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ESG stands for Environment, Social and Governance. These three pillars form the basis for recording, analysing and assessing a company's sustainability performance.
ESG criteria measure how a company manages its environmental and social impacts and whether it practises responsible corporate governance. They create transparency for investors, customers, employees and partners.
Companies use ESG criteria in their reporting to make their efforts in the areas of climate and environmental protection, social responsibility and corporate governance visible and understandable.
They can be decisive for the assessment by financial institutions and rating agencies as well as for compliance with regulatory requirements such as the Corporate Sustainability Reporting Directive (CSRD).
ESG - more than 3 letters
‘E’ stands for ‘Environment’.
It shows that companies must take responsibility for nature and the environment.
Companies can make a real difference in this area by reducing CO2 emissions, using limited resources carefully and protecting biodiversity.
‘S’ stands for ‘Social’ and shows the responsibility that companies have towards people.
It refers to criteria such as the treatment of employees, their health, safety and compliance with human rights.
It also includes responsibility for the company's own supply chain and protecting the rights of customers.
‘G’ stands for ‘Governance’. This refers to sustainable and responsible corporate management.
Attention is paid to the composition of senior management, how companies deal with bribery and corruption, compliance and how transparency and the obligation to provide information to stakeholders are handled.
Risk and reputation management are futher important issues.
Benefits of working with ESG
If you want to make your company fit for the future, you can no longer ignore ESG.
Not only are regulations such as the EU's Corporate Sustainability Reporting Directive (CSRD) being expanded, but also markets demand sustainable business practices from companies. And, of course, the topic should also be anchored in your strategic planning. As a forward-looking company, you should consider the environmental and social impact of your business model. ESG criteria provide a basis for identifying levers for transforming your business towards sustainability. They can also help you manage environmental, climate and governance risks.
And there is another important aspect: ESG criteria can help you demonstrate that you are addressing key sustainability issues and acting with foresight. This gives you a decisive advantage in your markets.
Market advantages
ESG criteria play an increasingly important role in company's competitiveness.
Not only banks and insurance companies, but also your customers and employees increasingly assess you on your contribution to sustainable development.
It is therefore important that you are transparent about your sustainability performance:
You have a clear advantage in your markets if you can demonstrate that you operate sustainably. For many consumers, sustainability has become a key factor in their purchasing decisions.
For your corporate customers, there is another aspect to consider: The EU Supply Chain Act will lead to further legal requirements for suppliers in the area of ESG. Meeting ESG criteria may be a decisive factor in your company's ability to survive as a supplier. In the case of large companies, fulfilment of ESG criteria is often even a requirement for a company to be included in the supplier portfolio at all.
Banks, insurance companies and funding institutions are increasingly required to assess and document the ESG criteria of their corporate clients. In addition to meeting regulatory requirements, this includes assessing the sustainability of a company's performance, as well as environmental and climate risks, for example.
Sustainable companies are attractive customers for banks and insurance companies. You can expect that meeting ESG criteria will have a positive impact on your conditions in the future. In the medium term, they can even have a favourable influence on your credit rating.
Moreover, ESG criteria are becoming influential in the approval of subsidies and can be a prerequisite for your company to receive funding.
Furthermore, credit agencies are progressively incorporating ESG criteria into their credit assessments.
Employees more and more value employers who act responsibly. Younger generations, in particular, judge an employer's attractiveness by its commitment to the environment, social issues and good governance.
At a time when there is a shortage of skilled labour, meeting ESG criteria is a key competitive advantage in attracting and retaining talent.
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