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Having an ESG strategy is no longer an optional extra for companies. The subject of sustainability has become a strategic priority for firms around the world. It is how they identify ESG risks in their own supply chain.
Who sells the most cars or makes the biggest profit? These figures were what drove the automobile industry for decades. For a long time, it wasn’t important how high carbon emissions were or which type of energy was used to power a factory. Today though, automobile manufacturers like Mercedes-Benz are setting themselves different goals: By 2030, the company wants to halve its carbon emissions. The goal is part of an ESG strategy and is representative of the global shift towards a sustainable economy.
ESG stands for Environmental Social Governance. The issues associated with it, such as social responsibility, environmental awareness and sustainability, as well as transparent governance, are taken in context with the activities of the company. An ESG strategy consists of goals and measures in these subject areas. Large companies are increasingly focusing on identifying and reducing ESG risks not just within their own enterprises; they also focus on the ESG ranking of business partners. For example, according to the Act on Corporate Due Diligence Obligations for the Prevention of Human Rights Violations in Supply Chains (LkSG), companies must check their own suppliers with regard to ESG risks.
The strategic approach is derived from the fact that these activities must be designed for the long term and in many cases also require a transformation of processes in a company.
Based on specific figures, companies worldwide have to prove how well they fulfil ESG criteria due to increasing regulatory requirements.
‘Companies today need an ESG strategy based on valid data. There are different requirements depending on size and industry and these have to be taken into account when setting up the strategy and weighting the various ESG criteria,’ explains Carsten Ettmann, Senior Business Consultant Risk & Compliance at Dun & Bradstreet.
While environmental aspects are weighted particularly heavily in a chemical company, the sustainability concept of a personnel service provider should focus on social components.
Measuring and evaluating sustainability, social responsibility and value-based governance requires defined criteria. These include aspects such as the amount of carbon emitted, the establishment of equal opportunities in the company or certification in areas like health protection or circular economy. Such factors are used to measure and evaluate sustainability in the company and compare against competitors.
‘There is currently a lack of standardised criteria and reporting standards. Companies, customers, policy makers and the financial sector define the term ‘sustainability’ very differently. The European Consultancy Group for Accounting (EFRAG) is working right now on a template that is intended to provide help with standardisation. Until this template is available, we recommend that companies orient themselves towards standard setters like the Sustainability Accounting Standards Board (SASB),’ says Ettmann.