When it comes to energy transition a debate starts to happen “which country should do how much”. It’s not just the governments but even after knowing the urgency of shifting towards cleaner sources of energy, a hesitation at time even a resistance could have it’s echo in decision making.
Based on the market survey of 26,000 employees conducted by a “Great Place to Work”, In Europe slow progress can be felt as only 44% said their company made decisions that benefit the environment.
What are the challenges that company face and how can those be overcome?
EY highlighted 7 key areas to focus on when integrating ESG aspects into organization’s overall risk management:
- Integrated Risk Management: Align company governance structures with stakeholder expectations, integrate ESG aspects, and streamline risk management taxonomy and methodology.
- Double materiality assessment: It evaluates both how sustainability risks impact a company’s finances, and the effect the company’s activities have on society and the environment.
To progress in this area, organization’s need a detailed picture of their business practices and operations along its value chain.
- Third-party risk management: It has become important due to ESG aspects A business ESG risks can extend to its partners, suppliers, and other affiliated third parties, potentially impacting the business’s overall sustainability and reputation.
There is often no single ownership and transparent inventory of third-party relationships due to which potential gaps and overlaps in risk management activities can be caused.
- Internal Controls: Establish common ESG frameworks and metrics, conduct readiness assessments. Leading internal audit functions provide a strategic partnership to an organization’s ESG programs.
- ESG Risk Management: organizations may struggle for various reasons, including lack of stakeholder buy-in, higher ESG program costs and challenges around realizing the intended benefits.
In a first step, companies should review their ESG transformation program and perform a feasibility analysis based on best practices and benchmarks.
- Technology Enablement: Define technical and business requirements to enhance ESG governance, risk, and control capabilities using technology.
The Draghi report sees opportunities for ESG in Europe. The reason for this is the fact that the EU is a world leader in clean technologies.
Draghi stresses that the EU needs to: close the innovation gap with the US, reduce its reliance on China for critical raw materials, and have a unified decarbonisation strategy.
Key EU Regulations Influencing ESG
Notable EU regulations impacting sustainability include:
- Corporate Sustainability Reporting Directive (CSRD)
- Taxonomy Regulation and Sustainable Finance Disclosure Regulation (SFDR)
The CSRD, referred to as a “major regulatory burden,” incurs compliance costs estimated between €150,000 for non-listed companies and over €1 million for listed ones. Draghi’s report suggests simplifying existing regulations, particularly the EU Taxonomy Regulation, as ambiguities around terms like “do no significant harm” contribute to confusion and inefficiency.
Practical ESG Initiatives and Success Stories
Although only 44% of employees in Europe reported their companies are making decisions that benefit the environment, there are organizations demonstrating effective ESG practices. Here are some examples:
- Executive Compensation Tied to ESG Performance: Hilton connects leaders’ compensation to how well they develop talent, drive engagement, and achieve ESG goals. Salesforce also ties executive pay to ESG measures, with a commitment to tracking greenhouse gas emissions since 2012.
- Employee Engagement in Sustainability: Cisco enables its employees to contribute to local communities, with 80% participating in community impact initiatives over the past three years. In Europe, ServiceNow’s “Culture Champion” teams organize local environmental events, such as waste removal from canals in Amsterdam and park clean-ups in Milan.
- Sustainability Certifications for Employees: DHL Express offers “GoGreen” certification to employees who champion sustainable practices within their regions, aiming to certify 80% of its workforce by 2025. By actively involving employees in ESG initiatives, companies can foster a sense of connection to their mission, driving both innovation and engagement.
Can a Sustainable Mindset Be Nurtured?
The examples above demonstrate that by encouraging employee involvement and tying executive incentives to ESG goals, companies can cultivate a culture of sustainability that supports both their ESG and broader business objectives. For true success, sustainability should become more than a goal—it should be embedded as a fundamental corporate mindset.
Sources: [ EY , Fortune.com , Impakter- Business of sustainability ]