How to meet international ESG requirements
Understand how to meet environmental, social and governance (ESG) requirements from global regulators, investors, banks and buyers.
Step 1: Understand how ESG factors apply to your business
ESG and sustainability is becoming essential for businesses worldwide, shaping how they operate and grow. Regulators, banks, investors, supply chain leaders and consumers expect businesses to take action to responsibly reduce their ESG impact and manage their risks.
The term ‘ESG’ is shorthand for a number of environmental, social and governance topics considered to be important to stakeholders. While there is no single standard for what it covers, topics commonly include:
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Environment - greenhouse gas emissions, waste, pollution, water use, nature and biodiversity
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Social - health and safety, remuneration, employment terms, equal opportunity, diversity, community relations
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Governance - business ethics, anti-bribery and corruption, risk and compliance management, accountability and oversight
Step 2: Familiarise yourself with relevant ESG requirements
There is a growing number of global regulations designed to reduce environmental and social impacts and risks. Even if your business is not directly covered under one of these regulations (yet), it is important to be aware of them, as the same requirements trickle down and affect your ability to access value chains and finance.
If you’re a B2B company supplying to large organisations, they will likely need to collect data from their suppliers in order to comply themselves. And if you’re looking for finance, financial institutions may similarly need to collect this data from their investments.
How do ESG requirements affect products and services?
Some of these regulations target products or services themselves, including product design, materials sourcing, performance and disposal, while others target the practices of the business supplying them.
Standards targeting products and services may include:
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Prohibitions and restrictions of certain chemical substances, conflict minerals, illegally logged timber and products made with forced labour.
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Product-specific requirements including performance specifications, health and safety standards, manufacturing process, energy efficiency, waste recovery and labelling.
These standards require your business to have transparency over what substances are used in your products, their origins, and whether the products themselves have been designed and tested to meet performance requirements.
Standards vary by country and region and are constantly evolving. You can find them for a few key markets below:
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Europe – Access2Markets database
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US – Federal Trade Commission Compliance Advice
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UK – Standards and regulatory import requirements guidance
Regulations targeting business practices generally include:
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Disclosure of internal practices to manage risk, including risk of modern slavery, climate-related risk, and environmental and social impacts in investments.
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Disclosure of specific ESG performance metrics, including greenhouse gas (GHG) emissions, pay equality and other material ESG impacts.
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Requirement to conduct due diligence, including human rights and environmental due diligence of their operations and supply chains.
Step 3: Compile the required information
It’s all about getting an understanding of your performance and collecting data to support that.
Some can be collected easily from existing reports and invoices. Some may require further digging and requesting from suppliers, or even working with them over time to gather it.
Where do you begin?
Much of the data required will come from two main sources:
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Finance and procurement systems (e.g. utility bills (e.g. electricity, gas, water), fuel purchases, travel spend, sourcing and procurement records)
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HR systems (e.g. employee numbers, demographics, wages, hours, training)
Other information may be drawn from:
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Policies, procedures and other internal documents (e.g. whether a policy exists on specific topics like equal employment opportunity, or what management approaches are in place such as for health and safety hazards);
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Supplier requests (e.g. records specific to services and goods provided such as waste collection volumes, energy sources, types and quantities of goods provided, as well as information on suppliers’ own sustainability commitments and performance);
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Sensors, submeters and building management systems (e.g. for tracking chemical concentrations in emissions or usage of water or energy).
There are many tools and platforms available to support companies to collect, compile and calculate the required data, depending on your needs and budget. These range from simple calculators that can estimate your GHG emissions (also referred to as carbon footprint), to more robust climate data collection and reporting, to comprehensive ESG performance management and reporting systems.
Even if you aren’t currently required by law or being asked by your stakeholders, it will be beneficial to start collecting this information. First, it may take a while to gather and ensure it is accurate, so start now to make sure it will be ready. Second, once you establish your baseline, or starting point, you can start seeing how much you’ve improved your performance!
Step 4: Access sustainable finance
While many businesses cite cost as one of their largest barriers to implementing sustainability, there is a growing number of opportunities to access capital to support these initiatives. In fact, most financial institutions now offer green or sustainable finance options specifically for small- and medium-sized businesses.
Being able to provide data on ESG practices and performance can get your business approved for this finance, often at reduced rates.
What are key sources of finance?
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Local bank loans: Banks offer both traditional commercial loans and sustainability-linked loans (SLLs), which offer better terms for businesses progressing toward specific sustainability targets.
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Green and social bonds: Businesses can issue bonds to finance projects with positive environmental and social impact, attracting impact-driven investors.
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Development banks: For businesses in emerging markets, these financial institutions support economic development and sustainable projects which could not otherwise get funding.
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Grants: Local, state or federal governments often offer non-repayable funds to support the implementation of sustainable practices or innovation of new sustainable technologies.
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Rebates and tax credits: Some governments also offer financial incentives to businesses for adopting sustainable technologies and practices, such as solar panels or reducing their GHG footprint.
Learn more about the ‘virtuous circle’ of reporting, finance and action in ICC’s recent report, Unlocking sustainable finance for SMEs: The $789 billion green growth opportunity.
Step 5: Improve your ESG performance
Now that you’ve collected your data and understand your performance, it’s time to take action!
Based on the information you’ve gathered and feedback you may have received from stakeholders, you may already have an idea of any gaps where you can improve your performance. Remember, ESG progress can be made step by step, and sometimes even small changes can have a significant impact.
As with any change initiative, you will also want to consider how to drive your sustainability goals within the business. Some approaches that can help ensure your success:
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Articulate a formal commitment: This can be a policy or simply a vision statement that provides direction for sustainability efforts and communicates this commitment to stakeholders. Communications that reflect specific environmental commitments or expressions of climate (or sustainability) goals that are aspirational in nature and not likely to be met until many years in the future (e.g., net-zero, carbon negative, climate positive, etc) requires that you are able to demonstrate, in concrete terms, that your company has a reasonable capacity and methodological approach to meet the claimed commitment or goal. See the ICC Framework for Environmental Marketing Communications for guidance.
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Establish a cross-functional committee: This applies specially to medium-sized businesses and involves representatives from relevant parts of the business, e.g. operations, finance, HR, marketing, procurement to agree plans, share updates, review progress, collaborate and address challenges.
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Develop an action plan: Set out clear initiatives, steps, timelines and responsibilities, ensuring a clear roadmap and priorities.
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Allocate resources: Ensure your sustainability plans do not get neglected by allocating sufficient time and attention to implement and drive them, e.g. through an ESG or sustainability manager and champions in relevant parts of the business.
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Define KPIs: Identify measurable indicators to track progress in both implementation and sustainability outcomes.
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Monitor and review progress: Regularly assess progress against goals to celebrate successes, address challenges, and refine your approach where needed.
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Learn through peer networks: Join relevant initiatives to connect with industry peers, stay informed about emerging best practices, and collaborate on shared challenges.
Start small and grow your impact!
No matter the size of your business, every step you take toward sustainability helps your business thrive and supports a better future.