At a time when corporate social responsibility (CSR) is becoming less and less a choice but much more a requirement, entrepreneurs are increasingly asking themselves what exactly ESG means and what impact it has for their own organizations. The acronym ESG stands for "Environmental, Social and Governance" and refers to the three areas in which an organization can implement sustainability in its operations. In the coming years, the currently often non-committal nature of ESG will disappear completely into the background and companies will be required to take (additional) action. RSM's ESG specialists will be happy to provide additional insights, so that your organization, too, is ready for a sustainable future.
Why is ESG important?
Improving ESG insights and performance can help an organization strengthen its reputation, respond to market risks and opportunities, and strengthen its relationships with customers, employees and investors. Some organizations choose to improve their ESG performance out of intrinsic motivation, while others do so to comply with laws and regulations. For both routes, it is important to understand the (upcoming) changes in the regulatory framework to continue to make the right choices.
Understanding ESG performance is important because it affects how a company performs, including over the long term. Companies that score well on ESG factors are often seen as organizations that are more resilient to future risks and can therefore be more attractive to customers, employees and investors.
"For companies, ESG is a framework for looking at the impact on and expectations of all stakeholders, not just shareholders. As a result, sustainable companies outperform their unsustainable competitors in the long run."
Ruben Harding, Manager ESG Consulting
What are the ESG criteria my organization must meet?
Complying with ESG criteria is no longer optional, but nowadays even mandatory in parts. Both European and Dutch legislation will only become stricter in the coming years regarding sustainability reporting and ESG reporting. More than before, ESG information is going to play a role for companies that fall into a scope.
Currently, under the banner of the European "Green Deal," several laws and regulations are already active in the ESG field and new laws are still being rolled out, including:
- Corporate Sustainability Reporting Directive (CSRD)
- Sustainable Finance Disclosure Regulation (SFDR)
- Corporate Sustainability Due Diligence (CSDD).
In addition, there are numerous other regulations and initiatives that are now playing or will play a major role in companies. These include the European Energy Efficiency Directive (EED), the energy savings obligation, DAC7, DAC8 and environmental taxes. In addition to a constantly changing legislative and regulatory landscape, there are also developments in society. Socially responsible investing (SRI) is on the rise and insight into the sustainable performance of the supply chain is becoming increasingly important. All issues that you, as an entrepreneur, must deal with - or will have to deal with.
What to do now?
The scope of ESG-related laws and regulations will only increase in the coming years. This makes it more important for your organization to take action to understand ESG performance. Not only can this contribute to a more sustainable future, it can also lead to improvements in business outcomes, such as more loyal customers and a better reputation.
"Precisely because there is so much coming at companies, it is very important to start early and establish a good internal organization. It is important to take consistent steps forward, all the more so because the ESG rules need to be integrated not only from a legislative perspective but also because there are other stakeholders such as customers, shareholders, suppliers and, of course, the company's own employees".
Mario van den Broek, Partner ESG Consulting
RSM's ESG specialists are committed advisors who are eager to help you prepare your organization for a sustainable future. In addition, more ESG articles will appear on our website in the near future, further increasing your knowledge in this area and enabling you to make the right decisions with confidence. Do you have questions about any of the laws and regulations mentioned or would you like to spar? If so, please contact one of RSM's ESG specialists.