Companies must prioritize ESG compliance to uphold a strong reputation, outlast the competition, and grow profitably. Still, the constant changes to ESG regulations present many challenges. Keter helps companies achieve and maintain ESG compliance through our end-to-end recycling and waste management services.
What Is ESG Compliance?
ESG compliance means adhering to the principles of the environmental, social, and governance (ESG) guidelines established by ESG compliance frameworks and regulatory bodies. ESG compliance criteria aim to ensure companies operate responsibly and sustainably in policy and practice. Companies can avoid legal repercussions and regulatory penalties by maintaining and sharing accurate data about the sustainable achievements of their businesses.
Companies wanting to remain ESG-compliant must work with vendors committed to the same ESG standards as their companies. However, verifying that a third-party vendor is compliant can be challenging. That’s where ESG certifications become helpful. ESG compliance certifications are endorsements that show an establishment’s use of sustainable materials and whether they follow labor laws.
When companies prioritize working with ESG-certified third-party vendors, regulatory bodies see their commitment to eradicating unsustainable practices and human rights infringements across their supply and service networks.
To become ESG-compliant and improve ESG ratings over time, companies need to establish a dedicated ESG strategy. Companies that want to achieve sustainable businesses must prioritize company-wide ESG goals, implement a data tracking system, then create and share their ESG reporting. ESG goals should encompass immediate compliance, future sustainability, and ethical business practices across a company’s corporate vision.
For companies that still need an established chief sustainability officer, Keter Environmental Services can serve as your company’s ESG reporting and compliance team. We help businesses build company-wide ESG compliance roadmaps.
ESG Compliance Frameworks
Many ESG standards and reporting frameworks guide ESG compliance. Some of the commonly used and accepted global ESG frameworks include the following:
CDP (formerly the Carbon Disclosure Project): An environmental disclosure system to report risks and opportunities related to climate change, deforestation, and water security. A questionnaire assesses companies and assigns a grade for each area.
Global Reporting Initiative (GRI) Standards: A modular framework that includes universal, sector-specific, and topical sustainability reporting standards.
Sustainability Accounting Standards Board (SASB): Covers issues as they apply to various industries.
Task Force on Climate-Related Financial Disclosures (TCFD): Includes 11 recommendations based on four core elements, including ESG governance, strategy, risk management, and climate-related metrics and targets.
UN Sustainable Development Goals: presents 17 targets to aim for, such as “Clean Water and Sanitation,” “Affordable and Clean Energy,” and “Reduced Inequality.”
Who Enforces ESG Compliance?
As more regions transform what was previously viewed as recommendations into laws, global companies must prioritize ESG compliance, even though it remains mostly voluntary in the U.S.
The Securities and Exchange Commission (SEC) recently developed a Climate and ESG Task Force within the Division of Enforcement that has begun enforcing ESG disclosures for companies within the U.S., and with the rapid changes to the U.S. regulatory landscape, it is likely that voluntary ESG recommendations will become laws in the near future.
How to Be an ESG-Compliant Business
Businesses that want to become ESG-compliant must begin by developing a strategy that considers the ESG topics and regulations most relevant to their industry and region. Then company leaders should run an ESG materiality assessment to identify the areas most impactful for their business and business model. Finally, company decision-makers must decide their level of dedication to change. ESG targets must be achievable, reflect decision-maker wants, and be appropriate to the level of risk they’re willing to take when changing regulations over sustainable practices.
Develop Measures and Controls
As companies work to improve ESG factors, external regulatory requirements, and internal ambitions must converge to address specific targets. To achieve these targets, measures, and controls help leaders to enhance their company’s ESG compliance.
Measures are the steps to comply with regulatory requirements while supporting the company’s internal ESG ambitions. An example of this would be a company taking steps to ensure all suppliers across their supply chain adhere to human rights and sustainability practices. Controls are the evaluation activities that ensure the measures’ effectiveness in achieving the company's ESG targets.
Stay Up-to-Date on Standards and Regulations
ESG standards and regulations are constantly changing. Companies must either assign a team member to oversee the regulatory changes or partner with an outside team dedicated to monitoring the changing landscape and helping them remain compliant.
Employ the Necessary Services
New customers and business contacts view ESG compliance as an indicator of a company’s credibility and its commitment to more than just sustainability but also diversity. Once a company has identified the areas needing to change, it should take the steps necessary to make the changes.
Related reading: Commercial Waste and Recycling Services and Industrial Waste and Recycling Services
Benefits of ESG Compliance
ESG compliance not only aids companies in avoiding penalties for inadequate sustainability disclosure, but it also helps companies remain competitive and offers opportunities to benefit companies profitably.Let’s discuss those in more detail.
More Engagement From Stakeholders
Companies prioritizing ESG compliance create reports showing their commitment to waste and emissions reduction, climate impact mitigation, and adherence to ethical business practices. This communication helps businesses engage stakeholders by demonstrating the way the company is taking action to better the world we live in.
Better Reputation as a Business
Companies taking ESG compliance seriously are more attractive to investors and consumers because when they support the business, their actions ultimately improve the world. Companies supporting third-party suppliers that don’t follow sustainable practices are at risk of damaging their own reputations—they are certainly at risk of a damaged reputation if their own company is not following regulations within their own four walls.
ESG compliance offers companies a competitive advantage, as other companies desire to eliminate their reliance on or collaboration with companies that do not follow sustainable practices. When a company demonstrates its commitment to sustainable methods, it opens doors leading to profitable partnerships.
Challenges of ESG Compliance
The lack of universal compliance standards creates many challenges for companies, including insufficient data collection, disjointed departments, and difficulty creating ESG reports. Let’s discuss these challenges in more detail.
When there is no universal standard for ESG compliance, it’s challenging to create standardization within a company. Often each department will create its own policy for collecting data, making assessments, analyzing, and reporting. When leaders are not in unison from department to department, ESG data collection and reporting lack company-wide coherence. Without one person leading to ensure consistency across departments, there is no right or wrong way, and confusion ensues.
Lack of Regulatory Experience
ESG regulations have only recently emerged, becoming more complex each year. Companies in industries that aren't highly regulated, like their healthcare or finance counterparts, need to gain experience following regulations and making company-wide changes in response to changing regulations.
Lack of Data
As the ESG regulation industry continues to develop, expectations have risen for the amount of data companies are expected to provide. Problems arise for companies related to both data availability and quality. The continued rising of standards and the push for more data aims to continue elevating society towards progressively more sustainable practices.
Previously those in charge of sustainability within a company were left to decide how they wanted to track, measure, and report on ESG data. This often means defaulting to a spreadsheet. Recently regulators have increased their demands by looking for more complex reporting. At Keter, we help companies achieve more sophisticated reporting with our proprietary application and data-driven recycling and waste end-to-end solutions.