The term ESG was first used in 2004 in the report " Who Cares Wins: Connecting Financial Markets to a Changing World ," which highlighted how integrating ESG factors into corporate strategies improves investment markets and contributes to global sustainability. Engaging in ESG is increasingly seen as essential to long-term corporate success, as it can help manage risk, enhance reputation, increase operational efficiency, and attract investors and customers.
ESG is a term derived from the first letters of a category of factors used to assess the sustainability of a company's operations – these are: environmental, social responsibility and corporate governance.
Environmental: This refers to how a company manages its environmental impact. This includes, among other things, greenhouse gas emissions, water consumption, waste management, biodiversity conservation, the use of renewable energy sources, and the sustainable extraction of raw materials.
Social: This aspect refers to how a company impacts the communities in which it operates, its employees, and its stakeholders. This includes issues related to human rights, labor practices, employee health and safety, diversity and equality, community involvement, and relationships with local communities.
Governance: This factor addresses a company's governance structure and management practices. It encompasses aspects such as transparency and integrity, independence of supervisory bodies, effectiveness of risk management, business ethics, corruption prevention, compliance with legal regulations, and board accountability to shareholders.
The role of ESG factors
Investors, and increasingly banks, expect companies to be transparent about ESG issues that matter to them. Effective or poor ESG management can impact a company's operations.
Implementing ESG (Environmental, Social, Governance) in a company can bring numerous benefits, both short- and long-term. Here are some of the main advantages:
- Increased company value: Implementing ESG practices can increase company value by better managing risks related to environmental, social and governance factors and improving the company's image in the eyes of investors, customers and the community.
- Better access to capital: Companies that effectively implement ESG practices may have easier access to capital on more favorable terms. Interest in ESG investors is growing, and more investment funds prefer to invest in companies with strong ESG policies.
- Increased innovation and efficiency: Implementing an ESG strategy can promote innovation by encouraging the search for more sustainable and efficient ways of doing business. This includes improving energy efficiency, reducing the consumption of natural resources, and developing products and services focused on sustainability.
- Better risk management: ESG can help identify and manage a wide range of risks, including regulatory, operational, reputational, and financial risks. A long-term approach to ESG risk management can mitigate potential losses and costs associated with adverse events.
- Improving stakeholder relationships: Implementing ESG practices can increase trust with stakeholders, including customers, employees, suppliers, and local communities. A focus on environmental, social, and governance issues can help build stronger and more lasting relationships.
- Minimizing negative environmental and social impacts: Implementing ESG practices allows companies to minimize the negative impact of their operations on the natural environment and local communities, which can prevent potential conflicts and reduce negative environmental impacts.
ESG report – who does it apply to?
From 2025, the obligation to prepare an ESG report will apply to all large enterprises and companies listed on EU markets, employing at least 500 people (if their balance sheet total exceeds PLN 85 million or annual revenues exceed PLN 170 million). This obligation will include the need to prepare a report for 2024.
In turn, from 2026, the obligation to prepare a report (for 2025) will rest with entities that meet 2 of the 3 conditions:
- employ at least 250 employees;
- the balance sheet total exceeds PLN 85 million;
- annual revenues amount to at least PLN 170 million.
Small and medium-sized enterprises that meet two out of three conditions will be required to prepare an ESG report for 2026:
- employ at least 10 employees;
- the balance sheet total exceeds PLN 1.5 million;
- achieved revenues exceeding PLN 3 million.
In summary, implementing an ESG strategy brings many benefits, both for the company itself and for its stakeholders, and contributes to building more sustainable and efficient business operations.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of February 28, 2024
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