What Is an ESG Policy and Where Does It Originate?
ESG policies originate from the increasing importance of sustainability criteria for investors, regulatory authorities, and stakeholders. Institutional investors and financial markets are increasingly demanding that companies disclose their ESG strategies. International standards such as the UN Principles for Responsible Investment (PRI), the OECD Guidelines for Multinational Enterprises, and the Sustainable Development Goals (SDGs) have established ESG criteria as key management principles.
Is an ESG Policy Mandatory?
The necessity of an ESG policy depends on legal requirements and industry standards. In the EU, the Corporate Sustainability Reporting Directive (CSRD) mandates expanded ESG reporting requirements starting in 2024. Additionally, the EU Taxonomy and the German Supply Chain Due Diligence Act (LkSG) require ESG-compliant measures in many companies. Need an individual assessment of ESG policy implementation in your company? Contact FORLIANCE – we’re here to advise you!
Components of an ESG Policy
A successful ESG policy starts with a clear objective, defining the company’s sustainability strategy and aligning with international standards such as GRI, SASB, or CSRD. Measurement and reporting are equally crucial, with concrete KPIs to track progress, which should be regularly disclosed in sustainability reports. The core components of an ESG policy consist of the following three areas:
Best Practices for an ESG Policy
- Long-term perspective: ESG goals should be pursued over several years.
- Stakeholder engagement: Employees, suppliers, and investors should be actively involved in the strategy.
- Continuous adaptation: ESG policies must be regularly evaluated and adjusted to regulatory developments.
- Transparent communication: The ESG strategy should be clearly communicated via annual reports, ESG reports, and the company website.