The Impact of ESG in Corporate Culture, Investment and Global Regulations
ESG is the future.
Environmental, social and governance (ESG) risks are a pattern happening in all industries across the globe. In light of the increasing economic, social, political and climatic uncertainty the world faces day-to-day, it is crucial to address ESG factors in order to achieve business transparency.
Complement your reading with this two-part article series: ESG – From Buzzword to Requirement – Part 1: Who Owns It? & ESG – From Buzzword to Requirement – Part 2: Why Does an ESG Program Matter? for a fully comprehensive look into ownership and the importance of implementing an ESG program, framework and reporting within the organization.
What is the current state of ESG culture in the world?
First of all, it is important to mention that ESG is not a brand new discipline but rather the progression of, the now outdated, corporate social responsibility. The difference with its predecessors lies upon the fact that it is a discipline that goes beyond marketing exercises. It is not about greenwashing.
Multinational investment companies like BlackRock or State Street are increasingly opting for investment decisions based on ESG factors, individual board members are being voted-out based on metrics related to these factors and of course regulators have their eye set on this topic.
This past march the SEC proposed Mandatory Climate Risk Disclosures for public companies. If adopted it would provide investors with consistent, comparable and clear information for making investment decisions as well as providing reporting obligations for issuers.
In Germany, the Corporate Due Diligence in Supply Chains will enter into effect this upcoming 2023 covering companies with 3000 or more employees and from 2024 onwards companies with 1000 or more employees. All affected companies must identify risks of human rights violations and environmental destruction from direct suppliers and indirect suppliers if they acquire substantiated knowledge of a potential abuse. They must take countermeasures, document this information and supply it to the Federal Office for Economic Affairs and Export Control (BAFA). If regulated organizations are found to be in violation of their due diligence obligations severe fines can be issued.
And the list of regulations goes on and on, coming from many different directions. From broad regulations to very narrow ones, the panorama is quite complex and it only promises to complicate even more.
The downstream impact of these ESG factors affects any organization or individual conducting business with a company that has to respond to any of these regulations.
Just like investment and regulations are heavily geared by ESG factors, so are employees and customers. Young talent is evermore critical of where they want to work and decide, not only based on benefits and salary, but on shared values and corporate culture. Same thing with customers.
ESG factors are extremely broad and cover many topics, from resource scarcity to digital influence. So, where to begin?
At Mitratech, we have created an ESG risk framework consisting of 16 ESG megatrends, further broken down into 95 additional sub-trends, which contain more than 300 individual data points. This framework has been carefully built based on our in-house expertise and thorough research from various expert sources like the United Nations 17 Sustainable Development Goals, the Sustainability Accounting Standards Board and the EU Sustainable Finance Taxonomy. Take a detailed look into our White Paper: Mitratech’s Environmental, Social & Governance Risk Framework.
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