it does today.
The massive opportunity in getting this right
The companies leading the way in sustainability initiatives are not dwelling on the risks or the problems – they are taking a harder look at the opportunities, which include significant efficiency and cost savings, innovation, growth, and deeper connection with society. Companies that prioritize ESG are more likely to attract investment, improve their reputation, and mitigate potential ESG risks.
By owning their impacts from end to end, companies can shift the focus and culture of their business and have a broader positive impact. But to enable transformation on such a large scale, this work must be done in partnership with their stakeholders: their customers, investors, community members, governments, suppliers and more. This is what will create a crucial multiplier effect.
Mandated ‘double materiality’ will soon be an expectation by stakeholders (if it isn’t already).
Undergoing a Materiality Assessment is a means to identify and prioritize the sustainability issues that are most significant to your company's operations and stakeholders to determine which ESG risks and opportunities should be acted on now, and which should be monitored and managed next. It is the all-important first step in establishing a framework for managing your ESG strategy moving forward.
Get ahead of the sustainability curve
Start your ESG journey with Ansarada’s Materiality Assessment – a revolutionary digital Materiality Assessment solution – and cut the complexity, time, and cost of using external consultants.
