How do you recognize a sustainable company? Headlines regularly make the rounds in which huge corporations shock with their environmental sins. The fact that many large companies do not care about our planet and Profit It has long been no secret that sustainability rules the world. However, consumers want change and therefore ethically produced products. But companies that represent an opportunity for a better future are usually not that easy to identify. However, ESG can help filter out companies that focus on sustainable and ethical practices.
This is the definition behind the term
The United Nations first established the term in 2006. The terms behind the abbreviation ESG are as follows: Environmental, social and governance. Translated, ESG stands for environment, social and corporate governance and therefore summarizes the three pillars of sustainability. The indicator shows how sustainably a company acts. Certain criteria show whether a company can be considered environmentally friendly or not.
Why is ESG important?
Sustainability has become increasingly important for consumers in recent years. However, in the past, Greenwashing and unclear work processes, it is becoming increasingly difficult for consumers to determine whether a company corresponds to your own values. The ESG indicator helps to clearly measure whether a company is behaving ethically based on various aspects. It also offers an approach to promote environmentally friendly behavior.
What does ESG stand for?
- E – Environmental: This aspect is intended to show how companies behave in terms of environmental protection. The impact that a company has on nature should be reduced as much as possible or greener alternatives should be found.
- S – Social: Here everything revolves around the social environment in the company. It is about how a company treats its employees. Corporations that are considered socially sustainable also have a positive impact on society
- G – Governance: When it comes to corporate governance, it is also essential that a company adheres to certain standards. This aspect focuses on how a company is managed and controlled.
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What criteria does the sustainability indicator follow?
The ESG is based on the UN's Sustainable Development Goals and its Global Compact principles. While the two agendas define goals, the ESG offers clearly measurable approaches that companies can use to achieve greater sustainability and social justice as well as good corporate governance.
Within the key aspects of environment, social issues and corporate governance, each company can be measured by how it performs in the following criteria:
- Climate change and CO2 emissions
- Energy consumption and efficiency
- resource management
- Environmental pollution
- Biodiversity and nature conservation
- Working conditions and occupational safety
- diversity and inclusion
- Further training for employees
- Human rights
- Involvement in society
- Board composition and independence
- Ethics and Integrity
- Transparency and reporting
- Risk Management
It is important to note, however, that there is no fixed number of criteria and each company decides for itself which aspects they want to apply or even fulfill.
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ESG for consumers: benchmark for sustainable consumption behavior
Consumers have the power to change the market based on their purchasing power. Buying sustainably produced products is becoming increasingly relevant for many people. But how do you recognize a ecologically responsible company? Since ESG essentially combines all three pillars of sustainability, the indicator can show consumers which companies combine environmental friendliness and good ethical approaches and can be used as a helpful tool to filter information.
Making responsible purchasing decisions can be achieved with Sustainability indicator ESG can therefore be made easier by using it as an evaluation criterion. Choosing ESG-compliant products or brands can promote environmentally conscious companies. This is because companies that apply ESG are often more transparent and socially responsible. This allows you to compare your own values with the implementation of ESG measures by the respective companies from which you want to buy a product.
Downside of the ESG: Freedom from implementation
Even though the ESG provides assistance for conscious and sustainable purchasing decisions for consumers, it must be noted that companies that decide to work with ESG do not have to implement it in full, but can also just use individual criteria. However, the application of this is not mandatory.
In the long term, companies benefit from the application because, for example, Investor potential and purchasing power can increase through the sustainability indicator. Since it is not legally required to comply with all aspects, companies may only implement a few points of the indicator and therefore cannot be considered fully sustainable.
Many companies also see it as a success to include guidelines in their corporate philosophy, but do not implement them afterwards. This means that sustainability goals are not achieved at all. From 2026, however, a law will be introduced that requires companies to produce annual ESG reports.
Conclusion: Tools for identifying environmentally friendly companies
Despite voluntary implementation, the ESG can be a help for companies and consumers. Even if the Sustainability indicator Although it is still a voluntary tool, it can provide a concrete guideline that companies can use to develop and implement a sustainable brand. Likewise, the environmental, social and corporate governance guidelines can form a mini checklist for consumers that can be used to determine which companies or products comply with the your own values.
FAQ's:
Who is subject to ESG?
At the moment, no company is obliged to adhere to ESG standards if they decide to apply them. However, large corporations are already obliged to produce so-called ESG reporting. From 2025, this will also apply to all other companies that are not considered small businesses.
What defines ESG?
The ESG is a set of rules that can be used to assess whether a company acts sustainably and ethically. The indicator is divided into environmental, social and corporate governance.
How many ESG criteria are there?
All ESG criteria can be assigned to the three aspects of environment, social and corporate governance. The ESG framework is based on the 17 global goals of the UN Sustainable Development Goals. However, there is not yet a specific number of ESG criteria.
