Future-Proof Through Intelligent ESG Management

Effective ESG (Environmental, Social, Governance) management is crucial for companies' long-term economic success. It is not just a response to regulatory requirements, but it also offers numerous practical advantages for implementing sustainable practices and ensuring the availability of capital for the future.

The European Green Deal, launched by the European Commission in 2019, aims to make the EU climate-neutral by 2050. Achieving this goal will require far-reaching changes in various sectors. The EU Taxonomy Regulation, in force since June 2020, defines which economic activities are considered environmentally sustainable. This classification is crucial for channeling capital flows into sustainable projects.

In addition, the Corporate Sustainability Reporting Directive (CSRD) obliges companies to report comprehensively on their ESG practices. This applies not only to large companies that meet specific criteria, but also to all listed companies. A central aspect of this reporting is the disclosure of the proportion of taxonomy-compliant activities. This means that companies must be transparent about how sustainable their business models are.

With the publication of the first omnibus package on February 26, 2025, the EU Commission plans to relax the obligations of the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. This could significantly simplify reporting obligations for companies and reduce the administrative burden.

The planned changes envisage that only companies with more than 1,000 employees and an annual turnover or balance sheet limit must submit a sustainability report by the CSRD. This could reduce the number of companies subject to reporting requirements by around 80 percent. In addition, the CSDDDs' due diligence obligations will be simplified so that companies will only have to consider the direct impacts of their business activities and those of their direct business partners in the future. The obligation to terminate contractual relationships in the event of severe negative impacts is also to be dropped not to jeopardize critical supply chains.

These adjustments allow companies to make their sustainability strategies more efficient without becoming entangled in excessive bureaucracy. This will enable them to utilize their resources better to focus on sustainable practices while increasing their competitiveness. In this context, it becomes clear that well-thought-out ESG management not only fulfills regulatory requirements but also creates clear added value for the company.

However, the implementation of ESG management is not without its challenges. Companies must not only adapt to the new legal requirements, but also ensure that they have the necessary data and processes in place to successfully implement their sustainability strategy. Here are some important aspects that come into play:

1. Double materiality analysis: The double materiality analysis is an effective tool for finding out which topics are important for your company. It helps to identify relevant ESG criteria that have a financial impact on the company as well as social and environmental relevance. The higher the materiality rating, the more intensively you should address these topics.

2. Data management: Successful ESG management requires structured data management. Companies should deal with various data sources in order to collect relevant information. This can be done using existing databases, automatic data collection or manual data collection. It is important to develop a role concept that defines clear responsibilities for data providers (responsible for collecting the data), verifiers (responsible for quality assurance of the data) and publishers (responsible for transferring data to higher-level reporting levels and publication).

   It is crucial to capture ESG data correctly and completely in order to create transparent and meaningful reports. Software such as green.screen from Arvato Systems. As ESG reporting software, it offers the possibility to collect, analyze and present data in accordance with the ESRS standards (European Sustainability Reporting Standards).

3. PDCA cycle for continuous improvement: >The implementation of measures should take place within the framework of a PDCA cycle (Plan-Do-Check-Act). By continuously monitoring and adjusting the measures, it can be ensured that the measures are sensibly adapted to the current situation of the company and are as effective as possible.

   Since the change process takes place over a long period of time, it is important to implement the measures within an IT tools and track their effectiveness. Only if you transparently identify the sources of emissions and other consumption quantities can you specifically analyze where measures need to be taken. It is important not to work exclusively with aggregated figures, but to break them down in detail using software in order to develop effective control measures.

In practice, it has been shown that successful ESG management should be long-term. It is crucial to look at reporting for a single year and track developments over a longer period. This allows companies to recognize trends and patterns that indicate progress or regression in their sustainability practices. A long-term view also helps to identify areas where continuous improvement is needed and helps to base strategic decisions on sound data. In this way, companies can not only achieve their sustainability goals more effectively, but also strengthen their credibility and the trust of investors and customers.

The sustainability management of a company should be flexible enough to adapt to changes in the company structure. This is particularly important for larger companies with complex corporate structures. For example, the acquisition or sale of parts of the company or locations during the year can make it difficult to compare ESG figures over the years. Such changes can affect the data situation and make it necessary to make adjustments to reporting to ensure a consistent and meaningful analysis of sustainability performance.

Another important aspect is the user experience. Employee support for ESG management is crucial, especially as many employees involved in the process are not primarily responsible for ESG management. If they are distracted from their main tasks, they often perceive this as an additional burden. If the user experience of the reporting tool is also poor, it becomes all the more difficult to motivate and engage these employees. This can lead to the whole process taking up too many internal resources and costs, which can impact the efficiency and effectiveness of ESG management. A user-friendly platform can help increase acceptance and minimize the effort for everyone involved, as simple and comprehensible data collection and processing strengthen employees' identification with the company's goals and sustainability strategy, ultimately making it more attractive to customers.

Our experience with developing the sustainability platform green.screen has shown that a well-thought-out role concept, flexible data organization, and user-friendly functions are crucial for establishing effective ESG management.