How businesses are turning ESG into a competitive advantage

As we move through 2024, it’s clear that making conscious choices is more than a trend – it’s a crucial shift in how businesses operate. Companies are stepping up, driven by a collective call to action that respects our planet and treats people fairly. This movement goes beyond mere “green” or “ethical” gestures; it entails integrating Environmental, Social, and Governance (ESG) principles into the very essence of their operations.

At the core of this shift is a simple truth: businesses have the power and responsibility to tackle big issues like climate change, inequality, and social injustice. We’re seeing real changes, from cutting carbon emissions to pushing for diversity and enhancing employee welfare. However, there’s no one-size-fits-all approach. Each company needs to find its way to make these values a natural part of its identity and strategy, ensuring that doing good also means doing well in the long run.

Take a look around, and you’ll see innovation everywhere. Tech companies are using AI and robotics to slash energy use and waste. Banks are investing in businesses that prioritise sustainability, confident that these ventures will emerge as tomorrow’s champions. And it’s not just them – the food and drink industry, real estate, you name it, are all redefining their practices to lighten their environmental footprint, treat workers right, and engage with communities in meaningful ways. It’s a whole new world of doing business, and it’s exciting to be a part of it.

The spotlight on supply chain sustainability

In 2024, the push for sustainable supply chains is more intense than ever, thanks to new tech, higher consumer demands, and the urgent need for eco-friendly and resilient operations. We’re seeing a big shift in how companies manage their supply chains, with a strong focus on sustainability throughout. This isn’t just about being able to bounce back anymore; it’s about deeply committing to green practices throughout the entire supply chain.

Tech innovations are at the forefront of this change. The rise of green logistics, powered by consumer demand for sustainable delivery options, is a game-changer. Companies are getting creative in cutting down emissions and waste, from sourcing locally to switching to electric vehicles and optimising how they pack and ship goods. It’s all about being smarter and kinder to the planet.

Tools like the Industrial Internet of Things (IIoT), artificial intelligence (AI), and blockchain are making supply chain efficiency while minimizing environmental impact. AI aids in demand prediction and shipment planning, leading to resource optimization, while IIoT streamlines warehouse operations and inventory management, promoting eco-friendliness.

There’s also a huge push for supply chains that can withstand anything, from climate change to global disruptions. Companies are using digital tools to monitor risks in real-time and develop proactive strategies based on weather patterns and other data, aiming to stay ahead of potential disruptions.

But it’s not just about the big players. There’s a growing effort to get the whole supply chain, including smaller suppliers, on board with sustainable practices. This move towards a greener supply chain is driving a shift towards a low-carbon economy and shows how interconnected our actions are with the health of our planet.

Lessons learned from past disruptions, like the Covid-19 pandemic and ongoing global tensions, have highlighted the need for supply chains that are not just quick to adapt but are also built with sustainability in mind. Leading companies are now weaving environmental goals into their business models and rewards, proving that going green can also mean better business.

The movement towards sustainable supply chain management shows a clear understanding: these efforts are not just good deeds but strategic moves. They make businesses more resilient, meet consumer demands, and play a crucial part in the fight against climate change and environmental harm. It’s a forward-thinking approach that’s all about making a positive impact, showing that when it comes to supply chains, being green isn’t just desireable – it’s essential.

Introducing the Corporate Sustainability Reporting Directive

The push for a more resilient, agile, and sustainable supply chain is right in line with what the Corporate Sustainability Reporting Directive (CSRD) is all about. Nowadays, companies are fully committed to making their supply chains greener. They’re driven by new tech, changing customer demands, and the need to stay strong against global challenges. The CSRD serves as a guiding light here, offering a clear framework for companies to report on their ESG efforts. But it’s more than just filling out reports. The directive pushes companies to really look into how they operate, aiming to make real changes that go beyond just following rules.

The CSRD is a big deal in the EU’s journey to weave sustainability into the fabric of business practices. It builds on the 2014 Non-Financial Disclosure Directive (NFRD) but takes things up a notch with stricter ESG reporting requirements.

This is more than just ticking boxes for compliance. It’s about giving investors, regulators, and the public a clearer view of a company’s sustainability efforts. It sets a new benchmark for corporate accountability and environmental stewardship.

Global impact and the European Green Deal

This principle is key to understanding how companies impact society and the environment. As businesses gear up for compliance, they face the challenge of aligning with both international and EU sustainability standards. This situation offers a chance to get a “global passport” by voluntarily aligning with the International Financial Reporting Standards (IFRS) Sustainability Disclosures Standards.

The CSRD reaches beyond the EU, impacting non-EU companies that have to gear up for sustainability reporting to match equivalent standards. The European Commission emphasises this expansion as critical to ensuring “global businesses contribute to sustainability objectives and do not undermine EU efforts.”

As part of the European Green Deal, the CSRD standards were set by the European Financial Reporting Advisory Group (EFRAG) and got the European Commission’s nod in the summer of 2023. This directive significantly broadens the range of companies required to share sustainability info, jumping from about 11,000 under the previous framework to an estimated 50,000. This includes both big corporations and small and medium-sized enterprises (SMEs) that are publicly listed.

Innovation through auditing and digital tagging

The CSRD is shaking things up by making it a must for companies to have their sustainability reports checked by an independent auditor. This move ensures the info shared is legit and trustworthy. Plus, they’re bringing in digital tags to make it easier to sift through and compare ESG data, giving everyone better access to key sustainability insights.

The directive is pretty comprehensive, stretching over 12 sections and diving deep into a range of ESG topics. At its heart are two key standards, ESRS 1 and ESRS 2, setting the stage for what companies need to report on, from core requirements to general disclosures. This setup means businesses have to cover a wide range of sustainability issues clearly and consistently.

PwC is deeply engaged in this initiative, calling it “the growth opportunity of the century.” They’re predicting ESG investments could triple in returns by 2025. This ties neatly into the CSRD’s rollout, starting in 2025 for firms already doing reports under the NFRD and gradually pulling in more companies, including big non-EU players active in the EU market, all the way through to 2029.

Phased implementation for varied entities

The new Directive on sustainability reporting is rolling out in four key phases, making things greener and more transparent for companies across the board. Here’s the breakdown:

First up, in 2025, big players already on the radar under the NFRD have to start reporting for the 2024 fiscal year. We’re talking about EU market heavyweights, those with more than 500 employees.

Then, in 2026, it’s the turn of the large companies or the big parent entities of significant groups that weren’t previously caught by the NFRD. To be in this group, a company needs to hit two out of three marks: a balance sheet of over €25 million, annual sales of over €50 million, or more than 250 employees.

Phase three kicks in in 2027 for the 2026 fiscal year, widening the net to include listed SMEs (minus the really small fish), along with small banks and insurance companies that are easy on the complexity. It also brings in non-EU companies listed on EU markets, but with a grace period for listed SMEs until 2028, showing a degree of flexibility.

Finally, by 2029 for the 2028 fiscal year, the directive targets big international companies making over €150 million in the EU, especially those with at least one subsidiary or branch in the EU pulling in more than €40 million.

So, in a nutshell, it’s a step-by-step approach is designed to gradually enhance corporate accountability for environmental impacts, ensuring a smoother transition for businesses of all sizes towards greater sustainability and transparency.

Challenges and opportunities for businesses

In Cyprus, the new CSRD Directive is a big deal, especially for large and listed SMEs, which are really the heart of the country’s economy. These businesses are at a crucial point. They need to shake up how they operate, not just to meet the new rules on sustainability reporting, but also to make sure they’re genuinely working towards a greener future and not just pretending to (known as greenwashing).

The consequences of not following these rules are serious. If companies don’t comply, they could face hefty fines and find it harder to get investments, since investors are now looking for businesses that are clear about their ESG efforts. Plus, customers are paying more attention to these issues too, and they may turn their backs on businesses that don’t step up. It’s a big change, but it’s all about making sure companies are doing their part for a sustainable future.

Corporate responsibility

The EU’s new directive isn’t just about aligning sustainability reports; it’s a game-changer for investors, consumers, and companies, especially SMEs. It’s pushing everyone towards a future where ESG data isn’t just desirable; it’s indispensable for making informed decisions. For businesses, adapting to the CSRD means more than just meeting new standards. It’s a chance to rethink how they operate and report on sustainability. The European Commission puts it well: this gradual implementation “allows entities to adapt to the new requirements gradually, ensuring a smooth transition towards comprehensive sustainability reporting.”

This isn’t just about ticking boxes. It’s a real opportunity for businesses to lead the way in sustainability, to innovate, and to stand out. Investing in ESG isn’t optional anymore; it’s crucial for staying ahead and meeting, if not surpassing global expectations.

The bottom line? Embracing ESG and CSRD goes beyond compliance; it’s about leadership. CSRD brings ESG principles to life, pushing companies to not just talk the talk but walk the walk. It’s a call to action, reminding us that our choices today shape tomorrow. Companies that accept this challenge will not only navigate the regulatory changes successfully but also play a key role in creating a sustainable, fair future. This is more than a moment; it’s the beginning of a new era in corporate responsibility.