ESG regulations and business opportunities

ESG regulations have entered into force and, after the period of fear, the time has come to see what business opportunities they may present

09:00 | 10 май 2024
Обновен: 17:41 | 13 май 2024
Снимка: Bloomberg L.P.
Снимка: Bloomberg L.P.

by Roselina Petkova

The wide-spread abbreviation ESG includes the three key words of the green transition – environmental, social and corporate governance. Non-financial reporting related to ESG provides information on the sustainable development of a company. This includes certain expenses aimed at fulfilling the set criteria. To a large extent, ESG focuses on financial risks and opportunities for the companies.

The business reaction to the introduction of ESG regulations

The purpose of the implementation of ESG standards is to ensure better future for the environment. “The application of ESG regulations shall push towards business improvement to lower its negative impact on the environment, to gain access to investments and new markets, to attract and keep talents, to develop and become more competitive and responsible in every aspect”, says Nusha Ognyanova, sustainable business development, green technologies and circular economy expert. According to her, research papers show that the assets of businesses which comply with ESG criteria shall increase significantly during the next decade. Therefore, it’s better for companies to embrace this positive change no only for ecological, but also for economic reasons. “In order to manage the increasing number of factors whose announcement used to be voluntary but has become mandatory, companies are supposed to invest in automation and industrialization of data and ESG criteria reporting”, Ognyanova clarifies.

Actual relation ESG-environment

The question how companies’ non-financial reporting contributes to saving the environment and tackling global warming, still hasn’t received an answer. “Adapting business to the new climate challenges should be completed in a very short period, given the imminent threat that climate change puts on businesses all around the world. The phased application of ESG regarding the non-financial reporting of the business impact on the environment can give companies the opportunity to strategically plan the transition towards carbon-neutral economy”, Ognyanova says. “In my opinion, this part of the ESG reporting and the fact that it is mandatory shall not only accomplish the goals of the Green Deal regarding the climate but shall also speed the implementation of technological innovation up, in order to minimize the business effect on nature, by using sustainable raw materials, digitalizing the production, implementing models for collection, treatment and disposal of waste, smart management of water and energy resources, modification of delivery chains, etc.” All this stimulates the entrepreneurship, increases the funds’ portfolios for investing in green technologies and fuels economy.

Small and medium business and ESG

Non-financial reporting is currently valid only for big companies, but it affects also the small ones, because they take part in the supply chain of the reporting entities. A huge share of the small business is not ready for ESG reporting and can’t afford consultants, as big companies do, because of insufficient funds. Business is not ready yet, and it relies on the time frame and the implementation of the directive locally. Some experts’ joint opinion is that big companies are already checking if the small participants in their supply chains are sustainable. This opens an opportunity for SME for new benefits for companies which are innovative and apply the new requirements. According to Nusha Ognyanova, small and medium companies would find it useful to learn about the Global Reporting Initiative (GRI), an accessible and recognized ESG reporting system. GRI guides companies how to report their ESG performance, including information regarding their ecological, social and governance policies.

Business opportunities after the implementation of ESG

Undoubtedly, introducing sustainable policies contributes to the development of companies. “ESG-related considerations may open business opportunities, such as reducing expenses by increasing the energy efficiency, access to sustainable funding, or reaching new markets for green products or services”, explains Nusha Ognyanova. She adds that many investors integrate ESG criteria in their investment decisions. Companies which have good ESG results can have better access to capital and lower loan expenses. “Apart from being responsible and teach the society, our employees, clients and partners the concern about nature through our corporate culture, ESG implementation can also distinguish our business from the competition and attract environmentally and socially aware clients and partners, which is the core of sustainable model for the future”, Ognyanova adds.

Greenwashing practices: What is there to come?

In order to demonstrate their greenness, many companies use the so-called greenwashing practices. It means to create a fake impression of the environmental effect or the benefits of a particular product and mislead the users. The EU adopted measures to ban general ecological statements about products, if there is no proof that its effect on the environment is neutral, reduced or positive. EU spokespeople explain that many products bear such label but often it is not supported by any evidence. Therefore, the Union aims at ensuring that the whole information on a certain product’s environmental impact, durability, repair possibilities, content, production and use is sustained by verifiable sources. “According to me, greenwashing is a practice which was very wide-spread during the first 15 years of the 21 century and engaged mostly in creating an artificial image for marketing and PR strategies of companies, aiming at influencing the consumers, the customers and the partner network. It gave negative connotation to “green and sustainable practices” which now, unlike in the past, become mandatory, so that successful business becomes actually responsible regarding the environment, the society and its governance”, Ms. Ognyanova says. According to her, phased introduction of ESG regulations shall replace these practices and shall guarantee real business prosperity and increased competitiveness of companies in a truly sustainable manner, in the future.

THE BOTTOM LINE The question how companies’ non-financial reporting contributes to saving the environment and tackling global warming, still hasn’t received an answer.