What is ESG and why is it important? What impact does it have on businesses?

ESG (Environmental, Social, Governance) has become an integral element of today’s business world. In the context of businesses, ESG refers to actions related to environmental protection, social responsibility, and corporate governance. The significance of ESG is growing, as more companies and investors recognize the benefits of ESG reporting and implementing sustainable practices. In this article, we will explain what ESG is, why it is so important, and how it impacts business strategy and management. We invite you to read on and enjoy!

Definition of ESG

The acronym ESG stands for Environmental, Social, Governance, which are the core components of this concept. Each of these elements plays a crucial role in assessing and managing a company’s sustainable development.

• Environmental refers to actions related to environmental protection, natural resource management, and initiatives promoting sustainable development. Examples include greenhouse gas emissions, energy consumption (especially from non-renewable sources), carbon footprint, hazardous waste, and water management, including emissions into water.
• Social focuses on policies related to employees, human rights, and relations with local communities. Companies evaluate their actions in terms of fair treatment of employees, gender equality, working conditions, and social engagement. Examples include supporting diversity by increasing female representation in management, minimizing gender pay gaps, ensuring work-life balance through hybrid work models, adhering to employee rights, and protecting personal data through appropriate security measures.
• Governance involves management structure, business ethics, and transparency of actions. Examples include tax transparency, anti-corruption measures, board structure, executive and employee compensation, and respecting shareholder rights.

The cooperation of these three elements forms the foundation of sustainable business management.

Why is ESG important?

The importance of ESG for businesses and society is immense. Implementing ESG standards allows companies to operate in a more sustainable and responsible manner, contributing to environmental protection and improving quality of life. The benefits of implementing ESG are manifold.

Firstly, it increases transparency in company operations, which builds trust among consumers and investors. Additionally, implementing ESG enhances a company’s reputation, which can attract new customers and investors interested in sustainable development. The role of ESG in social responsibility and sustainable development involves promoting actions that benefit both the company and the environment in which it operates. Companies that incorporate ESG into their strategy often achieve better financial performance and are more resilient to market changes. Adopting ESG is not just about social responsibility but also a strategic approach to management that provides long-term benefits.

ESG reporting

ESG reporting is the process of documenting and disclosing information about a company's activities in environmental, social, and governance areas. Companies report on ESG to demonstrate their commitment to sustainable development and transparency. Through ESG reporting, businesses can communicate their achievements, challenges, and goals related to ESG to stakeholders such as investors, customers, employees, and local communities.

Why Is ESG reporting important?

Firstly, it allows companies to better manage risks by identifying potential threats and opportunities. Secondly, it supports building trust and reputation with stakeholders. Examples of ESG reporting standards include the CSRD (Corporate Sustainability Reporting Directive), which mandates companies to report on sustainable development actions, the Global Reporting Initiative (GRI), which provides guidelines for ESG reporting, and the Sustainability Accounting Standards Board (SASB), which defines standards for financial and non-financial ESG reporting.

It is also important to note that ESG reporting will soon become mandatory for businesses. Starting in 2025, all large enterprises and publicly listed companies in the EU with at least 500 employees will be required to produce an ESG report if their balance sheet total exceeds PLN 85 million or annual revenues amount to at least PLN 170 million. This requirement will apply to the 2024 report. From 2026, this obligation will extend to entities meeting at least two of three criteria: employing at least 250 employees, a balance sheet total exceeding PLN 85 million, or annual revenues of at least PLN 170 million, which will concern the 2025 report. Additionally, small and medium-sized enterprises meeting two of three conditions: employing at least 10 employees, a balance sheet total exceeding PLN 1.5 million, or revenues exceeding PLN 3 million.

ESG indicators

ESG indicators are measures used to assess a company’s performance in sustainable development. They help companies and stakeholders monitor progress and identify areas for improvement. Examples of ESG indicators include greenhouse gas emissions, water usage, workplace safety rates, employment diversity, and management practices.

Monitoring ESG indicators enables companies to demonstrate their commitment to sustainable development and social responsibility, which is increasingly valued by investors and consumers. As a result, this contributes to increased transparency and trust in the company, as well as a better market position.

In summary, ESG is a modern component of business management that promotes sustainable development and social responsibility. Implementing ESG practices not only increases transparency and risk management but also enhances the company's reputation and builds trust among stakeholders. We encourage companies to actively implement ESG to contribute to sustainable development and social responsibility, which is essential for long-term success in the dynamically changing business world.

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