Environmental, social and governance factors (ESG) have recently become a hot topic that are widely discussed and in the spotlight by many parties: governments, NGO’s, activists and concerned companies.
ESG Criteria.
There are several criteria for companies that want to implement ESG in their business practices. The following are the ESG criteria:
1. Company Environment
The company should seriously consider the impact of its business operations on the environment. Environmental criteria include:
Use of environmentally friendly energy
Managing waste so that it does not become a pollutant
Participation in the conservation of natural resources that are irreplaceable
Reasonable and humane treatment of animals
Implementation of an effective risk management system in managing environmental risks
2. Social
The company should consider its relationships and reputation with its stakeholders which include society, special communities, suppliers, consumers, employees and all related parties of the company.
Apart from that, how should the company act in developing its relationship with those stakeholders? Criteria in the social area include:
Selection of suppliers that also have ESG policies and practices
Organizational involvement in community development in the form of a donation annually based on a percentage of profits and/or voluntary work of employees for the community
Ensuring a healthy and safe work environment for employees
The company should also welcome and consider stakeholder input and their actual expectations of the organization, so that are no gaps between expectation and delivery.
3. Governance
The company should consider correct governance principles in managing itself.
Criteria in governance include:
Use of accounting methods that comply with required standards
Ensuring that all relevant parties are given the opportunity to participate in voting on decisions regarding issues that are important to the company.
Make certain that there are no political contributions to obtain preferential treatment from the recipient of the contribution
Ensuring that the company is not involved in illegal or unlicenced activities
Why are ESG trends important?
Understanding ESG trends is important because they can inspire companies to implement sustainable actions that they would not otherwise take.
In reality, ESG trends are not trivial, but company directors who fail to recognize the importance of ESG trends will certainly face various consequences. This could include falling for greenwashing, failing to comply with environmental regulations, or missing out on potential partnerships that could grow their business.
Some reasons why ESG trends are important include:
Attracting & Retaining Employees – businesses cannot operate without competent and motivated employees, and chances are – the company will seem more attractive to work for if they can demonstrate their commitment to ESG trends and values. This is especially important for the younger generation who enter the world of work. Sustainability is a priority for them.
Financial & Creative Opportunities – ESG trends are not only good for attracting talent, but can also open new doors for businesses to receive funding or develop ideas to create new sustainable products and services that can better combat climate change. For example, sustainable makeup brands will most likely benefit from ESG trends because their customers will definitely have recommendations and ideas for new cosmetics.
Reducing Operating Costs – Often, keeping up with ESG trends means implementing greater sustainability wherever you can – which can include utilizing renewable energy sources or more energy-efficient technologies. As a result, your business can benefit from lower utility bills and ultimately save money.
Customers & Investors Want Sustainability – More and more people want to buy sustainable products, and more investors want to invest in companies that can demonstrate their commitment to ESG trends – therefore, it is a win-win situation for business world participating in upcoming ESG trends. in 2024.
What are the ESG trends to watch out for in 2024?
In 2024, ESG trends continue to take the world by storm with the introduction and implementation of new incentives to encourage better sustainability.
Here are some ESG trends that are expected to occur in 2024:
Various New Requirements
Transparency has always been a key factor in fostering sustainability, but in 2024 – efforts to encourage honesty will increase even more.
This will be done with new reporting and disclosure requirements that will help make sustainability more commonplace than it already is. As a result of these mandatory reporting requirements, it is likely that many companies will begin to voluntarily draft ESG reports to stay one step ahead of future ESG trends.
More Sustainability Reporting for Small Companies
ESG trends in 2024 will not only aim to address businesses responsible for the largest carbon footprint but also small businesses that may have an environmental impact.
This is because several new sustainability reports expected to come into effect in 2024 will require private companies to also disclose their emissions and environmental impacts. As a result, the emergence of ESG trends in 2024 may ultimately encourage more companies to disclose their environmental impact.
Supply Chain Transparency
Curating sustainable supply chains has been on the annual ESG trends list for some time, but in 2024 – this ESG trend will take on new meaning amidst updated reporting requirements like the CSRD and the California Climate Accountability Package.
This is because the supply chain is often where companies find the cause of their oversupply Scope 3 emissions, otherwise known as miscellaneous emissions which often result in a larger than expected carbon footprint.
No More Eco-Friendly Washing
Greenwashing, which refers to the condition when companies market their products to appear more sustainable than they actually are – will be fought back more vigorously in 2024 to ensure customers and investors no longer fall victim to such actions.
In fact, the EU has banned greenwashing and climate neutral claims by 2026, meaning that much of 2024 will likely be spent focusing on how to avoid greenwashing in the future.
As a result of these ESG trends, many companies are likely to recalibrate their marketing tactics to ensure they do not fall into greenwashing – as the consequences of such actions can mean the loss of good customers, investors and brands.
Ultimately, there will likely be more ESG trends emerging as we head further into 2024 – but these trends will likely be in the spotlight for a while as the year begins. It's important to remember that ESG trends are not just a fad, but are effective business tactics and can help grow your business and efforts towards sustainability.
Comments