ESG in 2023. Summaries and trends for 2024
With an expert eye
In 2023, there is a greater focus on environmental issues, mainly because all large companies, regardless of their industry, are now required to submit reports on their environmental, social, and corporate governance activities. This obligation, introduced last year, has led to increased attention and efforts towards addressing environmental concerns and promoting responsible corporate practices across different sectors.
The recently concluded year posed a challenge for major Polish and European companies, primarily due to new obligations related to conducting and reporting their environmentally and socially responsible activities. On January 5, 2023, the EU CSRD (Corporate Sustainability Reporting Directive) came into effect. According to the directive, listed companies with over 500 employees (and meeting specific financial criteria) are mandated to annually report their Environmental, Social, and Governance (ESG) activities, starting from 2024. Other companies will have reporting obligations from 2025 and 2026, including those with over 250 employees and small and medium-sized enterprises (SMEs) with more than 10 employees (also meeting certain financial criteria).
ESG or greenwashing?
In the current year, investment funds are significantly dropping the terms “eco” and “sustainable” from their names to avoid potential accusations of greenwashing. This shift is understandable as public awareness and sensitivity to such practices are on the rise. A simple search for “types of greenwashing” in a search engine yields information cautioning against labels like ‘green,’ ‘sustainable,’ or ‘eco’ without accompanying real standards, practices, or evidence examples, reinforcing the need for skepticism towards such claims.
Offset is not enough
The impetus behind these transformations extends beyond public sentiment, involving legislative bodies as well. In 2023, the European Parliament initiated measures to curb greenwashing among companies, culminating yesterday with the adoption of a new provision. This provision recommends to EU countries that companies labeling themselves as “eco,” “climate neutral,” etc., solely through emissions offsetting actions, refrain from using such terms in their marketing messages.
In a recent episode of our podcast, a SpeedUp Venture expert highlighted a solution from a European startup aimed at preventing companies from facing accusations of greenwashing. This innovative approach establishes a tangible connection between renewable energy production and its actual consumption by the end user.
Attracts employees, arranges a bank loan
ESG impact goes beyond positive social and environmental contributions; it extends to increasing attractiveness as an employer. Research highlighted on our website by experts indicates that 72% of young professionals prefer employers actively engaged in modern technologies and committed to environmental and social aspects.
Implementing ESG activities also yields a less obvious advantage—companies gain a competitive edge. According to a McKinsey and NielsenIQ study spanning 2017-2022, products with ESG-related statements experienced an average 28% sales increase, surpassing products without such statements, which saw a comparatively lower increase of 20%.
Engaging in pro-environmental and pro-social activities not only enhances the chances of obtaining a bank loan but also influences banks’ own ESG assessments. Large companies, including banks, are obliged to report ESG activities, impacting their lending decisions.
Similarly, ESG reporting holds significant importance for investment funds. According to a report by Amazon and EIT Climate-KIC, 59% of 600 European VC investors refrained from investing in startups due to their lack of commitment to sustainable development activities.
With an expert eye
The most important events regarding ESG in 2023 in Poland and around the world
Milena Olszewska-Miszuris, President of the Management Board of WM Advisory Sp. z o.o., emphasizes the significance of the publication of sustainability reporting standards in 2023. Globally, the release of IFRS sustainable development standards is highlighted, which are expected to become widely adopted worldwide for reporting on ESG issues—environmental, social, and corporate governance. In Poland and Europe, the announcement of ESRS, the European Sustainability Reporting Standards, is noted. These standards will be obligatory for a broader range of companies than before, with the first reports for 2024 set to appear in 2025.
Magdalena Stelmach from Redigo Carbon, a company specializing in calculating and proposing actions to reduce carbon footprints for companies, points out the EU Corporate Sustainability Reporting Directive (CSRD) as the most crucial ESG event for Poland, the EU, and the world in 2023. This directive, effective from January 5, 2023, accelerates the ecological transformation of enterprises, starting with the largest companies that will have to report on their sustainable development activities and environmental and social impact from 2025 (for 2024). It holds global significance as it sets standards and implements the EU’s strategy consistently, influencing international companies operating in the EU.
Which sectors have implemented the requirements the most and is this a surprise?
Magdalena Stelmach from Redigo Carbon notes that in Poland, large international companies are at the forefront of implementing ESG policies, as their headquarters were already equipped to address these issues. However, there are significant variations among companies in Poland. Some have made substantial progress, transforming their production processes and facilities to minimize greenhouse gas emissions or reduce energy consumption. On the other hand, some companies have primarily implemented changes in office management (with a low impact) or raised awareness among employees without making fundamental changes to their operational processes. Companies that were unprepared to work on strategies for reducing their environmental and climate impact might have faced surprises this year, but they are expected to adapt to new requirements in 2024.
What ESG trends await us in 2024?
Milena Olszewska-Miszuris, President of the Management Board of WM Advisory Sp. z o.o., identifies three challenges and opportunities for companies in relation to the implementation of ESG issues in 2024. Firstly, the need for dual materiality testing as required by ESRSs. Companies reporting on sustainable development must assess both impact materiality, determining the extent of the company’s influence on the environment, society, and corporate governance, and financial materiality, examining how ESG issues impact the company’s sales, costs, cash flows, assets, liabilities, and cost of capital. Secondly, companies will face the challenge of mapping the value chain, understanding their service or product from creation to disposal. Regardless of their position in the value chain, this will be a component of ESG reporting, encompassing considerations such as respect for human rights and greenhouse gas emissions (scope 3). The third challenge, but also an opportunity, lies in examining and reporting on the risks and opportunities for sustainable development. Companies that grasp key ESG risks and capitalize on opportunities swiftly will contribute to building sustainable development.
Magdalena Stelmach from Redigo Carbon emphasizes that beyond adapting to European regulations, companies must have a genuine awareness of climate change and the environmental impact of production and consumption patterns. The challenge is to engage as many companies as possible, along with national and local politicians, in achieving ambitious goals. The imperative is to limit the temperature increase to a maximum of +1.5˚C compared to the pre-industrial era and reduce greenhouse gas emissions by 55% by 2030, relative to 1990 levels. With only a achieved -41% so far and just 6 years remaining to meet this target, concerted efforts are essential. The long-term objective is to achieve climate neutrality by 2050, necessitating immediate action.