Corporate responsibility is becoming increasingly important. Not only for clients, but also in tenders this is increasingly becoming a requirement and you must be able to demonstrate how your organization meets this requirement. ESG offers companies the opportunity to provide insight into the level of corporate social responsibility within their organization. This blog explains what ESG means and how your organization can get started with ESG in concrete terms.
What is ESG?
ESG stands for Environmental, Social and Governanceand is used to assess the extent to which an organization operates responsibly. Environmental is about a company's impact on the environment, such as CO2 emissions, the generation of renewable energy and the degree of circularity within its operations. Social focuses on the way an organization deals with people. Within this context, safe working conditions, diversity and inclusion and respect for human rights in the chain play an important role. Governance focuses on how an organization is managed, with attention to transparency, compliance with laws and regulations, and adherence to ethical standards. This means that an organization acts honestly, reliably and ethically.
Together, these three components make up the ESG criteria that companies use to understand their performance on corporate responsibility.
Why is ESG important?
ESG is becoming increasingly important because it helps companies be better prepared for change and risk. Reporting and steering on ESG criteria reveals which areas of the business are vulnerable. A good example is the rising costs due to resource scarcity. Half of Dutch companies (49%) expect raw material scarcity to result in higher prices for both products and services. They anticipate having to pass on some of this cost increase to their end customers.
The ESG criterion Environmental provides insight into what raw materials are needed for production and how much CO2 and energy are released. With this insight, companies can take the next step toward circularity, and reduce their dependence on raw materials.
In addition, more and more stakeholders are placing higher demands on transparency and corporate responsibility. Investors looking for companies to invest in explicitly look at an organization's ESG score. Customers and supply chain partners also increasingly value clear reporting on topics such as circularity and working conditions.
Is ESG mandatory?
ESG itself is not a law, but reporting on ESG criteria is increasingly becoming mandatory in Europe. A well-known example of this is the CSRD (Corporate Sustainability Reporting Directive). This European directive requires large and listed organizations to report extensively on their ESG performance starting in 2024 (reporting on fiscal year 2025). In addition, the EU Taxonomy is closely related to ESG. This is a classification system devised by the EU to determine whether business activities can be classified as sustainable.
Even if your company does not (yet) fall under this obligation, it is valuable to start working with ESG now. As mentioned earlier, more and more customers, supply chain partners and investors value transparency and clear reporting. Companies that pick this up early not only have a head start toward future legislation, but also strengthen their position in the market.
How can companies demonstrate their ESG performance?
In addition to reporting according to the CSRD, companies can also substantiate their performance with certificates and labels. These give customers, supply chain partners and investors additional confidence that a company is operating responsibly. Examples include international assessments such as Ecovadis, the CSR Performance Ladder or a B Corp certification.
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