We help your business with ESG analysis and reporting

Climate change, loss of biological diversity, armed conflicts and complex supply chains affect the global economy today. There are a number of sustainability risks that can be linked to financial risks, and business leaders today need to take height for this. The new legal requirement CSRD comes into force in 2024, meaning that the businesses affected by the requirements have an obligation to report on sustainability. For a large number of businesses today, ESG issues are business critical and many see a need to integrate sustainability into their operations. Businesses that actively work with ESG issues are also more attractive to both customers and employees.

What does ESG stand for?

 ESG is a broad sustainability concept that deals with issues such as environment and climate (environment), social responsibility and human rights (social) and governance and regulatory compliance (governance). 

Why is ESG important for businesses? 

Only evaluating and analyzing a business from a financial perspective is not enough to create long-term success. CSRD places equally high demands on sustainability reporting as the financial reporting. In addition, stakeholders expect companies to report this. The stakeholders can be customers, employees and investors.

Environmental

The waste we produce, the emissions we release, the resources we consume, and how we impact the natural world are all factors to consider when looking at how your business affects the environment. An increased awareness about the climate change from society contributes to increasing the pressure on both politicians and legislators to reach the goals of the Paris Agreement and limit temperature increases. Therefore, more and more demands are placed on the private sector, more precisely on the companies' relationship with how their business activities affect the environment. The focus on businesses climate impact will without doubt continue to increase in the coming years, especially with the upcoming regulations CSRD (Corporate Sustainability Reporting Directive) which requires a number of businesses to report on a number of different sustainability issues. In practice, this means that all businesses covered by the directive must report their emissions that are directly created through, for example, the production of a specific good, but also the emissions created through the entire supply chain. The industry you operate in will likely determine which areas of environment and sustainability that are most important for your business to concentrate on. Examples of areas can be carbon dioxide emissions, biological diversity, water consumption, resource use, waste management and circular economy.

Social

The focus on businesses impact on society has changed recently and is receiving more and more attention. Social responsibility or social sustainability refers to the impact that businesses have through their operations. It is a broad area that deals with everything from how businesses treat their employees to how they contribute to the local communities in which they operate. Both CSRD and CSDDD (Corporate Sustainability Due Diligence Directive) require businesses to report their impact on the social area throughout the value chain. Several countries also have national laws regarding this, for example in Norway where it is called the Publicity Act (Åpenhetsloven) and in Germany where it is called The Act on Corporate Due Diligence Obligations in Supply Chains. These laws aim to promote businesses respect for basic human rights and decent working conditions in the value chain.

Governance

Governance refer to the rules, controls and routines that controls the businesses behavior. Since governance forms the framework for how the business achieves its goals, the central theme within the sustainability work are the ambitions and the long-term goal fulfillment if the business.

 Good and effective governance does not only mean following laws and regulations, but also handle important environmental and social issues. Furthermore, good governance depends on the fact that the measures put in place are actually assessed and measured afterwards. A clear and transparent approach is important to achieve respect and trust from both stakeholders and employees.

Frequently asked questions

Middle market business leaders will need to understand that ESG (Environmental, Social, and Governance) factors are increasingly impacting the business landscape. These considerations affect a company's reputation, access to investment, and risk profile. 

To thrive, businesses should aim to integrate ESG practices and goals within their business processes; engage with stakeholders transparently and regularly; continuously assess and adapt their ESG strategies to remain competitive; and keep abreast of the evolving ESG regulatory environment.

While there has been a degree of movement towards the adoption of environmental, social and governance best practices worldwide in the past, the various legal requirements have differed based on jurisdiction.

 However, more recently new regulations and requirements have been introduced. The new requirements that have been released are leading to a more standardised and global approach to ESG reporting. 

 Whilst the new requirements aim to achieve a more standardised approach, it is dependendent on the government of each jurisdiction to adopt and mandate the requirements. The EU are leading in their adoption of mandatory ESG reporting requirements, with other countries such as following suit. 

 As a result, some businesses may already be undertaking ESG reporting and disclosures, depending on their geographical location, size and industry. 


In addition to these new requirements, other local market regulations also exist, some more stringent and developed than others.

ESG (Environmental, Social, and Governance) regulatory requirements vary globally, with governments implementing a range of measures to encourage corporate responsibility and sustainability. Common ESG regulatory elements include sustainability reporting, climate disclosure, human rights and labour practice transparency, gender diversity and governance standards, and efforts to promote green finance and sustainable investing. 

The Global Reporting Initiative (“GRI”) Standards represent global best practices for reporting publicly on a range of economic, environmental and social impacts, while the Sustainability Accounting Standards Board (“SASB”) provides a series of sector-specific standards. In the European Union, the Corporate Sustainability Reporting Directive (CSRD) sets up the legal framework and reporting obligations, while the European Sustainability Reporting Standards (ESRS) establishes the roadmap for compliance. Other regions have introduced local stewardship codes and regulations related to sustainable finance, the United Nations Sustainable Development Goals (SDGs), and other priorities as identified by local regulators.

The impact of your company's size on regulatory requirements and reporting can be significant. Generally, larger companies, especially publicly traded ones, face more extensive and complex regulatory obligations compared to smaller or privately held firms. Larger organisations are often subject to stricter ESG (Environmental, Social, and Governance) reporting requirements due to their broader reach and potential influence on various stakeholders. 

They may also have more resources dedicated to compliance efforts. Smaller companies, on the other hand, may have less stringent reporting obligations, but they are not exempt from regulatory scrutiny. If the smaller companies are part of a global supply chain of large corporates, this may also directly impact their ESG efforts such as their ability to meet the larger organisation’s ESG obligations, in order to remain the supplier of choice for the larger companies. Depending on your industry and location, there may be specific size-based thresholds that trigger certain reporting requirements.

An ESG score quantifies a company's performance in sustainability and responsible business practices. These scores are calculated through a multi-step process that involves data collection from various sources, including company disclosures and third-party data, weighting factors based on their importance, normalising data for fair comparisons, assigning scores or ratings for each ESG category, aggregating them into an overall score (in some cases), and often allowing for peer comparisons and benchmarks. 

It's important to note that ESG score methodologies can vary among providers, resulting in potential score disparities for the same company. ESG scores serve as a quantitative indicator of a company's commitment to ethical and sustainable practices, aiding investors and stakeholders in assessing its environmental, social, and governance performance, in comparison to other industry peers.

To measure and report on ESG performance, organisations should begin by identifying relevant ESG metrics, collecting data from various sources, and setting clear goals and targets aligned with their strategic goals. Utilising established reporting frameworks, conducting materiality assessments and benchmarking against industry peers can help organisations determine the most important ESG topics and metrics to report on and measure from both an internal and external stakeholder perspective. This will then help companies structure their ESG reporting efforts. Continuous improvement and stakeholder engagement are crucial for refining ESG reporting practices and addressing concerns. Public disclosure and transparency in reporting, including peer benchmarking and compliance with regulations, foster trust and accountability. Periodic updates to materiality assessments, achievement of ESG targets, and a long-term perspective on ESG reporting further support transparency and credibility of reporting.

Incorporating ESG (Environmental, Social, and Governance) considerations into a company's strategy offers several significant benefits. It enhances reputation and brand value, attracting environmentally and socially conscious clients, investors and talent. ESG integration mitigates risks related to regulatory compliance, environmental issues, and ethical misconduct while promoting long-term value creation. It fosters innovation by driving responsible resource use and product development. ESG strategies can also improve employee engagement and retention, reduce operational costs, and increase access to capital as more investors prioritise responsible and sustainable investments. Ultimately, embracing ESG principles not only aligns with ethical and societal expectations but also enhances a company's competitiveness, resilience, and overall financial performance, especially in the medium and long terms

Integrating ESG factors into a company's operations and strategy presents several challenges. Firstly, while there are currently efforts to promote consistency and standardisation of ESG reporting and regulation, there is currently a lack of standardised ESG reporting and metrics across industries and jurisdictions, making it difficult to measure and compare performance accurately. Additionally, ESG integration may require significant cultural and organisational shifts, which can be met with resistance from across all levels within the company. Ensuring data accuracy and reliability for ESG reporting can also be challenging. Furthermore, achieving ESG goals often demands upfront investments, potentially impacting short-term profitability. Lastly, the evolving regulatory landscape and shifting stakeholder expectations require continuous adaptation, adding complexity to the integration process. Successful ESG integration demands commitment, transparency, and a long-term perspective to address these challenges effectively. The amount of ESG resources available is a key factor to the success of ESG integration, with most companies finding themselves facing a resource constraint and trying to overcome the most immediate challenge of capacity building.

ESG factors have a substantial impact on risk in multiple ways. By considering ESG risks such as climate change, resource scarcity, or social controversies, companies can better assess and mitigate potential threats to their operations and reputation. Failing to address ESG concerns can result in regulatory fines, legal liabilities, detrimental impacts to operations and assets and damage to brand value. Additionally, investors and stakeholders increasingly consider ESG performance when making decisions, and companies with poor ESG records may face higher costs of capital or difficulty attracting investment. In essence, robust ESG practices can enhance risk management, reduce vulnerabilities, and position companies to navigate an evolving and socially responsible business landscape more effectively.

ESG considerations can affect costs in both short-term investments and long-term operational expenses. Initially, integrating ESG practices may require capital investments to implement sustainable technologies, improve social programmes, enhance governance structures, or introduce efficient data collection methods. However, over the long term, ESG can lead to cost savings through efficiency improvements, reduced resource consumption, and lower operational expenses. Sustainable practices like energy efficiency, waste reduction, and responsible supply chain management can decrease cost of capital, enhance profitability, and contribute to a company's financial resilience. Additionally, strong ESG performance can attract investors who prioritise responsible businesses, expanding a company’s access to funding sources.