Sustainability & ESG

For companies, sustainable management means looking at all three fields at the same time, getting to know the respective interest and stakeholder groups well and making their attitudes, wishes and demands the basis of the sustainability strategy.

Who the stakeholders are in the three areas of responsibility:

• The "Economy" area is about companies' customers, on the one hand, but also about suppliers and partners. And about the responsibility of companies for their products and services along the entire supply and value chain.
• In the "Social" area, the focus is on employees. The topics here are "attractiveness as an employer, occupational safety, personal development, work-life balance, equal opportunities and inclusion, interesting tasks and secure jobs for the future". It also deals with responsibility in the company's social environment (corporate social responsibility).

• In the area of "ecology/environmental protection" the aim is to organize the company's activities in harmony with the environment. In other words, increasing resource efficiency through process improvements and new technologies, constantly improving the "ecological footprint" created by business activities, and ultimately achieving the goal of CO2 neutrality.

The basis of a company's sustainability concept is the materiality analysis. This means: Together with the identified stakeholders, the key sustainability issues in the three areas described above are determined and made the guiding principles of the sustainability strategy. It is important to look at all sustainability parameters from two directions in each case: Once, how the company affects the environment (inside-out perspective) and once, what affects the company from the outside (outside-in perspective).

The EU's Corporate Sustainability Reporting Directive (CSRD), adopted in November 2022, will take sustainability reporting to a much higher level. The CSRD succeeds the Non-Financial Reporting Directive (NFRD), which has already applied to around 12,000 companies in the EU since 2014.

The EU is thus pursuing the goal of transforming the economy in the direction of sustainability. Cornerstones are: Reduce CO2 footprint, practice circular business, protect biodiversity and ecosystems, equal opportunities and respect human rights.

The CSRD regulations will drastically increase the number of companies subject to EU sustainability reporting requirements (in the future: European Sustainability Reporting Standards – ESRS): to around 49,000 companies in the EU. The type of reporting is changing, the required scope is being significantly expanded, including the inclusion of EU taxonomy data. What's more, voluntary disclosure of information will become mandatory disclosure, to be included in the management report – as part of the annual report. In addition, the data must be certified by independent third parties (inclusion in the auditors' report). The sustainability report is therefore now becoming a matter for the boss at the latest.

For large companies in Germany, the CSRD will apply from 2025 for the 2024 reporting year, and for small ones from 2027 for the 2026 reporting year. For those who have previously dealt with sustainability issues little or not at all, the new reporting requirements definitely represent a challenge. However, if handled correctly, they will also create new opportunities for both large and small companies.

A credible, comprehensible and well-told sustainability story ensures:

• Increased customer loyalty
  • More and more customers prefer sustainable products and are also prepared to pay a higher price for them. At the same time, they avoid companies that do not score well in terms of sustainability. Sustainability is increasingly becoming a knock-out criterion in purchasing decisions, in B2C business as well as B2B. By addressing sustainability, companies demonstrate their future orientation and strengthen the trust of their customers.
• Higher economic performance, improved innovation:
  • Resource efficiency, reduction of material and energy consumption, reuse and recycling can improve operational processes, generate cost savings and thus account for a better financial position of a company. Similarly, sustainable focus leads to retaining existing customers and attracting new customers in new markets (see "Customer Retention"), helping to maintain and grow sales and earnings.
• Strengthening internal corporate coordination, reducing operational corporate risks
  • Reporting channels and cross-departmental coordination in the context of sustainability reporting improve the overarching flow of information. In this way, undesirable developments that could endanger the company as a whole are identified sooner, and risks that could threaten the company's existence are reduced.
• Increased awareness, improved corporate image:
  • The presentation of a holistic sustainable orientation improves the visibility and transparency of a company to stakeholders: That is, customers, employees, future employees, suppliers, regulators, society. And it has become a prerequisite for companies to build trust and credibility for themselves and for their own products and services, and to promote corporate reputation.
• More satisfied employees
  • Sustainable corporate governance and clearly defined values help to gain the trust and respect of employees and ensure strong identification with corporate goals. On the one hand, the "sustainability DNA" of a company is therefore an important topic of employee communication. On the other hand, it has become a unique selling point in the competition for talent and an element of employer branding. In addition, a sustainability report can make a significant contribution to establishing and advancing internal social and environmental management, especially in small and medium-sized companies. In this context, sustainability is also always an important topic of internal communication.
• Greater opportunities in recruiting young employees
  • Generations Y (from 1980) and Z (from 1996) are key target groups for companies looking for new employees. As the consulting firm Deloitte showed in a study (Deloitte Millennial Survey 2020), these potential employees have a high awareness of sustainability, demand commitment from employers to climate protection and social justice in society. 43% of Generation Y say they will quit or turn down a job if it is not compatible with their values.
• Better standing vis-à-vis lenders and the capital market
  • Lenders, investors, shareholders, asset managers, and rating agencies now include ESG and sustainability information when evaluating company performance and risk. They look closely at the extent to which industrial and commercial companies observe and practice relevant sustainability standards and whether they are future-proofed in this regard. If yes, this means better credit ratings, more favorable financing terms and long-term relationships with chapter providers. If not, this means an unfavorable position vis-à-vis competitors and, in the medium term, the existence of the company may be at risk.

As the consulting firm KPMG has discovered, sustainability is increasingly becoming a priority for corporate decision-makers, but there are still shortcomings in sustainability reports, some of which are significant. In a recent study (Survey on Sustainability Reporting, twelfth edition 2022), KPMG examined the financial, ESG and sustainability reports of 5,800 companies in 58 countries. One of the results was that less than half report on social components.

This is precisely where working with an agency experienced in sustainability communications can help to highlight the relevant points. Also for the purpose of linking the sustainability report with the employer branding activities and the corporate social responsibility strategy and the internal HR and compliance topics.