ESG is not about spending money, but earning it sustainably

Mr. President, let's start with the basics: what exactly is ESG?

In the simplest terms, by “ESG” we mean the environmental (E — Environmental), social (S — Social) and related to corporate governance (G — Governance) aspects that a business should take into account in its activities. Of course, we treat them together, because they are all deeply interrelated. Apart from purely market conditions, each company operates in an environment composed of the three mentioned components and this is a two-way interaction. Business affects and is conditioned by the natural environment (e.g. by violent weather events, rising temperatures, droughts), employs people and affects local communities, operates in a concrete legal reality and must also organize its operational activities through policies, codes or regulations. ESG is about bringing all these spheres together and giving a clear signal to both business partners and consumers/consumers: we see the risks that come from these areas; this is how we respond to them; we recognize the opportunities multifaceted and thus build our stability, basing it on several pillars.

Nothing influences a business as well as broad information and minimizing investment risk.

That's what the game is all about. Moreover, ESG, interestingly enough, is deeply rooted in the financial market, and environmental, social and governance data are after all non-financial. The point is to give the environment something more than just tables with income, income, costs or profitability. Every business is multifactorial, and ESG arranges these dependencies in the three planes I have mentioned. It is a tool to improve the organization in terms of sustainable development, but also to expand purely business horizons.

Recently, we have been hearing a lot about ESG reporting in this regard.

And rightly so, because in a moment we are going to experience a revolution in business related to this. I am referring to the European Commission's Corporate Sustainability Reporting Directive (CSRD), which will cover the reporting obligation of about 3.6 thousand companies in Poland (there will be as many as 50 thousand of them throughout the EU). First, from January 1, 2024, companies that already report under the Nonfinancial Disclosure Reporting Directive (NFRD) will have to prepare reports. The big change will come in 2025, when non-financial disclosures will become mandatory for companies that meet two of three conditions: more than 250 people employed, 20 million euros of total assets, 40 million euros of net income. Finally, the directive will reach small and medium-sized listed entities. In addition, it will introduce new reporting standards, the so-called ESRS (European Sustainability Reporting Standards). It is this set of indicators and guidelines over the years that will define the framework for non-financial disclosures in the European Union.

Is Polish business ready for this?

Only in a small part. In fact, there is no doubt that the reports will be produced in cooperation with companies specialized in ESG. Outsourcing in this area is already happening.

I would like to take this opportunity to draw attention to one more important fact — reports are not hundreds of printed pages, they need to be seen in a different, definitely broader perspective. Their relevance is due to the fact that they document the efforts made in the organization throughout the year and are a summary of many activities. Thus, companies face a broader challenge than just preparing a document according to one standard or another. In order to have something to report, so that it is authoritative and reliable, it is necessary to prepare for this process methodically, long before the start of purely reporting work.

Prepare? In what way?

I will not be original if I say that... preferably through an ESG strategy. We always repeat that the most important thing is the consolidation of activities. Take, for example, the environmental area, i.e. E. It is known that today the absolute priority is to reduce greenhouse gas emissions, which are the direct cause of the climate crisis. Business is the most important player in this context. Some companies already understand this and see new opportunities, especially since there is a lot of legislative pressure to improve the E indicators, but also interesting financial incentives. Therefore, for some time now, we have been calculating the carbon footprint for our customers (in three ranges), analyzing energy efficiency, suggesting improvements and building decarbonization strategies. In this way, we direct the business on a sustainable path, we make it more energy efficient, less expensive in everyday activities (changing the ordered capacity alone saves up to several tens of thousands of PLN per year!). Only such a set of actions included in the report makes a profound sense and allows you to see the synergy flowing from the strategy. It is worth remembering that thanks to ESG reporting, we obtain internal benefits, but also those that go beyond the company's thresholds. The transformation we are talking about supports the competitiveness of the business and makes it more attractive in the eyes of other partners.

It is increasingly common to hear that sustainable companies are looking for something similar to each other. Is that actually the case?

This is exactly how it works, and everything breaks down into so-called value chains. Let's imagine company X, for which ESG indicators are extremely important, for example because it obtained a loan under sustainable financing (i.e. with a lower interest rate, for example). Such an enterprise cannot afford to lower its ESG rating by working with a business that does not pay attention to sustainability. The results in this area of one company affect the other, and as you know, the chain is as strong as its weakest link. And this is already happening.

Currently, as VIVERNO, we serve a customer who is in the value chain of the global home appliance giant. The situation is clear: either our client will improve environmental indicators, or he will lose contact. Consider another example, that of the food industry — suppliers of the Lidl chain of stores are responsible for 75% of the greenhouse gas emissions associated with the product. Lidl has committed to reducing emissions, so from the vending machine its partners must follow the same path. And not just any, but approved by the Science Based Targets initiative (SBTi), an organization that supports business in setting climate targets based on scientific knowledge.

What are the risks facing the food sector in the context of sustainable development?

We must be aware of the fact that food production generates about 1/3 of global greenhouse gases (there are branches that have a special place here, for example meat occupies the first three positions in the list of the highest emission products). It is really a very energy-intensive industry, for which decarbonization will definitely be a serious challenge, as will saving water or reducing deforestation for livestock. Of course, it is also a critical sector whose transformation must take into account not only climate objectives, but also food security. Therefore, I think it will be crucial to combine what is environmentally necessary with what is socially necessary.

So back to the links of ESG components...

Yes, we must always remember these dependencies and keep in mind the balance between all spheres. Achieving this is absolutely possible. It is only necessary to act with your head based on proven, international standards. A good example is CDP, a global organization whose first accredited service provider in Poland is VIVERNO. As part of this partnership, we help companies manage risks and opportunities related to climate change, water security and loss of forest resources. In the SBTi initiative just mentioned, the food, beverage and agriculture industries are most strongly represented. These processes are already underway in the world and I have no doubt that they will gain strength with each passing year.

Energy efficiency, carbon footprint, decarbonisation, value chains, ESG strategies, non-financial reporting — all this needs to be familiarised with and then strategically implemented, benefiting the environment, people and your business.

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