Meeting ESG objectives was until recently more or less optional, but now extensive regulation is on the horizon. The purpose of the organization now also requires ESG checks and having a genuine ESG culture, observes Joost van Ladesteijn.
By now, it is assumed that everyone knows that ESG stands for "Environmental, Social and Governance". However, when you ask a director what this abbreviation concretely entails, materially different answers follow. Increasingly, employers seem to realize that the political concept of ESG also has side effects.
ESG is not a new concept. The precursors of ESG date back to the 1960s and 1970s, primarily in the US. Corporate Social Responsibility (CSR) emerged in the 1980s as a result of environmental disasters such as the Bhopal and Exxon disasters. The 1990s are the birth years of ESG, particularly through the United Nations' Rio Earth Summit.
In the early 2000s, ESG became more mainstream. Specifically, the term "ESG" was mentioned in the Global Compact report "Who Cares Wins" in 2006. From 2010, there has been a global push for the regulation and integration of ESG, with a key moment being the adoption of the UN Sustainable Development Goals (SDGs). ESG reached new heights due to COVID-19.
ESG in labor law
Legislation with ESG aspects is inherent in labor law, given its very nature. This perhaps explains why ESG in labor law is a somewhat methodical catch-all term for everything related to people & planet, people and sustainability, from occupational health and safety to employee participation. More specific labor law-related ESG examples include:
Implementing policies in the areas of Diversity, Equity and Inclusiveness, as well as social safety;
Introducing green employment conditions (incentives/disincentives policies);
The EU Women on Company Boards Directive, including the Dutch Act on Balanced Gender Representation in Top Management;
The EU Pay Transparency Directive. This directive aims to ensure that employers offer equal pay. Pay differences must be based on objective reasons and not related to gender;
The EU Whistleblowers Directive, including the Dutch Whistleblowers Protection Act;
The Mobility Reporting Obligation. The MRO aims to contribute to the main goal of the climate agreement to reduce CO₂ emissions by 49% by 2030 compared to 1990.
In Western countries, ESG still has the wind at its back. Museums in the Netherlands want social shareholders. Insurers are reassessing their investments. However, other forces are increasingly becoming visible. In America, an anti-ESG movement is reportedly taking shape. For instance, Exxon has initiated legal action against activist shareholders.
Changing ESG Policy
In Western countries, ESG still has the wind at its back. Museums in the Netherlands want social shareholders. Insurers are reassessing their investments. However, other forces are increasingly becoming visible. In America, an anti-ESG movement is reportedly taking shape. For instance, Exxon has initiated legal action against activist shareholders.
In the Netherlands, Shell is making its voice heard. Unilever has lowered its ESG goals. Other companies are also repositioning themselves regarding ESG. Sustainability claims are being removed for fear of "greenwashing". With stricter ESG requirements mainly from the EU, a realistic assessment is that a multitude of environmental lawsuits will be initiated.
The EU, meanwhile, continues to push its agenda to promote a sustainable economy with responsible business conduct. On April 24, 2024, the European Parliament approved the Corporate Sustainability Due Diligence Directive (CSDDD). The incoming government wants to slow down the EU on certain points according to the main agreement "Hope, Courage and Pride". The Senate also appears more conservative, given the rejection of the Work Where You Want Bill and the Supervision of Equal Opportunities in Recruitment and Selection Bill. However, the train is already running and at increasing speed.
A phase of "walk the talk" is dawning for companies. Voluntariness with self-regulation is quickly being replaced by far-reaching regulation with serious fines and likely procedures at the mere perception of non-compliance. "Soft law" is becoming "hard law". This requires at least an "ESG check" and above all a genuine and sincere ESG culture. Otherwise, the stated purpose can quickly turn into reputational damage.
This article first appeared on CHRO.nl.
Comments