ESG: from nice-to-have to business case
Under the abbreviation "CSR", sustainability was long considered a mere PR issue. Today, it is the center of a normative change that permeates everything. Politics and financial markets will radically restructure economic models towards sustainability in the coming years. No one knows exactly where this will lead, but it is certain that there is no way around it. Those who do not want to be left behind must understand ESG as the new business case and act accordingly.
The sustainable transformation has begun - ESG on the rise
The climate crisis is forcing modern societies to come up with effective solutions to the worsening ecological problems. This is associated with a growing awareness of social responsibility. Policies at European and national level provide the framework for this and are increasingly directing the sustainable transformation of the economy. For example, with the European Green Deal - the plan for a sustainable and competitive Europe - the European Commission under the leadership of President Ursula von der Leyen has made the United Nations Sustainable Development Goals (SDGs) and the 2015 Paris Climate Agreement a central component of all legislative measures in the European Union. The topics of environmental and climate protection as well as social responsibility are at the top of the European agenda.
The EU economy sees green - ESG made in Brussels
As part of the Green Deal, the EU is implementing a series of far-reaching measures that will radically reshape the economy and financial markets in the coming years. Regardless of the energy transition, mobility transition or circular economy, all companies will be directly or indirectly affected by the changes. Sustainability will set the decisive direction in all industries and sectors.
For example, a directive on companies' sustainability obligations is currently being drafted. The European "Supply Chain Act" is intended to oblige companies to guarantee human rights and environmental regulations not only in their own operations, but along their entire supply chain. A new directive to expand and further standardize sustainability reporting is also intended to create more transparency and comparability and raise sustainability reporting to the same level as financial reporting. Added to this is the EU taxonomy, which defines environmental targets that are used to determine which economic activities are recognized as sustainable. The resulting "green list" serves in particular to avoid greenwashing and steer investments towards ecological transformation.
ESG as a business case
The far-reaching EU regulations and what they will entail in the future clearly define the new business case for every company. It can best be summarized with the term ESG, which originates from the world of finance: Environment, Social, Governance. A comparison with the content of the EU measures reveals that the ESG criteria are the basis for future business models and financing. They are the new "license to operate" for companies and are therefore becoming a decisive strategic and operational challenge.
With the EU taxonomy and stricter sustainability reporting, financing and insurance costs are increasingly determined by ESG ratings. If you want to obtain attractive loans or attract investors, you will have to disclose your ESG performance and use it to convince them.
In addition, ESG issues will increasingly dominate communication and relationships with stakeholders. For example, companies will have to select their suppliers according to ESG criteria in order to comply with due diligence obligations. The transparency of a company's ESG performance vis-à-vis its customers will become a decisive competitive factor, as customers in turn will have to pay attention to ESG. Society and politics are driving the new narrative anyway and must be addressed specifically in ESG issues. ESG will also play a decisive role as an aspect of employer branding - after all, nobody wants to work for a company that was "yesterday's news".
Ultimately, risk exposure and reputation will depend to a large extent on ESG performance. ESG will become a factor critical to success and existence. No company will be able to afford to use sustainability purely as a PR issue. That's why companies need to get to grips with the new regulations now at the latest, understand ESG as the new business case and act immediately.
ESG - the three dimensions of sustainable management
But what exactly does ESG mean in this context? Environment encompasses the mostly technical measures taken by a company to improve its environmental footprint and minimize its environmental impact. This includes, for example, reducing emissions in production (Scope 1) and the supply chain (Scope 3), switching to renewable energies (Scope 2) and conserving natural resources (recycling and circular economy). Social stands for the social responsibility of a company, i.e. for aspects such as respecting human rights, employee satisfaction or social commitment; companies are increasingly seen as "corporate citizens". Last but not least, all of this must be reflected in governance, which is the responsible corporate management. This means that ESG factors are taken into account in all strategic decisions, anchored in the corporate organization and the corporate culture is adapted accordingly. ESG is also an important part of corporate communication and external positioning.
ESG makes it clear how broadly the topics of sustainability and green transformation need to be considered today. It is no longer about implementing individual measures within old structures and according to old patterns, but rather about a global shift, a system change towards a new way of doing business that will secure our future and our survival.
Setting the course at governance level now towards corporate ESG transformation
Against this backdrop, the focus is particularly on responsible corporate governance, which is the starting and key point of any change process towards ESG integration. In order to plan and implement effective measures, employees at all levels need to be made aware of the issues and structural adjustments need to be made in all departments. It is no longer enough to have just one person responsible for sustainability or a separate sustainability department; a new way of thinking must be established in every area of the company's activities, in which ESG is always taken into account. ESG experts naturally remain key players in establishing the new corporate culture and way of doing business. More and more companies are appointing Chief Sustainability Officers - CSOs - for this purpose, which underlines the importance of ESG.
The change must be accompanied by effective ESG communication both internally and externally. The new rules of communication, the imperatives of storytelling, apply here. A moralizing and political public is shaping the social discourse. In the context of ESG, this means that companies are no longer seen as neutral, independent entities, but as corporate citizens that take a direct or indirect stance themselves. This is both a blessing and a curse, because as a corporate citizen you run the risk of polarizing too much. However, it also means that discursive ESG communication with its power to influence can be used as a strategic tool. Good ESG communication is a door opener for exerting influence and co-determination, especially in the political arena. Campaign fitness, fluid alliances and cooperatively developed content are key elements of digital public affairs and enable contemporary ESG positioning.