The document is one of the factors driving the increased need to give a closer look at the assumptions of sustainability at an organisational level. As such, it is worth highlighting the key issues involved in navigating the meanderings of ESG now so as to avoid challenges in the future. Dr Agata Rudnicka from the Faculty of Management at the University of Lodz comments.
The subject of ESG is not a new issue. For over a dozen years, the terms CSR (Corporate Social Responsibility) and Sustainable Development have been quite well rooted in business awareness. Corporate Social Responsibility gave business a great opportunity to selectively engage in activities for the benefit of society and the environment, which resulted in many projects that did not always fit into the essence of business activity. Sustainable Development, treated by many institutions as synonymous with social responsibility, was mainly used to achieve environmental goals. The emerging CSR strategies also did not always link the topics of responsibility with the approach to running a business, but the companies that implemented them were certainly more aware of their impact.
ESG – a more mature view of business
Currently, ESG (Environmental, Social and Governance) has its five minutes, which can be treated as a more mature way of looking at business from a perspective broader than economic. ESG is an abbreviation of Environment, Social and Governance, which form three dimensions within which an organisation, being an active member of society, can exert a certain influence.
The term itself emerged several years ago, but only in recent years has it been revived as one of the possible directions for examining the accountability of companies for their actions – next to CSR and Sustainable Development – and it seems that it has found fertile ground. In practice, the aforementioned approaches have a common point of contact, i.e. going beyond the schematic understanding of business in terms of economic profit and attempting to reconcile business activities with increasing expectations from the environment.
– writes Dr Agata Rudnicka from the Faculty of Management at the University of Lodz.
The key to the ESG understanding is to move away from the narrow perspective of non-financial reporting and to look at the business in a contextual and long-term perspective. This will allow to avoid the risk of tunnel thinking and focusing on looking for data instead of discovering the core of the impact that companies can have or have on different stakeholder groups. It is also worth remembering that, as in the case of CSR and Sustainable Development, the basis is compliance with applicable laws.
How to estimate a given company's impact on the environment?
The starting point for assessing a given organisation in terms of ESG is a good recognition of the environment, understanding its needs and juxtaposing them with current operations. In the environmental sphere, such expectations could be: reducing emissions, abandoning polluting raw materials, changing production methods, etc. In the social area, it is primarily the need to assess risks related to human rights, creating conditions for development with respect for the rights of the community, and care for transparent communication with the environment. Activities in the field of organisational governance include: analysis of documents, relationships, roles and responsibility for decision-making processes.
– argues Dr Agata Rudnicka.
In ESG activities, it is equally important to go beyond the boundaries of the organisation and examine your value chain. Only this way will companies be aware of their actual impact. Taking responsibility for the value chain requires a great deal of determination and trust on the part of all partners; however, it is an essential element in creating a framework for sustainable business. Only knowing the expectations and needs gives space for further action. Those responsible for the ESG area have the difficult task of estimating organisational resources in the context of planned sustainability goals, not only in the short but also in the long term. From this point, the operational work related to deliberate interventions to minimise negative social and environmental impact, and verify their effectiveness begins. Understanding the interrelationship between a given organisation and its stakeholders and offering products and services that do not contribute to the destruction of social and environmental values is a goal that has been set for the business world.
Going beyond the pattern of data collection and disclosure
ESG is a process that may end with reporting, but this is the last stage. The adoption of the amendment to the Corporate Sustainability Reporting Directive and the related obligations to disclose data on the approach of companies to ESG issues cause a desire to look for sustainable development where processes have not yet been adapted, and this raises the risk of greenwashing.
ESG requires caution and knowledge. The market environment expects from the organisation evidence that the actions taken make sense, are not fake or half-hearted. Investors and clients verify what companies communicate to them and subject it to critical reflection. Taking shortcuts, refusing to provide factual data, lack of evidence that the applied solution is justified or packaging business activities in good marketing without real achievements is the shortest way to a negative assessment. The consequence of greenwashing activities is the loss of credibility and trust of the key stakeholders. This is yet another argument for getting to know and understanding the processes and relationships in the value chain in the first place.
Part of a greater whole
ESG is a part of the strategy and business model. Treating social and environmental issues as something that happens alongside what a given company makes money on will not satisfy the need for business reorientation and creating conditions for development with respect for human rights and the environment. Reporting is the moment when an organisation checks to what extent its ESG plans have been achieved and what more can be done. It is a true story of a given organisation, with its ups and downs, reflecting reality without embellishing the results or making assumptions. This is a reference point for what we want to achieve and how to build a competitive advantage based on sustainable development goals.
Author of the commentary: Dr Agata Rudnicka
Edit: Faculty of Management, University of Lodz