About ESG Policies, Governance, and Compliance
ESG policies are a set of guidelines and principles that a company adopts to address key sustainability and ethical challenges in its business operations to drive governance. Conceptually, these policies are based on four fundamental principles of Responsibility, Accountability, Fairness, and Transparency, which promote an organization’s business operations and, in turn, drive governance and promote compliance. ESG policy development hinges on setting goals and making strategies that are environmentally, socially, and economically upright. In real-time, there are different policies to address each pillar of ESG.
Modern environmental activism that started in the mid-20th century has paved the way for the development of policies that help an organization address issues such as climate change, deforestation, and conservation of wildlife. Environmental policies include energy use, energy efficiency, carbon emissions, and water conservation, among others, while social policies revolve around employees, including subjects such as equality, inclusion, human rights, & community impacts. Governance policies are developed keeping in mind conflicts of interest, board independence, board representation, and corruption aspects. In the present scenario, ESG policies play a critical role in helping businesses across the world assess and manage their sustainability impact.
Once ESG policies are developed, companies need to define roles across their operations to establish ESG governance and adopt regulatory requirements based on ESG compliance frameworks.
Importance of ESG Policies in the Current Market Scenario
ESG policies create enhanced transparency and accountability, requiring an organization to disclose their progress related to the three pillars. Furthermore, ESG policies help an organization achieve compliance externally and internally while already laying down ethical & sustainable practices and goals that a company must follow, which are in line with the regulations and laws made by the state or country in which a firm operates.
ESG policies help identify and mitigate potential risks that challenge an organization in terms of environmental, economic, & social aspects, acting as a preventive measure to secure an organization’s reputation and fiscal performance. This creates stakeholder engagement and demonstrates a company’s commitment to sustainable practices that help attract ethical & sustainable investments and create market reputation for the company. Various statutory and nongovernmental bodies across the globe have created initiatives that drive sustainability across different sectors. The Security Exchange Commission (SEC) in the U.S. is an example which has made a policy mandating public companies operating in the country disclose material ESG-related risks and events in their annual reports, which includes information related to environmental efficiency and good governance practices. At a global level, organizations like the Business Roundtable and the Council of Institutional Investors make frameworks & guidelines that can be adopted as policies by companies of different sectors, which helps in creating a robust corporate governance structure.
How ESG Policies, Governance, and Compliance Adds Value to Our Customers
ESG policies help society and businesses address unique challenges pertaining to sustainability. Businesses, investors, governments, and even countries are key stakeholders that have the highest impact while addressing risks associated with ESG goals.
- Investors
ESG investors scrutinize ESG risks, such as human rights risks, environmental & social performance risks, risks to usage of resources, climate change risks, and corporate governance risks, while making investment decisions. Policies around them are often made by companies to help investors and stakeholders understand the strategies & plans of an organization in materializing and executing sustainability goals of firms. They also reflect the commitment & impact of companies toward sustainability and track and review their sustainability goals. Apart from this, external stakeholders, such as consultants, would require a fundamental policy framework to create tailor-made policies for the company within its area of operation, thereby adding business value to investors and other stakeholders.
- Regulatory bodies
Assessment of ESG policies made by the companies can help regulatory bodies further standardize the frameworks and promote sustainable practices that create an impact on environmental, social, and governance pillars of sustainability. As consumers of ESG policies, governance, and compliance data, by understanding the compliance & governance requirements of firms, regulatory bodies can provide a standard set of rules for companies to improve their information security and operate more effectively.
- Industries and sectors
Different industries across the globe gain knowledge on the nature of policies and the impact of such policies on the ESG of the sustainability arena through ESG policies and governance. For instance, manufacturing-intensive industries, such as the pharmaceutical, fashion, automotive, & beverage industries, due to the nature of their businesses, exert a significant impact on the environment and economy. Companies operating in these industries have adopted policies that help in achieving carbon neutrality and zero emissions. For instance, Coca-Cola aims to achieve net-zero carbon emissions by 2050.
- Small-scale and large-scale organizations
Compliance frameworks as structured guidelines add value to firms by enhancing security, promoting operational excellence, preventing potential penalties due to noncompliance, and improving customer loyalty.
How NeoImpact can help
Companies across the globe have made initiatives and policies that help in addressing material sustainability challenges and achieving sustainability goals, which can be analyzed, curated, & implemented with the help policies, where NeoImpact provides in-depth analysis:
Simplifying ESG policy development
ESG policies & procedures drive internal controls through codes, guidelines, and standards that are often complex. NeoImpact empowers firms to establish sustainability best practices across organization’s governance and its supply chain. Following are some policy areas where NeoImpact provides consulting:
Policies on carbon neutrality and climate change – NeoImpact helps firms measure, analyze, and improve their operations in line with country-level and global policies.
Biodiversity conservation policy – NeoImpact helps create policies for biodiversity management by engaging various stakeholders and also provides environmental audits for companies that pose high risks to the environment due to their activities.
Circular economy policy – NeoImpact helps create circular economy models specific to their operations for firms operating across the fast fashion, textile, automotive, electronics, & energy industries.
Diversity and inclusion policies – NeoImpact provides benchmarking, peer analysis, and competitor insights for improving the social operational standards of firms to promote diversity and inclusion.
Human rights policy – As human rights and economic development are entwined, businesses across various industries at a global scale have policies to promote and protect human rights, internally and externally. NeoImpact’s advisory team creates a positive social impact through the creation of human rights policies and standards.
ESG due diligence
Apart from collecting, aggregating, and interpreting key ESG data, ESG due diligence provides targeted intelligence for decision-making for firms to ensure compliance. In identifying material risks for a business, NeoImpact provides comprehensive inquiry and analysis of ESG policies and practices to highlight risks & opportunities. NeoImpact’s due diligence process includes the creation of a formal ESG policy, performing materiality assessments, and collection & tracking of measurable KPIs for reporting.
Aligning ESG/corporate sustainability reporting with global regulations
Apart from aligning corporate sustainability reporting with disclosure requirements and informing ESG strategy, NeoImpact integrates various frameworks in its taxonomy, including SASB, CDP, TCFD, GRI, & UN SDGs, to improve standardization and corporate sustainability reporting, including policies. This further helps in improving regulatory compliance for firms operating across different verticals and various geographies.
ESG governance and compliance
Apart from creating and establishing ESG governance policies and procedures, NeoImpact can define the roles & responsibilities within the social and governance structure of a firm. NeoImpact helps organizations design and implement ESG compliance frameworks in line with geographic regulatory requirements.
