ESG Compliance: Why it is So Important for Your Company

October 28, 2021

Environmental, social, and governance (ESG) issues have become crucial pacesetters in defining business agendas. The pressure from stakeholders, such as lawmakers, shareholders, society, and customers, is forcing companies to act on ESG metrics to make the world a better place.

If you take the case of stock markets, from New York Stock Exchange (NYSE) to Hong Kong Stock Exchange (HKEX), the focus is getting every company to comply by turning into sustainable brands. We will put it plainly here, there is no way out of ESG reporting for your company, and this takes us to the next big thing, compliance.

In this post, we will take a closer look to demonstrate what you need for ESG compliance and further highlight the core benefits to your business.

ESG Compliance

A Brief about the Main Advantages of ESG Compliance

Before looking at what you need to do for ESG compliance (check ESG requirements here), it is important to appreciate the key benefits to expect in your business for shifting to sustainable operations. Here are some of them:

  • It will be an excellent way to demonstrate the credibility of your enterprise because every stakeholder, from investors to customers, wants to be associated with responsible and sustainable brands on the market.
  • Through comprehensive reviews and assessments, your enterprise is able to identify key opportunities to take advantage of and risks to avoid for success.
  • An excellent way to boost staff morale, which in return improves productivity and profits. This implies that your company will have more funds to address different challenges/ risks and reward people who committed their investments. 
  • In the long term, the efforts to increase efficiency in the company come in handy to help lower production costs. This will go a long way in improving the financial health of your firm and improve the global economy.
  • Environmental, social, and governance (ESG) compliance puts you well ahead of competitors. This could be the opportunity you have been waiting for to win more investors, create additional jobs, attract customers with the company products and strengthen the brand for success.

Here are The Requirements for ESG Compliance

When it comes to compliance, we must indicate that it can be a little different depending on the industry that your company is in. For example, ESG compliance requirements for an insurance company are different from a car manufacturing firm (what is a great ESG consultant?). 

However, the ultimate reports from the two firms should be accurate enough to ensure that stakeholders, from humans risking their investments to clients targeting your products, can understand the companies well and make the right investment or buying decisions. So, here are the main requirements for ESG compliance:

●        Clear Assessment of Company’s Risks and Opportunities

For your ESG report to be compliant, it must originate from somewhere, and this is a comprehensive assessment of your company's operations.

Therefore, the criteria for correct ESG sustainability reporting is doing a thorough assessment of the key areas, from financial to production performance, of the enterprise to identify risks and opportunities. 

For example, a firm that deals with food processing might want to focus on improving the performance of equipment (efficiency) and land resilience as key opportunities for growth. Well, you need to make this thorough because your stakeholders will want to compare with what other businesses are doing.

●        Materiality Assessment and Drawing of Key Objectives

Another important component for ESG compliance is materiality assessment, which is a further review of the company to determine the most important reporting topics. Well, you might have a long list of things that you can report on, but it is vital to target the one that delivers the highest impact. For example, a fishing firm might give weight to promoting fish regeneration while a tour and travel firm supports conservation for ESG compliance.

So, do not just think of how to fund the process and perhaps target cutting down related investments; the target should be delivering ultimate value to make the world more sustainable.

After doing materiality assessment in your Environmental, social, and governance (ESG) reporting, your efforts should be directed at identifying the right objectives for the company. So, go ahead and draw key performance indicators (KPIs) that will help demonstrate your firm's direction in the journey of sustainability. Remember to have all the aspects of sustainable operations, from human life improvement to protecting the planet. 

Depending on your firm, especially its size and complexity, it might be a good idea to have a team selected for ESG compliance. However, small firms might be okay working with team leaders and still generate good Environmental, social, and governance (ESG) reports. This will not only create jobs, which is an important part of ESG, but is also crucial in getting the criteria for sustainability reporting right.

●        Data Gathering and Report Generation

For you to achieve ESG compliance in your company, it is important to appreciate that the bulk of your efforts should go into ensuring the data is correct for investors or other stakeholders. Indeed, the process of data collection should start from the moment you decide to adopt Environmental, social, and governance (ESG) reporting. For example, what data informed your decision to reduce emissions or support conservation efforts in the tropics? 

Once you start implementing the ESG sustainability strategy, everything shifts to data. Remember that you need to collect accurate and relevant information about the strategy you adopted right from the start of the process.

For example, the change in waste generation after installing new machinery, focus on global climate, response from staff after green-production training, eco-marketing costs, and customer response to new products will need to be captured.

Your efforts toward sustainability must be felt through the data to be used in preparing the report.

Why You Should Use ESG Sustainability Reporting Software

As you can see on the key components of ESG compliance, there is no doubt that the process, from risk/ opportunity identification to report generation, can be complex. If you opt to do this process manually, it is likely to get very complex because of the large quantity of data. For example, do you meet every day to gather data or wait at the end every week? Well, you can simplify this process so much by working with top-rated ESG sustainability reporting software.

With the right app, you can easily gather all the required data for high-quality reports. You can automate the process of ESG reporting data gathering by allowing multiple parties to add and manipulate data.

Again, good ESG reporting programs will easily integrate with your management systems to pull out important data, including climate and sustainable performance, for your report.

When it comes to creating reports, having the right software makes it even simpler. Because you already have all the required data, generating the reports using the app can even be done more often. For example, you do not have to wait until the end of the financial year to generate the ESG report. Instead, the reports can be made quarterly or after every six months to assess progress.

ESG compliance is and will continue to be an important component of business operations because more stakeholders are looking to it to contribute towards the noble course of improving the planet. The items we have highlighted above are the most crucial, but you will also need to have an appropriate reporting framework. 

Good examples include the Global Reporting Initiative (GRI) and Task Force on Climate-related Financial Disclosures (TCFD). Above all, you should not start without a good ESG sustainability management program. Reach out to Diginex for the best programs and assistance with ESG compliance.

 


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