Navigate sustainability and get a head start
Green Deal for Europe, Fit for 55, taxonomy, CSRD, carbon footprint, ESG... These are just some of the new concepts that are starting to change the business world. Would you like to know how these new approaches will affect your business? We've put together an overview of the most important sustainability issues.
What is ESG?
One of these new concepts is ESG. It is a framework that links the environmental ("E"), social ("S") and governance ("G") aspects of organisations. It thus brings a comprehensive approach to responsible business and investment. ESG marks a further shift in the approach to business towards an even greater focus on its ethical impacts. This approach and its associated standards also largely form the basis for new European Union legislation on sustainability.
However, legislation is not the only driver of change. Increasingly, customers themselves are forcing change. For example, for more than half of Czech citizens, corporate social responsibility is important and can influence their purchasing decisions (Ipsos, 2020). Even up to 65% of Czechs are willing to pay extra for a product that is socially responsible.
Companies today are also struggling to attract new talent and retain existing employees. Here too, ESG can be a significant opportunity. After all, up to 78% of people care about whether their employer behaves in a socially responsible way (Ipsos, 2019). It's even more important for the up-and-coming Generation Z - a staggering 94% of university graduates.
Environment (environment, "E")
So what exactly is behind each letter of the acronym ESG? The "E", which refers to the environmental domain, includes standards defining how to report on environmental impacts and risks. It refers to information on climate change mitigation or adaptation, waste management or biodiversity promotion.
Carbon footprint measurement
Reporting on the carbon footprint of an organisation, product or service is also an important part of this area. Carbon footprint refers to the amount of greenhouse gases we produce in connection with our daily activities. This includes, for example, the burning of fossil fuels for electricity, heat or transport. For the purposes of measurement and follow-up, emissions are generally broken down according to the extent to which the company can influence their production.
Framework 1 - Direct emissions
These are activities that fall under the responsibility and control of the company and release emissions directly into the air. They include, for example, emissions from boilers or generators burning fossil fuels on the undertaking, emissions from mobile sources (e.g. cars) owned by the undertaking, or emissions from industrial processes, waste treatment or wastewater treatment in facilities operated by the undertaking.
Framework 2 - Indirect emissions from energy
Emissions associated with the consumption of purchased energy (electricity, heat, steam or cooling) that are not generated directly by the business but are a consequence of its activities. These are indirect emissions from sources that are not directly controlled by the company, but still have a significant impact on their magnitude.
Framework 3 - Other indirect emissions
Emissions that result from the activities of the business and that arise from sources outside the control or ownership of the business but are not classified as Framework 2. This includes, e.g. business trips by plane, landfill disposal, purchase and transport of materials by a third party, etc.
Climate change mitigation
- Insulation of buildings
- Energy efficient appliances
- More advantageous technological processes
- Use of solar systems
- Fleet renewal
Examples of actions taken as a result of carbon footprint mapping
Social aspects (social, "S")
The social area includes standards defining how to report on the impacts on people and the risks arising from them within the company's "ecosystem". This includes equal opportunities, occupational health and safety, human rights or data protection.
- Implementation of a satisfaction survey
- Management training
- Work-life balance measures
- Revision of the remuneration system
- Review of working practices in terms of occupational safety
Examples of measures to mitigate the risk of employee turnover
Governance (governance, "G")
The corporate governance area includes standards defining how to report on aspects of sustainability that are directly relevant to the reporting entity itself. This area establishes criteria for reporting on the composition of a company's senior management or on procedures for preventing and detecting unethical or corrupt behaviour.
- Introduction of an ethics hotline (whistleblowing application and whistleblower protection)
- Management training on corporate criminal liability
Examples of measures to detect fraud or other unethical behaviour
"Green" EU legislation at a glance
Green Deal for Europe
One of the main reasons for the changes is, of course, legislation. There have been major changes in the area of sustainability recently, making it difficult to navigate the new rules.
Perhaps the most talked about document is the Green Deal for Europe. It is a set of policy initiatives by the European Commission, the main aim of which is to make Europe climate neutral by 2050. The Green Deal for Europe is intended to set a binding framework leading to a 55% reduction in EU greenhouse gas emissions by 2030 compared to 1990. The second objective of the agreement is to transform the European economy to be sustainable in the long term.
One major initiative is the Fit for 55 package, which introduces new rules on climate, energy and transport. Following the Green Deal, the EU is revising existing legislation to meet these ambitious targets. The package includes, for example, an emissions trading scheme, national reduction targets, emission standards for cars and vans, energy taxation and a border carbon offsetting mechanism.
EU Taxonomy and Sustainable Finance
The EU Taxonomy is a common European classification system for environmentally sustainable activities. It is intended to strengthen transparency on the environmental impacts of companies' activities. It will have an impact on companies' access to finance, whether in terms of obtaining investment, credit or subsidies, for example.
The taxonomy defines six environmental objectives. An economic activity is considered sustainable if it contributes to at least one of these objectives without significantly harming any of the others. These objectives include:
1. Climate change mitigation
2. Adaptation to climate change
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy, including waste prevention and recycling
5. Prevention and control of pollution
6. Protection and restoration of biodiversity and ecosystems
CSRD or new developments in corporate reporting
The European Commission has also drafted the CSRD (Corporate Sustainability Reporting Directive), which changes the rules on corporate sustainability reporting. It significantly expands the scope of the requirements of the existing legislation and sets ESG reporting. Among the innovations are:
- extending the obligations to a much wider range of companies; the changes will affect companies with more than 250 employees and an annual turnover of more than EUR 50 million, or companies with an annual balance sheet total exceeding EUR 43 million or publicly traded companies;
- introduces more detailed reporting requirements according to defined EU standards;
- non-financial reporting will now be subject to mandatory audit.
The Directive is expected to be transposed into Czech law by the end of 2022 and the new obligations will apply from 2023.
What to do step by step
The first step should be to get information on the new rules and the upcoming changes. Following this, we recommend raising awareness of ESG in your company to help further steps towards the required changes. You may find one of our upcoming seminars helpful.
If you have the necessary information, you can determine which areas of ESG are important to you, whether in terms of risks, stakeholders or new legislation. It may also affect you indirectly – for example, if you are part of the supply chain of a larger (or foreign) company, are considering bringing in a key investor or need a loan. New requirements will also be reflected in the terms of subsidy programmes or government procurement.
Review your current sustainability strategy and company processes from an ESG perspective. Evaluate the risks, gaps and opportunities identified and consider what steps are needed to improve. This analysis can also include mapping your carbon footprint and assessing opportunities to reduce it.
Prepare an action plan of measures to improve company processes from an ESG perspective. Monitor progress and share with stakeholders.
We will be happy to introduce you to ways to move towards greater sustainability. Contact us and together we will find the best solution for your company.