With the rise of environmental, social, and governance (ESG) compliance rules, companies must be prepared to address these concerns. ESG can pose unique challenges for companies in terms of access to, validity of, and reporting on relevant data. It is important to establish a forward-looking strategy and best practices now to reduce risk and create the agility to respond to emerging regulations. Companies with a reputation for being pro-active and methodical in their ESG Compliance response have an advantage over competitors who haven’t taken steps to plan their ESG Compliance practices.
The organization must have a clear timeline expressing what they are required to achieve to develop its ESG strategy. This way there will be no “Ummm … yeah, let me think about it” moments when asked questions like “What did you do last year?” or “How will you measure success again this year?” – Avoid getting caught flat-footed, unprepared, and out of compliance.
But what does ESG mean? How can you implement a custom strategy? And how can you tell when it works? In this post, we’ll explore these and other questions by sharing our experience.
What does “ESG” in ESG Compliance mean?
ESG stands for environmental, social, and governance. It’s a reference to a broad set of guidelines that a company should follow to ensure they are operating in a responsible way. Depending on what industry your company is in there can be overlapping regulations and rules that apply up and down your supply chain. ESG criteria are important because they apply a more holistic assessment of global risks and business impacts. .
What are the risks posed by the failure of ESG compliance?
- Potential fines – The ESG fines can range from $500 per day to $99,999 per day depending on the nature of your violation. Some regulating authorities can also impose imprisonment if violations are severe enough.
- Loss of reputation and brand value – Your company’s reputation may suffer if it is found guilty of violating environmental regulations or anti-corruption laws through poor ESG practices, which impacts the overall valuation of the business.
- Loss of customers – There is increased customer loyalty associated with being a good corporate citizen. Any finding which indicates your company is not on track related to ESG compliance could lead to potential client losses or lawsuits against.
What makes a successful ESG Compliance strategy?
An ESG compliance strategy is a set of actions that you take to advance your organization’s goals, values, and priorities. It is a comprehensive approach to managing risks around sustainability issues such as diversity, climate change, water usage, and pollution.
ESG compliance is a growing area of focus for companies across all industries. In fact, it has become so important that the SEC has even created its own list of ”best practices” for companies who want to improve their CSR programs and build trust with their customers, while the SEC is currently defining regulations to mandate Greenhouse Gas (GHG) emissions disclosures including Scope 1, Scope 2, Scope 3 so on and so forth; depending on industry and product category.
A successful strategy will help you achieve better financial results while also improving business performance by reducing risk and increasing resilience in the face of changing conditions.
The best way to develop an effective ESG Compliance strategy is by setting clear objectives for yourself or your team concerning each stakeholder group (customers/suppliers/employees etc.) internally as well as up and down your supply chain. Once these have been identified then it’s time for some hard work!
Developing an effective ESG framework can increase your company’s value while reducing your risk
ESG compliance is the process of identifying, measuring, and managing environmental, social and governance (ESG) risks following local regulations. It covers all aspects of an organization’s operations including the production chain, suppliers, and customers as well as employees at all levels within your company.
Combining environmental and social responsibility with financial performance has become a hot topic for companies of all sizes. The Sustainable Investor Institute (SII), which offers educational programs on ESG topics, says that investors are increasingly concerned about how their portfolio companies treat the environment and other stakeholders. SII found that more than half of millennials would consider investing in a company if it had both environmental and social issues addressed appropriately by management.
The best way to manage ESG compliance is through an integrated approach that includes both internal processes and external partners such as consultants who have experience in this area and vendors who provide ESG-specific reporting capabilities. This approach ensures that everyone in the organization understands which ESG Compliance rules apply to your company, what the various specific ESG goals are, and their role in achieving those goals to help prevent fines or negative publicity.
Implementing an effective ESG framework is not easy. Your company will need a strong, clear strategy to navigate this new world and the emerging regulation. As we’ve seen, the risks associated with ESG compliance are real and should be taken seriously by all businesses—and ultimately, by their shareholders. An aligned ESG framework will help you prioritize your goals and make sure that you’re able to meet them effectively.
How to include ESG into your overall compliance strategy?
With a clear understanding of which regulations apply to your company and what your specific ESG goals are for the year, it is important to build access to all of the relevant data inputs so at any time stakeholders and leadership can assess current ESG metrics against the goal and avoid surprises at the end of the reporting period. The input data must be evaluated to confirm it is accurate so no source data calls into question the aggregated metrics. Ideally, the same system that provides goal setting, progress reporting, and leadership dashboards, also provides reporting and properly formatted data exports. This will simplify the ability to provide the different reports required across all ESG-related rules to the varied governing bodies.
The importance of including ESG in your company’s overall compliance strategy cannot be overstated. It is an important part of a company’s sustainability strategy, and it is also an important part of its overall reputation.
Companies that are not incorporating ESG into their strategies are missing out on this opportunity to improve their operations, boost customer satisfaction and build shareholder value.
The key takeaway is that ESG Compliance reporting has the potential to improve shareholder value, attract the next generation of investors, and make companies more attractive to customers. If you’re not already doing so, it’s time to start incorporating ESG considerations into your compliance strategy by selecting a vendor who can help align the organization, increase visibility, and simply the required reporting and disclosures.