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  • ESG explained. What is it and what does it mean for the company?

    ESG explained. What is it and what does it mean for the company?

    Date: 06.07.2023

    Category: Explained


    In the dynamically developing world of business, companies pay more and more attention to social and environmental responsibility. In this context, ESG is becoming a key element of the strategy and success of an increasing number of enterprises.

    Establishment and basic goals of ESG

    Every year, social awareness of the role of business in shaping the future of our environment and society is growing. Companies, in addition to making profits, are increasingly responsible for the impact they have on the natural environment, climate and local communities. In response to these requirements, the concept of ESG – Environmental, Social and Governance was born.

    sustainable development goals

    Often identified with the European Green Deal, ESG is an approach based on sustainable development. It requires economic entities to take into account environmental, social and management factors in all aspects of their current operations. Examples of activities in line with the above idea include a whole list. Let’s name: attention to reducing the negative impact on the natural environment, with account to social aspects, such as equality, diversity, and effective principles of governance and transparency.

    Business owners must pay special attention to areas such as:

    • specific changes introduced by ESG,
    • the consequences of not implementing this approach,
    • impact of ESG on IT infrastructure.

    What is ESG?

    The above abbreviation refers to three key areas that are the foundations of an approach based on the sustainable development of companies. These are:

    1. Environmental. Includes activities related to environmental protection, such as reduction of greenhouse gas emissions, effective use of resources, waste management, reduction of heat and electricity consumption, or protection of biodiversity, etc. Enterprises should strive to minimize the negative impact on the environment;
    2. Social. Relates to relationships with employees, the local community, customers and suppliers. Organizations provide safety and good working conditions, equality and diversity, social responsibility, dialogue with stakeholders and ethical communication;
    3. Governance. Refers to the structures and processes of administering the company, including, among others, ethics, governance, independence of regulators, transparency and accountability. Entrepreneurs should conduct their businesses in a transparent and fair manner, as well as effectively manage risk.
    ESG - environmental factors
    ESG - social factors
    ESG - governance factors

    It is worth remembering that ESG is not just a set of guidelines, but an integral part of the business strategy. Companies that implement the above principles, therefore, focus on achieving profits in a sustainable, responsible and long-term way.

    What changes does ESG introduce?

    The approach based on the environment, society and management introduces a number of significant modifications in organizations, touching various areas of their daily functioning. From the perspective of entrepreneurs, some of whom will be required to submit ESG reports from 2025 in accordance with the EU Directive 2014/95/EU on non-financial reporting, the most important changes concern:

    • risk management. ESG, like the European Green Deal, requires companies to identify and manage risks related to environmental and social factors. The organization must assess the environmental and community risks arising from its activities and take appropriate countermeasures;
    • integration with the business strategy. Incorporating the assumptions into the company’s goals and strategy means, among others, taking into account environmental, social and management factors when making investment decisions, operational planning or developing products and services;
    • increased transparency and reporting: as part of the idea of sustainable development, enterprises must be more transparent in their actions and report their results regarding environmental, social and management aspects. The already mentioned ESG report is a tool enabling investors and clients to assess the impact of a given business on the environment and the quality of management;
    • diversity and equality. ESG emphasizes equality and non-discrimination in the workplace. Business entities are to strive to ensure equal opportunities for employees regardless of gender, race, ethnic origin, sexual orientation or disability.

    Consequences of not implementing ESG

    Failure to implement the discussed assumptions into the company’s current strategy may have significant consequences for it.

    1. Such a business may face increasing pressure from investors, who more and more often take into account the principles of sustainable development when making their decisions. Entrepreneurs who do not take responsibility for the environment and local communities may therefore have difficulties in obtaining financing.
    2. Secondly, the image risk is increasing. Information about the negative practices of companies spreads at an impressive pace, strongly affecting the image of the company. Lack of environmental responsibility or violation of employee rights are some of the most common reasons for losing customer trust. This, in turn, can lead to a decrease in sales, loss of market position and a serious PR crisis.

    ESG versus IT infrastructure and technical infrastructure

    A sustainable development policy is also essential for the IT industry and technical infrastructure providers. As far as digitization and technology development are concerned, these activities are aimed at minimizing the impact of the IT sector on the natural environment, ensuring data security and privacy protection, and creating equal opportunities for employees in the new technologies sector.

    In the context of IT, key examples of ESG include:

    Whereas in the area of technical infrastructure, the ESG assumptions refer to activities aimed at:

    • increasing the energy efficiency of devices and systems,
    • reducing the consumption of raw materials and emissions,
    • minimizing the negative impact on the environment.

    In addition, technology companies try to implement the principles of responsible information management, minimizing the collection of unnecessary data, increasing the security of their storage and complying with legal regulations on privacy and personal data protection.

    Enterprise Sustainability with Grandmetric

    The implementation of ESG requirements in your company will bring many benefits, from minimizing business risks, through increasing transparency and better management, to building a favourable image and customer trust.

    We will be happy to help you meet them in the area of IT infrastructure. Feel free to contact us and see what we can do for you.

    Author

    Joanna Sajkowska

    Experienced in the areas of portfolio management, communication strategy and technical content. Backed by her background in Systems Engineering and business development, Joanna puts focus on translating features into benefits and showcasing the unique values of Grandmetric products and services.

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