In recent months, many observers have been celebrating the death of the environmental, social and governance (ESG) agenda. And indeed, for those who want to use it as a quick fix or as a tool to launch unsubstantiated PR campaigns, the ESG party may be over.
However, embedded in robust principles for how companies interact with the world, ESG is rooted deeper. And it faces much greater challenges than the politicised backlash in the US, where investment funds have rushed to airbrush the acronym out of products and employee titles.
Far from being cancelled, ESG principles are here to stay. There are more than 2,400 ESG-related regulations worldwide, and as of January 2023, the European Union had agreed on at least 11 ESG regulatory frameworks with a phased implementation running into 2026.
ESG principles clearly remain a potent force. What we are seeing now is a troubleshooting phase to eliminate bugs, glitches and misguided perceptions with which the acronym has been tarnished due to its abuse by greenwashing.
In particular, the EU Corporate Sustainability Directive will be a catalyst for change, with around 50,000 companies falling under its scope.
The potential impact extends beyond EU borders to suppliers of EU companies, those operating offices in the bloc and other entities with EU affiliations.
The directive also aims to provide uniformity of standards and an in-depth assessment of companies’ environmental impact, social responsibility, governance and risk management processes.
The game-changer will be the double materiality assessment requirement. Companies will need to identify which sustainability issues are more material to their organisation and stakeholders for their impact and for their viability.
Shipping has no industry-specific ESG standard, but the International Maritime Organization has frameworks that provide for regulation on matters such as environmental protection and safety.
ESG is, therefore, a call to align such regulations with the core business strategy, set key performance indicators and build stronger corporate foundations.
While most discussions revolve around what the fuel of the future will be, other critical matters are left behind.
Getting ESG principles right is also key to several viability factors, such as the industry’s ability to attract talent, on board and onshore, keep oceans healthy and safeguard the interests of a new generation of stakeholders.
At a time when regulation sets the stakes much higher than the average ESG report driven by vague marketing efforts, companies now need to demonstrate an evidence-based strategy and an aligned corporate outlook, and combat greenwashing.
To do this, there are three key points.
The first is a clear business direction on what and who matters to the business.
The second is for the ESG considerations to have a voice on the board, with directors trained to have a firm understanding of the principles.
Third is assembling the right team and advisers who can drive the formulation, implementation and communication of strategy through knowledge of the risks involved and transparency.
Engaging stakeholders internally and externally throughout the journey is paramount to the process.
The EU regulatory pace on ESG is showing no indication of slowing down. A heating global climate and social protesters and stakeholders have redefined expectations; whether we call it ESG or not is immaterial.
ESG is a mandate for doing business responsibly and its principles are a road heading only in one direction.
Gina Panayiotou is founder and CEO
of consultancy Oceans Arena
