Understanding & Delivering ESG in Today’s Organization
Environmental, Social, and Governance (ESG) has been generating immense pressure on organizations across various industries and around the globe in recent years. Corporate investors are now making capital investment decisions based on a company’s ESG commitments, metrics, and ratings. Legislators and regulators worldwide are introducing regulations that focus on both the broad scope of ESG and its specific aspects (e.g., modern slavery, carbon emissions). Potential employees are choosing workplaces aligned with their values, not just their benefits. Similarly, customers are favoring products and services that reflect their principles. ESG has captured the attention of every level of an organization, from the boardroom to the operational frontlines.
What Is ESG & Why Is It Important?
This is a great question—and one many organizations are still asking. ESG’s scope and implications vary significantly depending on factors like industry, company size, geography, and regulatory frameworks. Within organizations, different departments often focus on isolated aspects of ESG without addressing its broader context. Too often, ESG resembles the parable of the blind men and the elephant: one touches the side and thinks it’s a wall, another feels the trunk and thinks it’s a tree, and another holds the tail and thinks it’s a rope.
To understand the breadth of ESG, let’s break it down:
- The E (Environmental) focuses on an organization’s environmental impact and commitments. This includes carbon emissions, offsets, air and water quality, mineral use, and waste management. While many regulations aim to address climate change, confusion persists over what must be done to comply.
- The S (Social) addresses the organization’s social accountability. This involves commitments to abolishing human slavery, child labor, forced labor, harassment, and discrimination. It also covers inclusivity, diversity, health and safety, and privacy. Social factors currently have the greatest potential to impact corporate reputations and brand value.
- The G (Governance) deals with how organizations are managed and controlled. This is the most mature area of ESG, consistent across industries. Governance includes internal controls over financial reporting, fraud prevention, anti-bribery measures, anti-money laundering efforts, information security, and tax transparency.
Another challenge lies in the evolving nature of business itself. Modern organizations extend far beyond traditional brick-and-mortar walls and direct employees. They rely on suppliers, vendors, outsourcers, service providers, contractors, and consultants—all of which influence ESG programs and reporting. Without aligning values and ensuring commitments across these third-party relationships, an organization cannot adequately address ESG.
Global ESG Regulations
ESG regulations are rapidly developing across the globe. Key examples include:
- In Europe:
- Corporate Sustainability Reporting Directive (CSRD): Effective in 2023, the CSRD impacts around 50,000 organizations, requiring reporting on sustainability topics such as human rights, anti-corruption measures, and board diversity.
- Corporate Sustainability Due Diligence Directive (CSDDD): Enacted in 2022, the CSDDD establishes legal accountability for environmental and human rights violations globally. Companies must address current and potential adverse impacts within their operations, subsidiaries, and supply chains, aligning with the Paris Agreement’s 1.5ºC goal.
- European Sustainability Reporting Standards (ESRS): These detailed reporting requirements operate under the CSRD and CSDDD frameworks.
- Elsewhere in Europe:
- Germany: The Supply Chain Due Diligence Act (LkSG) parallels the CSDDD but focuses on human rights and environmental standards.
- United Kingdom: The Financial Conduct Authority (FCA) mandates ESG disclosures under the Task Force on Climate-related Financial Disclosures (TCFD) and has introduced the Sustainability Disclosure Requirements (SDR).
- In the United States:
The U.S. Securities and Exchange Commission (SEC) established a Climate and ESG Task Force in 2021 to address gaps and misstatements in climate risk disclosures. In March 2023, it adopted rules requiring publicly traded companies to disclose greenhouse gas (GHG) emissions and climate-related risks. - International Efforts:
- The International Financial Reporting Standards (IFRS) Foundation and its International Sustainability Standards Board (ISSB) are creating a global baseline of sustainability disclosures.
- The Global Reporting Initiative (GRI) develops sustainability reporting standards, helping organizations disclose their environmental, social, and economic performance.
Where Should Organizations Begin?
ESG is ultimately about transparency—reporting on an organization’s commitments and performance in corporate filings and frameworks like GRI and ISSB. Effective ESG reporting requires integrating governance, risk management, and compliance (GRC).
While the specifics of ESG will differ by industry and organizational context, the following practical elements are key to building a strong ESG proposition:
- ESG Strategy: An organization must designate a leader to oversee ESG efforts, often the Chief Compliance Officer (CCO) or Chief Ethics and Compliance Officer (CECO). Given the interdisciplinary nature of ESG, this leader must be a strong facilitator and collaborator across departments. Establishing a clear charter is essential, as ESG initiatives require input from multiple functions.
- ESG Policies: Policies form the foundation of an ESG program. This involves understanding the organization’s ESG scope, applicable regulations, stakeholder expectations, and reporting standards. These policies—such as codes of conduct, anti-discrimination policies, and environmental commitments—define ESG objectives and set measurable benchmarks.
- ESG Processes: ESG processes establish the framework for action. Organizations must implement mechanisms for assessments, risk monitoring, control oversight, and incident resolution. These processes should feed into ESG reporting systems with structured workflows, accountability, and scheduled evaluations.
- ESG Technology: Technology enables effective ESG processes. Governance, risk, and compliance platforms are commonly used to manage forms, assessments, monitoring, incident reporting, and third-party relationships. These tools streamline data collection, ensure accuracy, and maintain a robust system of record for greater assurance and audibility.
For forward-thinking organizations, ESG is no longer optional—it’s an imperative. With regulations expanding globally and public scrutiny intensifying, the time to act is now. However, navigating the complexities of ESG can be daunting, particularly for organizations unsure where to start. Success begins at the top, with a comprehensive strategy and the integration of GRC principles across every aspect of ESG.
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