Module 2 – What is ESG

Date: Monday / 01 / October / 2019

2.1 Introduction to ESG
concepts and definitions
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Clarifying Key Acronyms in Sustainability

Overview of Terms: Understanding key acronyms is essential for clarity in sustainability discussions.
• ESG (Environmental, Social, and Governance): Framework for assessing a company's sustainability
practices.
• SDGs (Sustainable Development Goals): Global goals set by the UN to address urgent environmental
and social challenges.
• SRI (Socially Responsible Investing): Investment strategy considering ethical criteria.
• CSR (Corporate Social Responsibility): Company initiatives to assess and take responsibility for its
societal impact.
• RBC (Responsible Business Conduct): Ensuring business operations adhere to ethical standards.

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What and why

• What is ESG?
ESG (Environmental, Social and Governance) is a
fast-growing trend in the business world today.

ESG refers to how organizations promote

sustainability, social responsibility and ethical
governance practices within their businesses.

• Why did we start focusing on ESG?

The focus on ESG has recently grown due to the

finance sector considering the impact of firms they
allocate capital.

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ESG refers to the three factors:

The ENVIRONMENTAL component focuses on the business’s impact on the

planet, including carbon emissions, waste management and resource use

The SOCIAL component covers how a business manages their relationships

with workers, suppliers, customers, and communities

The GOVERNANCE factor involves the businesses leadership, executive pay,

audits, internal controls and shareholder rights

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ENVIRONMENTAL
TRANSITION RISK
• Greenhouse gas emissions
• Policy and legal changes
• Shifts in consumer and investment
sentiment
• Technological and energy advances

PHYSICAL CLIMATE
• Acute – events
• Chronic – long term changes (such as
increasing temperature)

NATURAL CAPITAL
• Renewables
• Energy usage
• Water security
• Biodiversity
• Deforestation
• Resource availability

WASTE MANAGEMENT
• Recycling processes
• Production of waste
• Contaminated land
• Noise pollution
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Open question 1:

Where do you see the biggest E

risks in your
sector/country/region?

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Customizable Slide - Environmental Contextualization

After exploring the Environmental (E) aspect, please add insights specific to your region or industry.
Consider including:

• Key environmental regulations or policies in your country.

• Local environmental challenges (e.g., pollution, natural resources, climate adaptation needs).

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Case studies of national companies with notable environmental practices.

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 SOCIAL
HUMAN and LABOUR RIGHTS
•Fair working conditions
•Social protection
•Employee relations
•Occupational safety and health
•Forced Labour and Human Trafficking
•Child Labour
•Diversity and inclusion (Gender equality, equal
opportunities)

WORKPLACE
•Workplace culture
•Privacy and data security

CONFLICTS and POLITICS

•Engagement in high-risk areas
•Political risk
•Social inequalities

STAKEHOLDER IMPACT
•Community engagement
•Philantropy
•Consumer safety
•Product accessibility
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Open question 2:

Where do you see the biggest S

risks in your sector?

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Customizable Slide - Social Contextualization

After covering the Social (S) aspect, provide relevant information about social issues in your region.
Examples could include:

National labor laws or social policies impacting businesses.

Social challenges unique to your country (e.g., diversity, gender equality, community engagement).

Success stories or challenges faced by local companies in addressing social responsibility.

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 GOVERNANCE

GOVERNANCE STRUCTURE

•Ethical standards
•Board diversity
•Committee structures
•Separation of powers
•Stakeholder engagement
•Decision-making and approval processes
•Good Leadership

RISK MANAGEMENT, CULTURE

AND OVERSIGHT
•Policies and standards
•Risk culture
•Enterprise Risk Management Framework
•Risk appetite strategy

TRANSPARENCY AND REPORTING

•Executive remuneration
•Tax payments
•Shareholder rights
•Bribery and corruption
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Open question 3:

Where do you see the biggest G

risks in your sector?

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Customizable Slide - Governance Contextualization

Following the Governance (G) aspect, incorporate information on governance practices relevant to
your local context.

Consider:

•Key governance frameworks, such as national corporate governance codes or anti-corruption laws.

•Examples of governance issues faced by businesses in your region.

•Profiles of companies with strong governance structures in your country.

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2.2 Evolution of ESG
Frameworks
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Evolution of Sustainability Frameworks

1976 1998 2006 2015 2023 2024

OECD Guidelines for ILO Declaration of Principles for Sustainable EU Regulation on Ecodesign for
Multinational Fundamental Rights Responsible Development Goals deforestation free- Sustainable Products
Enterprises and Principles at Work Investment (PRI) (SDGs) products Regulation (ESPR)

ILO Tripartite
Declaration of Principles
concerning Multinational
Enterprises and Social UN Guiding Principles EU Corporate Corporate Sustainability
Policy (MNE on Business and Sustainability Reporting Due Diligence Directive
Declaration) UN Global Compact Human Rights Directive (CSRD) (CSDD)

1977 2000 2011 2021 2024

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1960s – The Origins: Socially Responsible Investing (SRI)

1960s: ESG’s roots can be traced back to Socially Responsible

Investing (SRI), which emerged as a reaction to social movements such
as civil rights and opposition to the Vietnam War.

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1970s – Establishing Standards

Corporate Social Responsibility (CSR) gained

significant momentum in the 1970s.

It emerged as businesses recognized their

responsibility not just to shareholders but also to
society, driven by growing public awareness of social
and environmental issues.

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Evolution of Sustainability Frameworks (1976-1998)

OECD Guidelines for ILO Tripartite MNE Declaration ILO Declaration of

Multinational Enterprises (1977, amended in 2022) Fundamental Rights and
(1976, revised in 2023) ► Provides guidance to multinational and Principles at Work (1998,
► Non-binding recommendations for national enterprises on inclusive, amended in 2022)
responsible business conduct. responsible, and sustainable workplace
► Commitment by governments,
► Covers various areas, including: practices.
employers, and workers to uphold
• Human Rights: Respect and promote ► Addresses:
• Employment: Promotion, social security, essential human values.
human rights in operations.
• Labour Standards: Uphold fair elimination of forced labor and child labor, ► Core principles:
employment practices, including collective equality. • Freedom of association and right to
bargaining and non-discrimination. • Training: Skill development and fair collective bargaining
• Environment: Encourage sustainable opportunities. • Elimination of forced labor
environmental practices and policies. • Conditions of Work: Wages, benefits, • Abolition of child labor
• Anti-Corruption: Combat bribery and safety, and health. • Elimination of employment discrimination
corruption. • Industrial Relations: Freedom of • Safe and healthy working environment
• Consumer Interests: Ensure fair association, collective bargaining,
treatment, product safety, and grievance resolution.
transparency.
• Taxation: Comply with tax laws and avoid
illicit tax practices.
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2000s – The Birth of ESG as a Framework

2004: The term ESG was officially coined in a report titled 'Who Cares
Wins,' commissioned by the UN Global Compact.

2006: The United Nations Principles for Responsible Investment (PRI)

is launched, encouraging investors to incorporate ESG factors into their
decision-making processes.

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Evolution of Sustainability Frameworks for Private Companies (2000 - 2011)

UN Global Compact (2000) Principles for Responsible UN Guiding Principles on

► Encourages businesses to adopt Investment (PRI) (2006) Business and Human Rights
sustainable and socially responsible ► Framework for incorporating (2011)
policies. environmental, social, and governance ► Global standard for preventing and
► Ten Principles across four areas: (ESG) factors into investment
• Human Rights: Support, respect, and addressing business-related human
decisions. rights abuses.
avoid complicity in human rights abuses.
• Labour: Uphold freedom of association, ► Six Principles: ► Three Pillars:
eliminate forced labor, child labor, and 1. Incorporate ESG issues into investment 1. Protect: States must protect human rights
discrimination. analysis and decision-making. from abuses by third parties, including
• Environment: Promote environmental 2. Be active owners and incorporate ESG businesses.
responsibility and sustainable into ownership policies. 2. Respect: Businesses must respect human
technologies. 3. Seek appropriate ESG disclosure from rights by avoiding violations and
• Anti-Corruption: Combat all forms of entities invested in. addressing negative impacts.
corruption, including extortion and bribery. 4. Promote acceptance and implementation 3. Remedy: Ensure access to effective
of PRI within the industry. remedy for victims of human rights abuses
5. Work together to enhance effectiveness in through judicial and non-judicial means.
implementing PRI.
6. Report on activities and progress towards
implementing PRI.
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UN Sustainable Development Goals (2015)

The United Nations Sustainable Development Goals (SDGs) are a collection of 17

interlinked global goals designed to be a blueprint to achieve a better and more
sustainable future for all.
They were agreed in September 2015 and are intended to be achieved by 2030.
Through 17 commitments and 169 targets, the goals seek to drive global action across
social, environmental and economic development issues.
The SDGs aim to guide governments’ regulations and policies.

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The evolution of ESG is still ongoing

For instance, between 2022 and 2024, some important new

regulations emerged in Europe…

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EU Corporate Sustainability Reporting Directive (CSRD) (2022)

• Objective: Modernizes and strengthens sustainability reporting for companies.

• Who is Affected: Large companies and listed [Link]-EU companies with
over EUR 150 million in EU market revenue.
• Key Features:
• Enhanced Transparency: Ensures stakeholders access critical social and
environmental information.
• Harmonization: Reduces reporting costs through standardized information
requirements.
• European Sustainability Reporting Standards (ESRS): First set published on
December 22, 2023; applicable to all sectors.
• Assurance Requirement: Mandates verification of reported sustainability
information.
• Implementation Timeline: First reports due in 2025 for the 2024 financial year.

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EU Regulation on Deforestation-Free Products

(2023)
•Objective: Prevent commodities linked to deforestation (e.g., cattle, wood, cocoa, soy, palm
oil) from being placed on or exported from the EU market.
•Who is Affected:
o Operators and traders handling listed commodities in the EU.
o Special provisions and extended timelines for micro and small enterprises.
•Key Features:
o Proof Requirement: Companies must demonstrate that products do not originate from
recently deforested land or cause forest degradation.
o Targets: Reduce carbon emissions by 32 million metric tonnes annually and address
deforestation driven by agricultural expansion.
•Implementation Timeline:
o Rules applicable by December 2025 for large and medium companies.
o Micro and small enterprises have until June 2026.
•Support Mechanisms:
o Multi-stakeholder platform for best practices.
o EU Observatory on deforestation monitoring and supply chain transparency.

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Summer 2024: Corporate Sustainability Due

Diligence Directive
On 25 July 2024, the Directive on corporate sustainability due
diligence (Directive 2024/1760) entered into force.

The aim of this Directive is to foster sustainable and responsible

corporate behavior in companies’ operations and across their global
value chains.

The new rules will ensure that companies in scope identify and address
adverse human rights and environmental impacts of their actions inside
and outside Europe.

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Summer 2024: Ecodesign for Sustainable

Products Regulation

Ecodesign for Sustainable Products Regulation (ESPR)

The ESPR entered into force on 18 July 2024, is the cornerstone of the
Commission’s approach to more environmentally sustainable and circular
products.
Products and the way we use them can have a significant impact on the
environment. Consumption in the EU can therefore be a major cause of climate
change and pollution.
The ESPR is part of a package of measures that are central to achieving the
objectives of the 2020 Circular Economy Action Plan. They will contribute to
helping the EU reach its environmental and climate goals, doubling its circularity
rate of material use and to achieving its energy efficiency targets by 2030.
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 Who Translates The Big Frameworks?

The Big
Frameworks Translators

Influen
ce

YOU
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The Role of ESG Rating Agencies

ESG rating: is a method used for measuring environmental, social, and governance (ESG) practices and corporate efficiency.

ESG rating agencies: collect data on all kinds of factors, such as greenhouse gas emissions, working procedures, diversity
of company boards, and engagement with communities, to evaluate the company’s overall performance. Such rating is also
used by investors, analysts, and other stakeholders to assess the company’s long-term sustainability and for the purposes of
risk management.

ESG rating methodology: is not unified and every rating agency can thus use various methods and criteria for the purposes
of company evaluation. One should also note that ESG rating is only one of the tools available for the evaluation of corporate
sustainability and it should be used in connection with other sources of information.

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Customizable slide - National Context for ESG Rating Agencies

Consider adding a list of well-known global or local ESG rating agencies relevant to your context.

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2.3 SDGs vs ESG
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UN Sustainable Development Goals (2015)

The United Nations Sustainable Development Goals (SDGs) are a collection of 17

interlinked global goals designed to be a blueprint to achieve a better and more
sustainable future for all.
They were agreed in September 2015 and are intended to be achieved by 2030.
Through 17 commitments and 169 targets, the goals seek to drive global action across
social, environmental and economic development issues.
The SDGs aim to guide governments’ regulations and policies.

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The Sustainable Development Goals:

1. No poverty
2. Zero hunger
3. Good health and well-being
4. Quality Education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and economies
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnership for the goals

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Customizable slide - Country-Specific SDG Priorities

•Most Relevant SDGs: [Insert SDGs relevant to the country, e.g., Affordable and Clean Energy, Decent
Work, etc.]

•Briefly explain why these SDGs are important for the country’s development.

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Why are the SDGs Relevant for the Private Sector?

• Business Value:
• Align with Global Priorities: Companies that integrate SDGs into their strategies show
leadership on globally recognized sustainability issues.
• Opportunities for Innovation & Growth: The SDGs open new markets and attract investment by
addressing sustainable solutions to global needs.
• Build Reputation: Engaging with the SDGs enhances corporate responsibility, building trust
with stakeholders and consumers.
• SDGs vs. ESG:
• SDGs: Focus on global development goals and broader societal outcomes.
• ESG: More company-centric, measuring how environmental, social, and governance factors
impact business performance.

A Common Starting Point: SDGs help businesses identify priorities and set the foundation for
comprehensive ESG strategies, aligning corporate responsibility with global development goals.
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How SDGs and ESG align: understanding their differences and shared
goals

Sustainable Development Goals

Environmental, Social, and Governance (ESG)
(SDGs)
Global goals to address sustainability Framework to measure company performance in
Focus
challenges sustainability
Guide international efforts toward a Help investors and companies assess sustainability
Purpose
sustainable future and risk management
17 goals with 169 targets covering Focused on environmental, social, and governance
Scope
global issues factors in businesses
Users Governments, NGOs. Businesses, investors, and analysts
Timeframe Targets to be achieved by 2030 Ongoing assessment of business performance
Examples No poverty, clean energy, climate action Carbon footprint, labor practices, board diversity

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Thank you very much