The increase in society’s awareness of their right to better and safer living conditions and a healthy environment has inevitably led to companies being subjected to stronger pressure on companies that play a significant role in fulfilling these needs. Companies are facing a lot of pressure because being successful no longer depends exclusively on the product or service they offer but also on the impact of their business on the wider social and natural environment. This is why an increasing number of companies are focusing on responsibility regarding environmental, social and management issues, i.e. the so-called ESG principles.
One of the definitions from the Short Guide to ESG, published under the auspices of the project Promotion of Sustainable Investment, implemented by the United Nations Development Program (UNDP) in partnership with other institutions and organizations, says that ESG is a set of factors that concern the environment, social and management issues that companies take into account when managing their business and investors when investing, in terms of risks, impacts and opportunities that these factors bring.
Although there are no universal ESG standards or rules regarding which factors should be classified in which category, there is a general division based on the acronym ESG.
E represents environmental and includes climate change mitigation and adaptation, resource conservation, water, air and biodiversity protection, pollution and waste management, and energy efficiency.
S is the social standard, including working conditions, diversity, equality and inclusion, health and safety, human rights and engagement in the community.
G stands for governance and includes management composition, inclusivity and diversity, executive compensation, control and risk management, shareholder rights, transparency and disclosure of information, as well as issues of corruption, bribery and conflicts of interest and a code of ethics.
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ESG reports
Experts say that ESG is a concept that makes a quantified evaluation of the company’s sustainability. Accordingly, companies in the process of implementing ESG principles should write and publish a report on the impact of their operations on the three categories that make up these principles.
The European Union is taking this issue seriously, which is why the Corporate Sustainability Reporting Directive (CSRD) came into effect in January 2023, enforcing the rules regarding the information companies must report.
This year, the International Sustainability Standards Board (ISSB) published its first two global reporting standards for ESG criteria related to climate and sustainable business. These standards should ensure that companies incorporate information on implementing ESG principles into their financial reports.
Also, several organizations dealing with standards related to reports on these topics should be mentioned here. One of them is the Global Reporting Initiative, an international independent standards organization whose idea is to help companies and other organizations communicate their impact on climate change, human rights and corruption.
Another is the Task Force on Climate-Related Financial Disclosures, which provides investors with information on what companies are doing to mitigate their impact on climate change. The third organization is the United Nations Global Compact, a non-binding UN pact encouraging companies to adopt sustainable and socially responsible policies while reporting on their implementation.
Prepared by: Katarina Vuinac
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