ESG: Where does the pressure come from?
Why has reporting on environmental, social and governance issues become so important? Pressure comes from three sides: legislators, investors and the business environment. These are the reasons:
The legislator is the society’s “arbitrator”. He lays down the rules that businesses should comply with to achieve the greatest possible benefit for society. In recent years, the legislator’s long-term focus has become the development of a more sustainable economy. To this end, concrete laws are increasingly being passed to ensure that companies take sustainability seriously and incorporate it into their strategy and business activities. Legal requirements such as the CSR RUG or the future EU taxonomy are intended to ensure better comparability of companies’ ESG information. The ultimate goal is to promote investments in sustainable enterprises.
The investment side consists of asset owners and asset managers.
Asset owners include family offices, church funds and private investors, among others. They are all increasingly developing an awareness of sustainability in their investments. They want their assets to still have retained their value 50 years later. The most basic prerequisite for this to happen are an environment and society that are as intact as possible. ESG-compliant financial products are therefore becoming increasingly attractive for asset owners, especially since initial studies already show that top ESG shares perform better than your average stocks.
Asset managers manage the money of asset owners. Some asset managers – such as actively managed pension funds – are also asset owners themselves. However, most asset managers are banks or investment companies. Their task is to implement the investment requirements of the asset owners while respecting currently applicable legal regulations. Because asset owners’ demand for sustainable forms of investment is rising, asset managers are increasingly focusing on sustainable investments in their portfolios. Also, they are looking to attract new customers by launching new financial products with an ESG focus, e.g. ESG funds.
The business environment
The business environment consists primarily of the stakeholders within the company (employees, managers) and the company’s business partners. Employees are increasingly interested in a sustainable management of their company. To remain attractive as an employer, companies cannot neglect the issue of sustainability in their internal communications.
The pressure from business partners in downstream supply chains is also growing. Investors are increasingly expecting large companies to not only provide information on their own CO2 emissions (Scope 1 and Scope 2) but to include the emissions of their suppliers and sometimes even clients, too (Scope 3). For a company to be able to report these emissions, all its suppliers have to calculate and report their own CO2 emissions – otherwise business opportunities could be lost.
How to deal with all this pressure?
The issue of ESG can no longer be ignored by any company. Whether by the legislator, asset owners and managers, or their own employees and business partners – the pressure on companies to report on ESG issues and publish concrete figures is growing. What is needed is the establishment of a comprehensive yet efficient ESG reporting that meets the various requirements and information needs of all relevant stakeholders.
We help you fulfil these needs and bring your company into sustainable ESG shape.
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