Every transformation attracts cynicism

ESG is a buzzword many companies are still grappling with how to implement, as the outside world watches on, concerned with whether such moves will genuinely promote the implementation of promoting environmental social governance practices.

Every transformation attracts cynicism and there has been a wide-raging international debate on greenwashing risks. However, I believe the principles of ESG are a pivot that will propel companies towards a sustainable future.

To quell greenwashing claims, the EU has just rolled out its Corporate Sustainability Reporting Directive (CSRD), which requires large companies and public-interest entities operating in the EU to disclose information on their ESG performance annually.

And this is where the crux will lie – what will make or break the adoption and implementation of ESG is the regulatory framework adopted; if it’s too weak, misleading sustainability claims will abound, and if it’s too stringent, it’ll dishearten small to mid-sized companies from taking these principles on board.

For some time, ESG was considered something that would be nice to have but, with regulatory frameworks popping up everywhere, this will be a game changer for businesses and a great opportunity if these rules do not backfire.

I believe it is in every company’s interest to improve their governance and processes; not just, it is also a duty to reduce pollution and be inclusive. But the cost of implementing the regulations, coupled with the additional bureaucracy, should not be such that it is either prohibitive or shifted to the end client.

The implementation of robust ESG frameworks can be especially daunting for smaller enterprises with limited budgets and personnel. One of the primary challenges for small companies is the cost and complexity of ESG reporting and compliance. Establishing the necessary data collection, monitoring and disclosure systems requires significant time and financial investment; resources that may be scarce for a small business.

Additionally, some of the world’s largest economies – the US and China – are not committed to ESG and the uneven adoption of these practices across different countries presents a significant challenge for businesses seeking to gain a competitive edge through sustainability initiatives.

Without coordinated global action, companies that invest heavily in ESG may find themselves at a disadvantage compared to competitors operating in less stringent regulatory environments.

By adopting ESG, businesses can gain access to new markets- Paolo Catalfamo

But, looking beyond these challenges, adopting ESG means you’re positioning yourself as a leader in this field, which can attract investors and customers who are increasingly seeking out businesses with strong ethical and sustainable practices.

So, while the big boys have yet to come on board, by adopting ESG, businesses can gain access to new markets that are actively promoting these principles around the globe and benefit from the growing demand for sustainable products and services.

The macro approach to ESG will require intense investment but, at a micro level, there are a number of initiatives companies can introduce, which can help the environment and general well-being of their clients and employees, without adding costs and transforming the respective market.

In fact, small businesses’ agility and proximity to the local community can be tremendous assets in driving positive change. Simple measures like reducing energy consumption, minimising waste, serving healthy food in canteens or supporting employees’ maternity needs can all have a meaningful impact and resonate with consumers.

In my position heading an insurance company, we are looking at new trends, such as longevity, global warming, improvements in the standard of life of most of the world population, and rethinking our product offerings with clients’ needs in mind.

So, is ESG worth implementing or it is merely a faddy buzzword with a short shelf-life?

Despite the uneven adoption, and costly hurdles, I believe ESG is here to stay and, by embracing these principles, companies can reduce their environmental impact, foster social inclusivity, enhance governance practices and build trust with stakeholders.

Paolo Catalfamo, an economist and chairman of LifeStar Holding Plc, was recently speaking about ESG at Investopia Europe in Milan.