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Sustainability: Four reasons why ESG data is becoming increasingly important

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Great strides are being made in the sustainable transformation of business. Discover how ESG criteria will change business in the coming decade – and how your organisation can benefit.

Companies, consumers, shareholders, suppliers and regulatory authorities are becoming ever more aware of issues such as environmental pollution, people trafficking or the use of conflict minerals. Sustainability is the hot topic. According to a study by the market research institute Forsa, 77 percent of those surveyed said that medium-sized businesses would only be able to survive in future by pushing the issue of sustainability. And this is also a key topic for small and large businesses.

One thing is clear: ESG data is absolutely essential for companies.

Making sustainability measurable using ESG criteria

ESG stands for Environment, Social, Governance. The criteria provide information on how environmentally and climate-friendly a company is in its actions, how well it adheres to aspects like occupational health and safety, or what management and control processes companies have in place. Four reasons why ESG data is becoming ever more important for companies.

1 Increasing regulatory requirements

New regulations are being introduced around the world which oblige companies to push forward with sustainability and implement ambitious climate goals.

The European Commission, for example, is focussing on environmental and climate protection with its Green Deal. The concept aims at reducing net greenhouse gas emissions in the EU to zero by 2050. The Corporate Sustainability Reporting Directive (CSRD) from the European Commission will require companies to comply with new sustainability reporting from 2023. Considerably more businesses than before will then have to disclose their environmental, social and employee standards.

The Supply Chain Act obligates German companies to adhere to human rights and environmental standards throughout the supply chain. This aims to prevent child labour, environmentally harmful working and production conditions, and starvation wages. If businesses fail to perform their due diligence, they may face fines or be excluded from public contracts.

The US government's agenda under President Joe Biden also shows that sustainability is gaining in significance. According to its policies, the USA aims to adhere to the Paris Climate Agreement and an ambitious climate package is part of the plan. In China, too, there are goals to significantly reduce carbon emissions by 2060.

 

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Rising number of ESG regulations worldwide. Source: Dun & Bradstreet.

 

Business partners and employees demand sustainability

Companies need to meet their social responsibility. It's no longer just a matter of making profit. The purpose of the company is what it's all about. Banks and business partners want to know how climate friendly a product is in its production or whether employees receive a fair wage for their work. They specifically use ESG data to assess business partners.

Those who can prove that their business model is sustainable more readily receive loans or better payment conditions.

Negative press about exploitative working conditions can have the opposite effect and cause stock prices to plummet, as we have seen in the past.

Employees are also more aware of how sustainability is implemented within a company when choosing an employer.

ESG data for better strategic decisions

A survey conducted by Forrester Consulting on behalf of Dun & Bradstreet reveals that the benefits of investing in ESG strategies go far beyond avoiding fines for failing to comply with regulations.

In fact, 74 % of those surveyed require a solution which allows them to better understand themselves and to find out how they can improve their ESG criteria. Some 72 % require standardised metrics and benchmarks, while 71 % stated that they need help automating ESG data in order to rationalise reporting.

ESG data helps companies to better understand where they can improve themselves. What's more, the data makes it easier to comply with legal regulations.

Lower costs and increase transparency through the targeted use of ESG data

Complying with ecological, social and ethical factors also has a positive impact on the operating result. Closely examining ESG data makes it possible to identify potential for lowering energy costs, for example. What is more, ESG is a growing force that drives sales revenue and profits through innovation and improved risk management.

ESG data ensures greater transparency. Based on this information, it is possible to determine the effects of ESG activities on a company's financial and operational activities in order to make targeted and profitable decisions for the future. Businesses can make proactive use of this to increase their own chances on the market.

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Take a look at our ESG trend report to find out how ESG will change business in the coming decade – and how your organisation can benefit!