Why do you need ESGs?
You may already have heard about ESG, but you don’t really know what it is or you do not have a full understanding of how you should approach it. It’s true, that fashion and sustainability regulations are changing so fast that it's a full-time job to keep up with them. Let’s have a look at what exactly ESG stands for and why designers and small brands should care about it.
What is ESG?
ESG stands for Environmental, Social, and Governance.
These three pillars represent the key factors that measure the sustainability and societal impact of an organization.
Environmental:
This relates to how a company's operations impact the environment. It includes aspects such as carbon footprint, waste management, and resource conservation.
Social:
This focuses on how a company manages relationships with its employees, suppliers, customers, and the communities in which it operates. It includes topics like labour practices, human rights, and community engagement.
Governance:
This is about the internal systems of a company, including its leadership, executive pay, audits, internal controls, and shareholder rights.
Why Big companies must do ESG reporting?
While ESG reporting can be a voluntary publication for your company, for most big companies and corporations, it’s a must.
The Corporate Sustainability Reporting Directive (CSRD), which is the new EU legislation requiring all large companies to publish regular reports on their environmental and social impact activities, helps investors, consumers, policymakers, and other stakeholders evaluate large companies' non-financial performance. From Q1 2024, all listed companies and European companies with a 50 million Euro Turnover or 20 Million Euro of assets, or more than 250 employees have to report ESG based on the CSRD directive. For more details check here
Even if you're not legally obligated to report, looking into ESG can bring you unexpected benefits.
Why Small Companies Should Start with ESG?
You may say that you have a small company and you do not have the resources to look into ESG reporting, but if you have a long-term vision, you may consider that starting with it may help you to:
Build Trust
Consumers are increasingly prioritizing sustainability when making purchasing decisions. By adopting ESG practices, you can build trust and loyalty among your customer base, especially if your brand is talking about sustainability.
Make Operations more efficient
Implementing sustainable practices can lead to cost savings through energy and water conservation, waste reduction, and more efficient supply chain management.
Risk Mitigation
Non-compliance with environmental and social regulations can result in fines and reputational damage. By proactively addressing ESG issues, you can mitigate these risks.
Some guidelines to make it easier
Digging into the different laws to find out what you should report can be pretty time-consuming and demotivating, but wait a moment, someone has thought about that…
The Global Reporting Initiative (GRI) provides a comprehensive framework for organizations to report on their ESG performance. It offers guidelines and indicators that help companies measure and disclose their impact on the environment, society, and governance.
Check it out here: https://www.globalreporting.org/
The Principles
Now that you have thought about it and you are thinking "Why not?" you may also face the difficulties of finding the right starting point. Here you will find 5 principles that you can use as guidelines for your ESG reporting and can help you to have a clearer approach:
Comparability
Ensure to select data points that you can compare. Always apples with apples.
Accuracy
Find a way to obtain as much accurate data as possible to ensure a reliable representation of the situation.
Timeliness
Ensure that the parameters you use are not only for one year; you will need to compare them in future ESG reports.
Clarity
There shouldn't be room for interpretation regarding the type of data and how to measure it. If a five-year-old can understand that, then you've done a good job.
Reliability
Find a reliable source of information and measurement to ensure you can apply comparability.
Focusing on these 5 principles will not only help you create clear ESG reporting but also enable you to assess the strength of your business plan and identify areas for improvement.
Involve Stakeholders
Setting up a business, even if it is a small one, means dealing with a lot of stakeholders. One of the most important things in ESG reporting is to involve the once of your supply chain. Your product is made by them and it is not enough just to know who they are. You need to include them in the decisions you are taking and make sure that they are playing the game with you to get them into your ESG reporting.
For example, if you are planning a target of zero CO2 emission by 2030, make sure that your supply chain is ready for that and they can also commit to that.
Talking to them helps also to build a better relationship and make sure you have done the right thing selecting those suppliers or sometimes you can find out that you may have a better one more aligned with your vision.
Where to start?
If you're not yet familiar with your supply chain and have never conducted an ESG report, you may feel overwhelmed with all the tasks ahead.
Here's how to approach it: "Start where you are and don't wait for perfection."
- Create focus groups to prioritize your impact.
- Define your suppliers' and customers' priorities.
- Narrow down your focus to 1 to 3 topics (no more). These can be simple things like recycling plastic, reducing water usage, or sourcing locally, etc.
You can begin with these three points, but as a business owner, you may encounter financial challenges with all the sustainable implementations. To ensure that your actions are sustainable for your business too, you should define their financial impact.
This impact can be negative, such as costs, but also positive, such as energy and water savings. Make these considerations not only for the first season but for the entire year you're planning to amortize investments.
BE Relevant
It sounds logical that you do not have to make a claim on everything, but on the things you are making a bigger impact. For instance you you are not using much water and you are planning to reduce the use of water it is not a very relevant achievement. Start from the biggest impact you are having and focus on reducing that to really make a relevant chance.
Conclusions
It is not easy to make an ESG report but if think 5 years ahead it may be the right thing to start doing. You don't have to do it to show off the good things you want to do to look good, it is not an Instagram post. You need to do it for your company and for the sustainable growth of it. Last and most important, BE HONEST, also in your failure. As you do not trust and like perfect people why should other people trust you?
