ESG stands for the three sustainability criteria—environment, social, and governance—and refers to the sustainability criteria that companies should take into account in their business activities. The “E” stands for “environment,” which means protecting the environment and the climate and making the best use of resources. The “S” stands for “social,” and it refers to things like working conditions, workers’ rights, human rights, and social responsibility. The “G” stands for “governance” and refers to professionalism, good corporate governance, and integrity.
The importance of ESG has increased significantly in recent years due to various global challenges such as climate change, social inequalities, and the need for good, professional corporate governance. Companies that focus on ESG performance can strengthen their reputation and improve their long-term competitiveness.
ESG is closely linked to the 17 Sustainable Development Goals (SDGs) of the United Nations, in particular SDG 17 “Partnerships to achieve the goals”. SDG 17 calls for collaboration between companies, governments, and civil society to achieve the Sustainable Development Goals. The ESG performance of companies is increasingly seen as an indicator for the achievement of these goals.
Good and professional corporate governance, often referred to in English as “corporate governance”, refers to the rules, processes, and practices of companies (we are aware of the difference between desired and actually lived practices) to ensure that they are managed effectively and efficiently. This includes the management’s direction and supervision of the company, the implementation of control mechanisms to identify and minimise risks, compliance with laws and regulations, and the creation of transparency towards the various stakeholders.
Sustainability is becoming more and more regulated, which is an important part of ESG because voluntary initiatives haven’t made much progress among companies with a wide impact. The German Supply Chain Sourcing Obligations Act (LkSG) obliges large companies to comply with human rights and environmental standards (the so-called ‘protected legal positions’) along their supply chains. Similarly, the European Union’s planned Corporate Sustainability Directive (CSD) aims to require companies to design their business practices in line with the SDGs and the EU’s climate goals. Both laws are closely linked to SDG 17’s goal of achieving the Sustainable Development Goals through partnerships between companies and governments. Companies that take ESG performance seriously and align themselves with sustainability and responsible business practices for people and the environment can benefit from these regulations and gain a competitive advantage.
To meet ESG challenges, companies need technical support and automation. Global companies, in particular, need to be able to manage a wide range of environmental, social, and specific governance risks while complying with various regulatory requirements. Implementing these tasks manually is time-consuming and error-prone and can lead to significant financial risks.
Through the use of technology, companies can improve their ESG performance while reducing costs. Automated solutions can help companies more effectively identify and assess ESG risks, meet compliance requirements, and effectively implement more sustainable business practices.
ESG is therefore not only a question of ethics but ultimately also a question of profitability. Companies that focus on sustainability and ESG performance can benefit from greater competitiveness and a better reputation in the long term, while also securing sustainable sales markets. Technological support through automation will play a crucial role in successfully meeting ESG challenges and contributing to the achievement of the SDGs.