How can ESG frameworks help companies innovate?

Good ESG frameworks enable companies to shift from seeing ESG as a risk to avoid, to identifying and calibrating upside from great ESG practices. Upside can come from top line growth ( new products and services), cost reduction (waste reduction/ sustainability practices can reduce input costs >20%), productivity improvements (from more motivated employees), and lower debt costs (1.1% lower WACC for ESG leaders versus laggards)

Traditionally, sustainability and ESG reporting mostly revolved around risks due to investor demand. Companies prioritized supplying risk-related ESG data for financial reports, primarily targeting investors and shareholders. Unfortunately, this approach tended to overlook ESG matters as potential opportunities. Now, with a shift towards impact materiality (as recommended by GRI and ESRS), the focus changes. First, we identify a company's impacts on sustainability. Then, we assess if these impacts are linked to risks and opportunities in the short, medium, or long term. By addressing negative and positive impacts first, we adopt a more balanced approach, moving beyond a sole emphasis on risk mitigation.

ESG Framework serves as a strategic instrument for organizations to identify material topics to the stakeholders. It enhances the organization's ability to proactively embed ESG in day-to-day practices of the organization. Upon integration of these principles in every facet of the organizational functions, a natural corollary emerges in the form of innovation. This innovation is evident across diverse operational domains: production, packaging, transportation, and resource management. It results in tangible benefits such as cost reduction, improved savings, and overarching advancements in environmental and social innovation. This approach augments operational efficiency and highlights organization's commitment to sustainable practices.

Especially ESG regulations can drive innovation in companies if they are seen as opportunities. As all competitors have to oblige to the regulation, you can find innovative approaches that for instance can reduce your footprint quicker or with a potential bigger ROI over time. A good tool for especially this case can be a Marginal Abatement Cost Analysis, a framework developed by McKinsey.

ESG is the buzz word now. Most companies want to follow it. Definitely these will help companies contribute to a better future. Companies needs to identify opportunities and make sustainability as their main motto. Many are into green washing, this should be avoided. Innovations can help and this should be rewarded for employees to come up with new ideas. For transportation industry setting up rules and restricting emissions can help have a better environment. For shipping IMO can have strict rules especially for third world countries.

Whistleblowing is becoming an important part of ESG, and it can drastically influence the company's reputation and disclose wrongdoing. The EU's 2019 Whistleblower Protection Directive and its inclusion in European Sustainability Reporting Standards underscore its growing importance. As companies increasingly adopt and disclose ESG data, employees are becoming more informed about ESG issues and their rights, leading to a heightened interest in exposing managerial or corporate wrongdoing through whistleblowing. This reflects a broader trend of whistleblowing becoming integral to ESG considerations. For example: Desiree Fixler whistleblowing action sent shockwaves throughout the finance industry and galvanized efforts to tackle greenwashing.

Las empresas que se esfuerzan en mejorar la diversidad e inclusión, claramente mejoran su imagen de marca y su reputación. Una empresa inclusiva, además, es una empresa donde el ambiente laboral suele ser mejor, y donde se retiene mejor el talento. Por supuesto, si mejoramos la accesibilidad de un espacio, se abre el abanico de potenciales clientes que van a estar más cómodos, ya que la mejoras en este sentido afectan a las personas con discapacidad, y benefician a todas las personas.

In a tight job market where winning the war for talent is harder, strong ESG/ sustainability approach is crucial. 64% of millennials consider a company’s ESG commitments when deciding where to work, and 70% of all employees say their decision to stay is affected by their employers approach to sustainability

ESG-oriented companies tend to attract top talent seeking purpose-driven workplaces. Implementing ESG frameworks signals a company's dedication to social and environmental responsibility, appealing to individuals passionate about making a meaningful impact. This leads to a diverse and engaged workforce that contributes diverse perspectives and innovative ideas, fostering a culture of creativity and continuous improvement.

In Zeiten, in denen mangelnde Sinnstiftung knapp die Hälfte der Arbeitnehmenden dazu bewegt, trotz guter Vergütung zu kündigen, liegen die Chancen für Arbeitgeber:innen wohl auf der Hand: Wenn wir keine Colorwashing Kampagnen betreiben, sondern echtes Engagement in die eigene Wertschöpfung integrieren, spüren das Arbeitnehmende in ihrer täglichen Arbeit und können ihren eigenen Beitrag zu mehr Sinnstiftung definieren. Dies ist ein großer Katalysator für das Freisetzen neuer Innovation, da er aus einem authentischen Vertrauensfeld heraus entsteht und Mitarbeitenden das Gefühl gibt, Teil von etwas Größerem zu sein, für das es sich lohnt aufzustehen.

Existen datos que demuestran que las empresas más diversas son generalmente espacios donde el ambiente laboral es mejor. Además una empresa diversa tiene unos valores con los que es fácil concordar. Esto hace que la retención del talento sea mayor

Designing robust ESG frameworks allows companies to better manage the variety of risks they face including third-party risks, compliance risks (including adverse actions from regulators), reputational and legal risks, amongst others. Thus, enabling the organisation to build a healthier risk profile and more adaptable compliance architecture. ESG frameworks are, therefore, particularly important for multinational enterprises (MNEs) and large listed companies.

A rigorous framework and approach to ESG helps calibrate risks which might have been unseen and led to massive value destruction- for example on the S dimension paying a living wage reduces attrition 30%, a huge benefit in a scarce labour environment. A good ESG framework would include a good look at labour practices which determine the health of a company’s important ‘soft’ assets which can walk right out the door very easily!

Nos ha pasado que ciertas empresas nos contratan para resolver un problema de accesibilidad en sus espacios, ya que están en riesgo de recibir una denuncia por parte de un trabajador o cliente. Cumplir con las buenas prácticas internacionales de accesibilidad, más allá de las normas obligatorias, es una forma de eliminar esos riesgos.

Transparenz über das eigene Wirken in der Lieferkette, Wertschöpfung und Handeln über Unternehmensgrenzen hinaus zu erhalten, ist essentiell um das Handeln nachhaltig zu verändern. Nur wer die Auswirkungen seines eigenen Wirtschaftens versteht, kann auch einen echten Beitrag für Menschen- und Umweltrechte leisten oder Sanktionen vorbeugen. Risiken können eben nur gesenkt werden, wenn man ihre Kritikalität und Eintrittswahrscheinlichkeit benennen kann. Daher lohnt die frühzeitige Auseinandersetzung mit und Investition in ESG Frameworks auch, um bspw. Strafen durch Missachtung des Menschen- und Arbeitsrechts zu entgehen.

Gerade die Doppelte Wesentlichkeitsanalyse als Kern der CSRD Berichterstattungspflicht ist eben nicht nur als eine Pflicht, sondern vielmehr als Chance zu verstehen, sich in Tiefe mit den aktuellen und zukünftigen Themen des Unternehmens und Unternehmenszukunft auseinanderzusetzen.

Nobody can not achieve sustainability alone. SDG goal 17 is about "partnerships for the goals." The challenges like climate change, food security, energy crisis, pandemics, and biodiversity, can not be solved by one company or sector. Global Goals can only be met if we work together. We have to shift several global systems. Paul Paulman describes in his book Net Positive the value of partnerships and that global issues require collective action.