Corporate Sustainability 101: Introduction to ESG
blogMay 4, 2023
Sustainability is a hot topic, but what does it mean for businesses today? Our introduction to ESG sheds some light.
There is no getting away from it – sustainability is a huge challenge. A big part of that complexity is that it requires us all to think carefully about nearly every part of our lives, from the way we travel to the types of purchases we make. For businesses looking to reduce their impact, these considerations extend to choices about suppliers, supply chains, materials, and business practices.
But there is also a widespread misunderstanding of exactly what sustainability means. A lot of people, understandably, think that the term just relates to environmental factors like emissions, waste, and resource use. The definition of sustainability is actually much broader than that. For a company to be able to operate sustainably over the long term, it also needs to ensure its social impact is positive and that it is operating in an ethical manner.
This is what ESG is all about.
What does ESG stand for?
ESG stands for ‘Environmental, Social and Governance’. In practical terms ESG functions as a framework for companies looking to report on all non-financial risks and opportunities that impact their operations on a daily basis. The E, S, and G pillars act as buckets within which different activities can be grouped together.
Since its introduction, the concept of ESG has grown beyond a pure compliance focus. Many companies see it as a useful tool for focusing their efforts on sustainability and social equity. Increasingly, customers and investors also want brands to be able to back up their sustainability-related statements with proof.
What topics does ESG cover?
For brands and manufacturers looking to start taking steps towards operating more sustainably, the list of potential areas to address can be pretty intimidating. Do you focus on measuring your greenhouse gas emissions, community engagement, or data security? Using the ESG framework to group different topics together can make it easier to manage and implement.
Here is a quick breakdown of each pillar.
The environmental pillar encompasses a lot of the topics most of us think of initially when we consider sustainability. Greenhouse emissions, pollution, waste, and environmental impacts are all included – as well as things like material use and energy management.
For brands and manufacturers, it’s not just the environmental impact of their own facilities that need to be considered but those of their wider supply chain too. Many companies are looking to enhance their products by swapping out materials for more sustainable options or designing for circularity, but actions like automating processes to reduce waste or switching to renewable energy sources also count. Levi’s Water<Less program, for example, uses 20 innovative tweaks to its production processes to save vast amounts of water.
The social pillar is all about the impact that a business has on people – both externally and internally. Within the organization, it looks at the ways companies promote an inclusive and safe culture where employees are engaged and provided opportunities to develop their skills. But it also looks at the way companies interact with communities and wider society too.
This may include the ways you try to ensure your supply chain is free of human rights issues as well as any volunteering or charity outreach your company does. For brands with complex supply chains, it can be difficult to get oversight into exactly what is going on throughout their operations. Many companies experienced major supply chain disruptions during and after the COVID-19 pandemic. Supply chain transparency has emerged as a key strategic priority for those looking to build their resilience as well as increase their social impact.
Governance relates to the way that your company is managed. It looks at issues such as board diversity, who has oversight over ESG issues, ethics, and compliance as well as other factors like shareholder rights and data security. Topics that were typically incorporated as part of ‘corporate responsibility’ like anti-bribery and anti-competitive practices are also included.
What do companies have to do for ESG?
This can vary significantly between jurisdictions, but companies are likely to have to accurately report their ESG performance on a regular basis. This reporting is typically done for various stakeholders, including shareholders, regulators, and ESG rating agencies.
Why is ESG so important?
Just like most other sectors, manufacturing is expected to do more when it comes to sustainability. Consumers, investors, employees, and governments all want more than words – they want actions. ESG provides a way for businesses to think about how their operations impact the world around them in the broadest way. And as governments continue to introduce laws that require ever more stringent ESG disclosures, brands that don’t get started now risk landing themselves in trouble as well as potentially losing customers.
ESG is all about the data
On the one hand, ESG is about the actions companies are taking to improve their sustainability. On the other, however, it is all about being able to prove it with good data. For many companies, it is simply no longer an option to avoid building out their ESG data capabilities. In the EU, for example, digital product passports will soon be the legislative norm. These passports will require manufacturers to meet a vast array of new data requirements; requirements that will need clear processes for product data collection, storage, and disclosure.
ESG is more than a reporting requirement. It is helping drive real change across the manufacturing sector. But one consistent challenge for businesses trying to get better visibility of their environmental and social performance is poor data. For many, the first step towards meeting the demands of ESG reporting is enabling better data capture and management.
Having a single source of truth for all your product information is an essential part of this all-important first step. Solutions like inriver’s market-leading PIM software can provide this source of truth for data collected throughout the product’s journey, from sourcing and development all the way through to retiring and recycling. Want to know how it works? Book a demo with an inriver expert today to find out.