As a Corporate Concept, ESG Is 20 Years Old, But Many Companies’ Programs Still Fall Short

neub9
By neub9
3 Min Read

ESG is a politically sensitive term, but that doesn’t mean companies can ignore it, especially those bound by reporting regulations. As the awareness of the corporate concept turns 20 years old this year, leaders must understand that they may still be falling short, writes business veteran Frank Orlowski.

Compliance has become a cornerstone of sustainable growth and long-term success in the ever-evolving business world. While traditional compliance frameworks, such as those established by Sarbanes-Oxley (SOX) and the Foreign Corrupt Practices Act (FCPA), have been instrumental in safeguarding financial integrity and ethical conduct, the modern compliance landscape demands a broader approach beyond just “dollars and cents.”

The climate change movement has increasingly taken center stage with a growing focus on environment, social and governance (ESG) factors, driving a new era of compliance management that encompasses a holistic view of corporate responsibility.

The term “ESG” gained popularity in a 2004 report by the World Business Council for Sustainable Development (WBCSD) titled “Who Cares Wins”. The report found that companies considering ESG factors outperformed their peers over the long term.

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The challenge, however, is that this new form of compliance and controls is in its infancy. The rules of what constitutes an ESG gold standard are not fully clear. Therefore, a robust ESG compliance and controls program is essential.

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Hallmarks of effective ESG

ESG factors are no longer peripheral considerations, as they have become integral to evaluating a company’s overall performance and sustainability. Investors, regulators, and consumers require a rigorously designed, implemented, and supported compliance and controls program. A robust program must scrutinize companies’ ESG practices, demanding transparency, accountability, and a commitment to positive social and environmental impact.

As a start of any effective ESG program, a formalized approach is required, which can be outlined in five areas:

  • Risk assessment: Identifying and evaluating ESG-related risks, such as climate change impacts, supply chain disruptions, and reputational damage.
  • Policy development: Establishing clear policies and procedures that address ESG considerations, ensuring alignment with industry standards and best practices.
  • Data management: Collecting, analyzing and reporting ESG data, providing stakeholders with insights into the company’s ESG performance.
  • Training and awareness: Educating employees about ESG principles and their role in implementing ESG practices.
  • Assessment and certification: Conducting assessments or certifications to ensure an understanding of ESG-related matters by all stakeholders.

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