ESG

What it means

ESG is three groups of non-financial criteria: environmental, social and governance. Investors, banks and large customers judge a company on them alongside the figures in its financial statements.

It is neither charity nor marketing. These are data that feed credit decisions and supplier selection, and large companies report part of them under the CSRD directive and have them assured by an auditor.

ESG overlaps with compliance but is not the same thing. Compliance asks whether the company meets the obligations it has; ESG also rates what it does beyond them and how it measures it, such as the share of renewable energy or staff turnover. A company can obey every law and still score poorly on ESG.

How it works in practice

A small firm meets ESG indirectly: the request comes from a bank, from a large customer in the supply chain or from a tender. They ask about energy use, waste and the carbon footprint, figures that come out of invoices already posted.

The G is governance: a code of ethics, rules for conflicts of interest and a working channel for whistleblowing reports. The reporting channel is required by law of an employer above the statutory size with or without ESG; the code and the conflict-of-interest rules are not compulsory, and a company tends to have them scattered across different documents.

Under the S, the social side, the questions concern data the company keeps anyway for payroll: headcount, turnover, workplace injuries, training or pay gaps. We can prepare these figures from payroll records and the health and safety records, so the questionnaire is answered from facts rather than memory.

What to watch out for

The customer questionnaire gets filled in by guesswork. When the figures are later requested by the chain auditor or by the bank, the gap shows, and the company drops off the supplier list or loses an interest discount tied to an ESG indicator.

Claims on the website and in offers carry risk too. A statement about an eco-friendly product or carbon neutrality that the company cannot back with a calculation is greenwashing: a consumer may treat it as misleading advertising, and a customer who wrote it into the contract may claim a contractual penalty. Every such claim needs numbers behind it.