ESG – more than just climate protection

• Compliance/Data Protection/ESG
• Corporate, Company Law
• SME

The responsible business initiative in Switzerland has shown that the topic of sustainability encompasses more than just climate protection. Various stakeholder groups across a broad spectrum (including investors, clients, business partners, etc.) require companies to operate in a responsible, sustainable manner that makes a positive contribution to society and encompasses the entire supply chain. The latest laws and legislative changes in Switzerland and abroad also show that the implementation of so-called “ESG” measures and transparent reporting on them (environmental, social and governance) are no longer a “nice-to-have”.

What is meant by “ESG”?

ESG stands for Environmental, Social and Governance and is understood as a set of business practices (including policies, and metrics, etc.) that a company has defined to limit its negative impact on the environment and the area of corporate governance and/or to increase its positive impact and report on it transparently. The success and value of a company is no longer measured solely in terms of the company’s short-term profit by the outside world (but also by employees), but also in terms of how sustainably and ethically a company acts in its business dealings and what positive contribution it makes to society.

The “Environmental” part of ESG covers, for example, issues related to impact of the products, and supply chain on the climate change (e.g. greenhouse gas emissions, deforestation), as well as measures aimed at reducing pollution, waste management, energy efficiency, water management, ensuring biodiversity, reforestation etc.

The “Social” part of the ESG includes, for example, issues relating to employees (e.g. human rights, diversity, equality and inclusion, employee health and safety, working conditions, etc.), working conditions in the supply chain, consumer protection, animal welfare, etc.

The “Governance” part of the ESG includes, for example, issues relating to the independence and diversity of the Board of Directors, shareholders’ rights, management remuneration and corporate ethics (including compliance with anti-corruption regulations, protection of personal data, compliance with antitrust and competition regulations, cyber security, etc.).

Why is ESG so important?

The ESG approach helps to mitigate potential risks (including financial and reputational risks) associated with risky and unethical business activities and to ensure the long-term sustainability of a company. In addition, this approach helps to improve a company’s reputation in the market, including among current and potential employees, investors, and other business partners of the company. On the contrary, if risks are disregarded or incidents occur in the ESG area, even if these occur at supplier level, a company is now held responsible, sometimes with an irrevocable loss of trust.

What does sustainability management involve?

Sustainability management integrates:

• a corporate strategy that has a long-time horizon (including a sustainable risk, opportunity and materiality analysis) and strives for long-term profitability;
• corporate and sustainability goals that lead to making a long-term, positive contribution to society, with a focus on the areas in which a company can make the greatest contribution (“materiality” of the contribution);
• a corporate management and organization that takes into account environmental as well as social aspects (Diversity, especially in management functions, respecting Human Rights, etc.) and clear governance structures to ensure corporate compliance;
• measuring sustainability performance using established criteria / targets (key performance indicators, or KPIs for short) and transparent reporting on them.

Sustainability reporting standards

A company’s transparent sustainability reporting provides an overview of the company’s performance in the ESG areas based on defined performance criteria. For instance, the following recognized sustainability standards may provide helpful guidance:

• EU standards for sustainability reporting,
• Standards of the Global Reporting Initiative (GRI),
• Standards of the Sustainability Accounting Standards Board (SASB),
• Standards of the Carbon Disclosure Project (CDP).

Such standards allow companies to gain an overview of which sustainability issues the company should address, define corresponding targets, record progress or failures as well as measure them over several years, and make comparisons with other companies.

When it comes to sustainability reporting, it is essential that a company has correct, robust data in relation to its defined criteria and establishes mechanisms to monitor this data. Incorrect data or even data which is presented too well (i.e. with so called “window dressing”) can lead to a considerable loss of trust or reputation.

Our Recommendations for action for companies that want to drive forward or further optimize their sustainability efforts:

1) Define which sustainability issues are most important to your company and the expectations of your employees (including potential applicants) and external stakeholders (e.g. investors, clients, business partners, etc.).

2) As company management, define how the responsibilities for your sustainability issues are distributed and ensure that these responsibilities and roles are understood within the company as an integrated part of your organization and not as a detached part.

3) Set sustainability targets based on recognized sustainability standards and define how you can measure and record them. In comparison with other companies, orient yourself towards the “best-in-class” companies and be innovative. Also talk to your suppliers, communicate your expectations, and define joint sustainability goals.

4) Communicate internally and externally about your sustainability position and approach, your efforts and mention the areas in which you still want to improve.

5) Report regularly on your improvements as part of your sustainability reporting and publish an annual sustainability report.

AMATIN AG  Rechtsanwälte / Rechtsberatung  │  Attorneys at Law / Counselors  │  Conseiller Juridiques / Avocats