by Nada Welker | Feb 5, 2024 | Electrification, Future Trends, Market development & Trends, strategy in change, Technologies for new markets
The conference on “Energy transition in Viticulture – New Concepts for Sustainability” at the Weincampus Neustadt was a great success. The event took place on January 31, 2024, in the auditorium of the Service Center for Rural Areas (DLR) Rheinpfalz as an interactive format, attracting a diverse group of wine experts, vintners, and enthusiasts.
Participants were invited to delve into the challenges posed by the energy transition for the German wine industry. The focus was on the issues and opportunities for small and medium-sized wine businesses, particularly in terms of potential savings and the generation and storage of renewable energy. Commencing at 4:30 PM, the event provided an in-person experience at the DLR Rheinpfalz auditorium, with the option for virtual participation via the livestream at https://schlagabtausch.ef-sw.de/.
Energy transition in Viticulture – Panel Participants
The panel discussion brought together renowned experts from the wine industry to share their perspectives. Discussion participants included Dr. Michael Müller, Managing Partner of Magility GmbH from Wendlingen am Neckar, along with Jochen Schmitt from Weingut Egon Schmitt in Bad Dürkheim, Matthias Wolf, Managing Director of Weingut Schloss Ortenberg, Hans-Christoph Stolleis, Owner of Weingut Stolleis in Neustadt an der Weinstraße, Saskia Wörthwein, Managing Director of Weinmanufaktur in Untertürkheim, and Moritz Prinz zur Lippe, Apprentice at Weingut Ökonomierat Rebholz in Siebeldingen.
A Sign of Sustainability in Wine Production
The discussion focused on ways to make wine production more sustainable, shedding light on the role of renewable energy in viticulture. Participants learned how small and medium-sized wine businesses can achieve savings while contributing to the energy transition. The conference was free of charge, allowing for spontaneous participation, fostering a broad engagement and ensuring diverse perspectives were heard.
In conclusion, the event served as a successful forum for exchanging ideas and information about the energy transition in viticulture. Weincampus Neustadt thereby set an important example for more sustainability in wine production and promoted dialogue between industry experts and practitioners.
The Multidimensionality of Viticulture: A Look at the Levels of Success
Viticulture, a complex and multifaceted industry, is influenced by various levels ranging from global trends to specific growing conditions. Dr. Michael Müller provided a closer look at these levels in his presentation, vividly summarizing them for the participants.
Level 1: The World – Global Trends and Politics
At the highest level, global trends and political decisions on a global scale come into play. Climate change and globalization are examples of factors that can influence viticulture worldwide, requiring continuous adaptation by the industry.
Level 2: Region – Climatic Conditions and Legislation
The second level is the region, where climatic conditions play a crucial role. In Germany, wine regions like Pfalz, Mosel, Rheingau, and Baden are of great importance. Here, laws, regulations, infrastructure, and cultural factors influence viticulture. The German Wine Law is an example of a norm with significant influence on the regions.
Level 3: Soil, Terroir, Topography – Influence on Taste
On the third level, soil, terroir, and topography come into play. These complex factors mutually influence each other and significantly shape the taste of the wine. Each wine-growing region has its own peculiarities that manifest on this level.
Level 4: Vine, Vineyard – Grape Variety, Cultivation Method, Care
The fourth level encompasses the vine and the vineyard. Here, the choice of grape variety, cultivation method, and care are crucial. Different grape varieties are suitable for various cultivation methods, resulting in a diverse wine landscape.
Level 5: Harvest, Vinification – Technique and Vinification
The fifth level includes the harvest and vinification. The choice of harvest technique, vinification, and aging significantly influence the quality of the wine.
Level 6: Brand, Marketing, and Sales – Identity and Distribution
On the sixth level, brand, marketing, and sales take center stage. Here, brand identity, marketing strategy, distribution channels, and sales play a decisive role in market success.
Overall, this hierarchical approach illustrates that viticulture is a multidimensional industry, requiring careful considerations and adjustments at each level to ensure quality and competitiveness. A profound understanding of each level enables vintners to operate successfully in this challenging environment.
Energy transition in Viticulture – Summary of Participant Voices
- Need for Savings: There was unanimous agreement among participants that measures to save resources and energy in viticulture are inevitable.
- Reflection and Implementation Speed: It was emphasized that while much thought is given, faster implementation and more speed in deploying solutions are necessary.
- Future Investment: Participants saw adapting to sustainable practices as an investment in the future.
- Start-ups’ Need: There was a desire for more support from start-ups that can develop innovative solutions for winemakers.
- Focus on Wine Production: Participants stressed the importance of focusing on wine production and leaving technological solutions to others.
- Knowledge Source: The question of acquiring know-how was raised, emphasizing the need for more best-practice exchange and forums.
- Experimentation and Trying Out: The necessity to experiment with new approaches and technologies was underscored.
- Government Assistance: Politics were urged to assist in challenges such as slow approval processes, for example, for cables in the ground.
- Grid Adjustments: Criticism was voiced about mismatched grid structures, with a demand for improvements.
- Priority for PV Rooftops: Prioritizing photovoltaic rooftops was suggested.
- Profit Assurance for Winemakers: It was emphasized that sustainability measures should also serve to secure profit for winemakers, enabling the implementation of new concepts.
- Action over Words: There were multiple appeals not only to talk but to actively take measures. Exchange and collaboration were highlighted as key factors.
In conclusion, gratitude was expressed for insights from a different perspective that enriched the discussion.
Energy transition in Viticulture – Magility Summary
The digitalization and electrification in viticulture shape a sustainable future. From harvest to marketing, innovative technologies enable efficiency gains, quality improvements, and active support for the energy transition. Winemaking enterprises pursuing intelligent solutions are not only embracing eco-friendly practices but positioning themselves as pioneers in sustainable viticulture. A holistic examination across all levels – from harvest to marketing – creates a path to a future-oriented and environmentally conscious wine cultivation. In the coming days, our blog will delve into the different levels of action in viticulture. Look
by Nada Welker | Jun 7, 2023 | ESG, strategy in change
Path to climate neutrality
Many efforts are needed on the road to carbon neutrality. Companies are under increasing pressure to address environmental, social and governance (ESG) issues and define sustainability targets. Read everything you need to know about Carbon Crediting in our recent blog article.
A decarbonisation strategy for climate protection
Beyond their ethical implications, ESG measures and, as a consequence, good ESG ratings have become a crucial competitive factor for companies.
With comprehensive sustainability reporting set to become mandatory very soon, companies are recognising the relevance of managing their environmental impact, particularly in relation to carbon emissions. According to experts, in order to achieve the 1.5-degree target for CO2 emissions proclaimed in Paris in 2015, global greenhouse gas emissions would have to be reduced by 50 per cent of current levels by 2030 and reduced to net zero by 2050.
Source: McKinsey, 2021
The harmful effects of these emissions on the global climate have led companies and organisations to re-evaluate their operations, adapt to greener practices and develop comprehensive strategies to reduce their carbon footprint, such as building renewable energy facilities. In such a decarbonisation strategy, one ideally follows the principle of Avoid – Reduce – Remove – Offset.
Source: Magility, 2022
However, there are also emissions that are difficult to reduce or even completely avoid, especially in manufacturing companies. For these companies, it is compensation instead of reduction. This is where the so-called carbon credits come into play.
Carbon Credits and Carbon Allowances
Carbon credits are used by companies to offset emissions that they cannot avoid. This so-called Voluntary Carbon Market (VCM), i.e. voluntary implementation, contrasts with Regulated Emission Trading Systems (ETS), which are used by various countries to encourage companies to reduce emissions. In the ETS, the amount of CO2 emissions allowed is limited. Companies that emit fewer emissions than allowed can sell these as so-called carbon allowances – but if they emit more than allowed, they must purchase corresponding allowances.
By purchasing carbon credits and thus financing certified climate protection projects, companies, governments, but also individuals can reduce, remove or offset their emissions. One carbon credit corresponds to the removal of one metric tonne of CO2.
Since 2005, the European compliance market has included CO2 emissions from industry, energy and aviation, the sectors with the highest current emissions in the EU. It is managed according to the “cap and trade” principle, which reduces the amount of carbon allowances available each year, thus increasing prices and creating incentives to reduce. In 2022, the total number of allowances in circulation (TNAC) was over 1.1 million, generating €38.8 billion in sales. The number of annual allowances is continuously being reduced in order to achieve further price increases.
The VCM which started in 1996 with the first so-called REDD projects (Reducing Emissions from Deforestation and Forest Destruction) has rapidly developed into a million-dollar business that could potentially be worth almost 10-40 billion dollars by 2030.
Source: Shell and BCG, 2022
Carbon Crediting Ecosystem
Currently, projects to offset CO2 are carried out by independent private project developers. Both the projects themselves and the tonnes of CO2 saved as a result are verified by external auditors. These auditors apply various standards, such as the Gold Standard or the Verra Verified Carbon Standard, to quantify and verify the savings potential of the projects. After verification, the corresponding number of credits is registered in the so-called carbon registries of the respective standards. Buyers can then purchase the credits directly from the project developers, via the registries or from other traders.
Source: Magility, 2022
What are the disadvantages of carbon crediting so far?
Since the market for carbon credits and the associated projects is not yet very strongly regulated, there is a danger that companies will only engage in emissions reduction for the sake of appearances, invest in projects that are not environmentally compatible or simply engage in greenwashing:
- Compensation measures, such as reforestation of the rainforest, are relatively short-term measures – which is exactly “only” over the lifetime of a tree. Nevertheless, in most cases such measures also create other benefits for the environment.
- In some cases, (re)afforestation does not take into account the biodiversity of the surrounding area, but focuses only on factors such as rapid tree growth. This in turn promotes the spread of monocultures.
- The prices for carbon credits were still very volatile in the past. This creates the risk that investments for future projects are set too low.
- Some companies could simply buy carbon credits for a clear conscience – and at the same time do nothing to reduce their emissions.
- In the context of impact investing, i.e. investing in sustainable projects, “additionality” is key. This means, if a project or an investment creates a reduction in emissions, this must be in addition to the emission reductions that would have been achieved even without the implementation of the project. However, assumptions about what emission reductions would have been achieved even without a specific project are often difficult, if not impossible. For example, would the solar plants in a rural area of India have been built only because of the investment through carbon credits or would they have been built anyway? Would a forest in Colombia have been reforested even without carbon crediting financing? Although the registries are trying to ensure additionality, it will probably be a while before there is real clarity on this.
What does the future hold for carbon crediting?
Under Article 6, the Paris Climate Agreement allows the carbon crediting system to offset emissions, as well as trading carbon allowances. The current Clean Development Mechanism (CDM) will be replaced by a new registration option for projects. It currently remains uncertain whether and to what extent this will affect the VCM. Although standardisation is still under development, carbon credits will undoubtedly be an important factor in reducing emissions and a considerable currency. However, to become completely carbon neutral, more than just offsetting is needed, but an intelligent and holistic decarbonisation strategy.
Article 6.4 was recently added to the Paris Agreement at COP29 to introduce a new mechanism that creates a more transparent and efficient framework for climate action and revolutionises carbon credits. You can read everything about the new carbon credits here.
At magility, we consider this decarbonisation strategy a fundamental part of our ESG management system. We help you to implement your individual strategy into your company.
When does your sustainable future start? Contact us for more information!
by Nada Welker | May 23, 2023 | ESG, Future Trends, Market development & Trends
Sustainable and responsible corporate governance is increasingly determining corporate actions in the boardrooms. A good ESG rating will have a significant impact on corporate success in the future, and the topic of ESG is receiving correspondingly strong attention in the media. Since 2017, large companies, insurance companies and banks have been obliged to report on sustainability. Based on the EU’s Non-Financial Reporting Directive (NFRD), non-financial reporting is usually included in the annual financial statements and comprises information and lists of commitments to environmental protection and nature conservation, social responsibility, human rights, dealing with corruption and ensuring diversity on supervisory boards and management floors.
However, as part of the EU Green Deal and the EU Action Plan “Financing Sustainable Growth”, the NFRD was fundamentally revised and expanded to make the presentation of information more comparable and transparent and to clarify its relevance. The draft of the new “Corporate Sustainability Reporting Directive (CSRD)”, which has been available since 2021, was adopted by the European Council on November 28, 2022.
In this article, we summarize the latest information on the new sustainability reporting, answer the most important questions and provide valuable tips on how you can prepare for the implementation of the CSRD (Corporate Sustainability Reporting Directive) in your company.
[infobox headline=”At a glance”]
- The new Corporate Sustainability Reporting Directive aims at creating comparable and reliable reporting about both financial and non-financial topics within a company
- The concept of double materiality looks both at the impact of a company’s own activities on the environment and recognizing ESG aspects that may affect the company, its strategies and activities
- In total, around 50,000 companies in the EU and 15,000 in Germany alone will be affected by the CSRD regulations in the future.
- With our ESG management System, Magility supports its customers in the implementation of the Corporate Sustainability Reporting Directive and the preparation and creation of your sustainability reporting
[/infobox]
What is the role of the CSRD?
According to the Commission, the Corporate Sustainability Reporting Directive is intended to ensure “that adequate, accessible information is available on the risks for companies in connection with sustainability aspects and on the impact of the companies themselves on people and the environment.” The goal is to create comparable and reliable reporting, with an equally weighted non-financial part added to its traditional financial-oriented part in the future. In addition, all of a company’s business relationships and supply chains will be subject to sustainability scrutiny. Until now, existing legislation on the disclosure of non-financial information has often been considered inadequate or even unreliable. The new CSRD initiative will fundamentally change the scope and nature of sustainability reporting.
In order to achieve the European Commission’s goal, companies will have to take care of two things in the future:
- The application of new ESG accounting standards, the European Sustainability Reporting Standards (ESRS), and
- the independent auditing and certification by an auditor of the reporting based on these standards.
Sustainability information must also be accessible digitally.
While the CSRD provides the formal requirements for reporting, the ESRS define the content. The ESRS take up existing regulations, such as the standards of the GRI (Global Reporting Initiative) and the SASB (Sustainability Accounting Standards Board) and the rules of the TCFD (Task force on Climate-related Financial Disclosures), but at the same time make the content clearer. New, uniform rules for the EU are thus defined, including the concept of double materiality. Specificially, this means that the impact of a company’s own activities on the environment is no longer the only factor to be considered. Equally, how ESG aspects affect the company and its strategies and activities must now also be taken into account.
Source: Magility GmbH
What are the advantages of the new reporting directive?
The advantages of this new transparency and uniformity are obvious. Stakeholders, such as investors, but also consumers, should find their own decision-making easier, for example with regard to investments or purchases that are also based on sustainability aspects. But it will also encourage and enable companies to give their ESG measures a bigger stage and thus tap into new customer groups and investors.
As non-EU companies are now also required to report for the first time, the European Commission’s initiative strengthens equal opportunities in the EU. For small and medium-sized enterprises (SMEs), this offers a major incentive to also voluntarily expand their reporting to include sustainability topics. The EU is thus laying the foundation for a global standard of sustainability reporting and wants to put an end to greenwashing.
Which companies will be subject to the new directive in the future?
As things stand at present, the audit obligation will apply to the first companies as early as 2025 (reporting year 2024), with others to follow by 2029.
Source: Magility GmbH
In total, around 50,000 companies in the EU and 15,000 in Germany alone will be affected by the CSRD regulations in the future. Compared to the current NFRD EU Directive 2014/95/EU, the new directive also changes the scope and timing of the reporting obligations. Whereas companies previously had to report on environmental protection, social responsibility, anti-corruption and bribery as well as diversity on company boards, the CSRD goes even further: in addition to the “double materiality” already mentioned, further forward-looking information including the setting of targets as well as documentation of progress will be required in the future. Information on intangible assets must also be disclosed. As a matter of principle, reporting must comply with the Sustainable Finance Disclosure Regulations (SFDR) and the EU tax directives.
How do I know what to report about?
How exactly the corporate sustainability reporting directive is now implemented is defined by the ESG accounting standards, the ESRS. The current drafts of the requirements can be found on the website of EFRAG (European Financial Reporting Advisory Group).
Source: Magility GmbH
ESRS 1 and ESRS 2, the General Information and Overarching Standards sections, describe and explain general aspects of the report that apply to all topics and areas. They specify how to report on the individual topics.
ESRS 2 examines strategy and business model in relation to sustainability, as well as corporate governance and organization and sustainability-related impacts, risks and opportunities. Finally, this section deals with concrete measures, allocation of resources, and key performance indicators.
The Environmental (ESRS E1 to E5), Social (ESRS S1 to S4) and Governance (ESRS G1) sections contain ten topic-specific standards, for example on climate change, environmental pollution, employee rights, corporate governance and business ethics. Which of these topics are relevant to a company is already determined in the analysis of dual materiality (ESRS 1). The standards set out in detail here what must be reported specifically on the individual topics.
In summary: ESRS 1 defines the how of the sustainability report, ESRS 2 and the topic-specific segments define the what, i.e. the contents of the report.
The timeline around the implementation of the CSRD at EU level
EFRAG, which submits fully developed draft standards or amendments to them to the EU for EU sustainability reporting, published the first official drafts of the new standard at the end of April 2022. On November 10, 2022, the EU Parliament adopted the reporting proposals for large capital market-oriented companies and equivalent trading partnerships, which were subsequently finalized by the European Commission. The new CSRD then officially came into force on December 19, 2022.
Source: Magility GmbH
From mid-2024, the new regulations will then also be implemented in national law at EU level. For companies, this means that the first annual reports will have to be published in accordance with the new uniform requirements for sustainability reporting as early as January 2025.
The ESRS currently still have draft status – but the standards are to be further defined and extended to sector-specific standards as early as November 2023.
Source: Magility GmbH
No time to lose: magility supports you with your sustainability reporting
The additional burden imposed by the new EU requirements is noticeable for all affected companies, but it is particularly high for small and medium-sized enterprises. They often find it difficult to track their supply and value chains and therefore cannot provide the required information in full. Despite the three-year transition period granted to SMEs, we strongly recommend dealing with the new requirements immediately and developing an implementation strategy now. On the one hand, because the conception of a new reporting already takes a lot of time from a purely technical point of view. On the other hand, companies and their management must be aware that this is a far-reaching change that cannot be anchored in the corporate culture overnight.
Magility supports you in the implementation of the Corporate Sustainability Reporting Directive and the preparation and creation of your sustainability reporting. With our ESG Management System, we help you successfully navigate through the ESRS and set your sustainability targets.
– We check if and when CSRD becomes relevant for your company
– Together we develop a viable ESG management system:
- Definition of material impacts
- Structuring of ESG measures in an ESG program
- Definition of the relevant goals – SDGs (Sustainable Development Goals)
- Agreeing on an ESG governance model
- Defining the plan for ESG reporting and audits
Sustainability is a must-have, no longer a nice-to-have! We support you in this. Contact our magility ESG experts!
by Julia Riemer | Oct 28, 2022 | ESG, Future Trends, Market development & Trends, strategy in change
The ESG megatrend is everywhere, hence the question of Sustainable Development Goals (SDGs) is increasingly being raised. In this article, we take a look at these SDGs and show why it is crucial for companies to align themselves more closely with these goals.
What are the Sustainable Development Goals?
The 17 Sustainable Development Goals (SDGs), adopted by the United Nations General Assembly in 2015, set out a plan for creating a better, more sustainable society by 2030.
The Sustainable Development Goals (SDGs) are an expanded version of the eight Millennium Development Goals (MDGs) that formed the basis of global activities to reduce extreme poverty from 2000 to 2015.
For the first time in history, the international community was able to agree on a global and comprehensive sustainable development agenda that includes both social goals (based on the MDGs) and environmental goals.
Eradicating all forms of poverty in all regions of the world is the first and most visible of the SDGs. The creativity, know-how, technology and financial resources of the entire global community are needed to achieve the SDGs in every context.
The need for greatly expanded SDG funding
The Sustainable Development Solutions Network (SDSN) has identified the six investment priorities – areas where major societal “transformations” are needed to achieve the 17 Sustainable Development Goals:
- education and social protection to achieve universal secondary education (SDG 4) and poverty reduction (SDG 1).
- health systems to end the pandemic and achieve universal health coverage (SDG 3)
- carbon-free energy and circular economy to decarbonize and reduce pollution (SDG 7, SDG 12, SDG 13)
- sustainable food, land use and protection of biodiversity and ecosystems (SDG 2, SDG 13, SDG 15)
- sustainable urban infrastructure, including housing, public transport, water and sanitation (SDG 11)
- universal digital services (SDG 9) to support all other SDG investments, including online education, telemedicine, e-payments, e-finance, and e-government.
At the heart of each transformation is a large-scale, long-term public investment program. The biggest practical challenge for developing countries is to mobilize the additional financing needed for these six priority areas.
The need for increased SDG financing to achieve these six transformations is now widely recognized, making it essential for companies to act now.
How can companies align their strategy with the Sustainable Development Goals framework?
Many companies are supporting the achievement of the SDGs within their organizations, in part to attract funding from investors who are increasingly concerned about the environment. But how can companies use the SDGs to drive important change?
1. Understand the SDGs and link the relevant goals to your business activities
The first step for companies to achieve the SDGs is to learn more about each of the Sustainable Development Goals (SDGs), their associated expectations and KPIs to understand how they relate directly and indirectly to their business activities. it is not only relevant to monitor typical KPIs, but to put special focus on the achievement of a good ESG rating related to environmental and social commitment.
2. Set priorities
Companies should prioritize the SDG targets by identifying which targets will have the greatest impact in terms of risks or opportunities in the medium to long term and which targets the company can drive forward. Although a company can make contributions to all 17 goals, it is important to focus first on the goals whose achievement will have the greatest impact when allocating resources and setting the timeline.
3. Set the targets
Once the key SDGs are established, it is critical to link these goals to concrete and measurable business objectives and KPIs to track and share development. Often, companies already have goals and initiatives that they can build on when setting their SDG strategy. For example, many companies that have committed to science-based goals (SBTs) use their validated goals to track progress on SDGs 7 and 13.
4. Integration
The defined SDG targets for the company must be integrated into the current corporate strategy. In doing so, companies must consider, for example, business models, R&D and procurement processes, and supply chain reforms to make the SDG plan sustainable and effective. Current commitments and projects remain an important component. Therefore, it is now necessary to realign the sustainability strategy to meet both the business objectives and the SDGs.
5. Innovation and collaboration
The SDGs provide a framework for innovation and promote new business models, goods and services that advance the fulfillment of the goals. Adherence to the framework also makes it easier to find partners inside and outside the industry, so that companies can also intensify their efforts in partnerships and ultimately achieve their goals.
6. Reporting and communication
Companies must be prepared to communicate their progress toward achieving the SDGs. It is critical to integrate the Sustainable Development Goals into the core process of corporate reporting to avoid duplication of effort and to ensure transparency and accessibility of their performance to various internal and external stakeholders.
In this way, useful tools and methodologies can be found to enable companies to better understand how they can contribute to the SDGs in a holistic way.
In developing the ICT solution for collecting and reporting SDG-related data, it is recommended to draw on existing tools and data and leverage overlaps in various reporting requirements such as TCFD, CDP, DJSI, etc. The SDG Compass provides a directory of different reporting tools that can be helpful in disclosing different SDGs. Companies should choose tools that are practical, efficient, and can produce clear and transparent sustainability reports that are accessible to both external and internal stakeholders, with a clear link to the relevant SDGs.
Magility’s take on the Sustainable Development Goals
This decade will be a very challenging time for the global community to transition to a hopefully more sustainable future. Businesses are critical to meeting this challenge, as it is their role to drive innovation, introduce best practices into their value chains, and align their strategy and vision with the Sustainable Development Goals.
The financial benefits for companies are clear, although the guidelines and mechanisms for incorporating and reporting on the SDGs are still evolving. Companies that do not make a significant commitment to sustainability or align their business strategy with the SDGs are likely to face increased scrutiny from stakeholders. They risk losing access to finance and run the risk of missing out on new market opportunities if investors decide to channel their capital into sustainable companies and business models.
In a follow-up article, we will soon provide an overview of the current state of EU sustainability reporting and take a magility look at the European Sustainability Reporting Standards (ESRS) developed by the EFRAG Project Task Force. Follow us on LinkedIn to not miss our future articles!
by Nada Welker | Aug 11, 2022 | ESG, Future Trends, Market development & Trends, strategy in change
How well is your company doing? No, the question is not about sales figures, but about orientation to and implementation of ESG criteria – Environmental, Social and Governance. A company is rated by the relevant rating agencies on the basis of its compliance with various criteria in these areas. A positive ESG rating will be nothing less than essential for a company’s survival on the market in the near future.
ESG – Three letters change the corporate world
What exactly is behind the three letters? Roughly speaking, environmental protection is, among other things, the avoidance of greenhouse gas emissions and energy efficiency. The basis for this is the so-called Green Deal of the European Commission. The social aspects relate, for example, to demographic change, protection against unemployment, preservation of health, acceptance and tolerance of diversity, and commitment to social issues. Sustainable corporate governance is based on ethical values and ensures the implementation of appropriate management and control processes. ESG thus has implications for entire global supply chains.
ESG rating – rating with changed parameters
Who is responsible for this evaluation? Rating agencies, whose list is currently headed by MSCI (Morgan Stanley Capital International) and Sustainalytics. With the acquisition of Institutional Shareholder Services (ISS) two years ago, Deutsche Börse is also among the top 5 best-known ESG rating agencies. Big players for conventional rating, such as Moody’s, still primarily focus on economic parameters such as revenue, profitability, liquidity and risk. Evaluation by means of ESG rating at Moody’s is handled by a specially founded offshoot called Vigeo Eiris. Other big names such as the U.S. agency Fitch are trying their hand at being all-rounders and have added ESG criteria to their primarily economic parameters. Other agencies include FTSE Russell, S&P Global, CDP, Dow Jones Sustainability Indices (DJSI) and the world’s largest provider of sustainability ratings, EcoVadis.
Transparency and attractiveness for investors through ESG rating
But why all this effort? Who needs such a thing? It is investors such as asset managers and social partners, as well as non-governmental organizations, who are increasingly demanding more detailed information from companies about the impact of their activities on people and the environment. However, the standards of the individual agencies for ESG rating as well as the respective certification are not uniform and therefore rather confusing. This also makes it difficult to compare companies. Due to the lack of uniform standards and frameworks, there is a lack of clarity for companies, which therefore often do not know precisely what information they actually have to provide. It is best to pick the agency whose ESG rating offering best fits the company profile. And smaller companies should make sure that the questionnaire allows for easy customization.
Even small companies are not spared
The ESG rating currently primarily affects large companies on the investment market with an average of more than 500 employees, a balance sheet total greater than 20 million euros or net sales of more than 40 million euros in a fiscal year, as well as listed companies. Listed micro-enterprises are excluded. However, no one is likely to be spared in the future, which is why it is best for smaller companies to address this issue now. For example, Asset Management at Landesbank Baden-Württemberg (German only) refers to independent studies that show the connection between ESG criteria, a possible reduction of risks, and the success and further development of a company. The German Economic Institute (Institut der deutschen Wirtschaft, IW) makes it clear that under the heading of corporate social responsibility (CSR) alone, additional demands are being made by politicians, despite the voluntary commitment that has long been made in the business world. For example, the German Federal Ministry of Labor and Social Affairs has announced that it will hold the business community more accountable than before in connection with CSR. And at the EU level, there is talk of mandatory standards and regulated social and environmental reporting.
Green Deal with big goals
With the Green Deal, the EU has set itself big goals: By 2050, it wants to be modern, resource-efficient and competitive. There are to be no more net greenhouse gas emissions by then. In the future, the protection of nature is to protect people from environmental risks and their effects. The social market economy is to be entirely at the service of people and guarantee stability, jobs, growth and investment. This is also the context of the Principles for Responsible Investment (PRI) investor initiative launched in 2006 in partnership with the UN Environment Programme (UNEP) Finance Initiative and the UN Global Compact. The aim of the initiative is to develop principles for responsible securities management and to take into account the increasing importance of environmental, social and corporate governance issues.
EU Commission seeks clarity
To this end, the EU Commission specifically adopted a directive for large public interest entities on the disclosure of non-financial information back in 2014, but stakeholders have struggled with its implementation In turn, Brussels followed up with non-binding guidelines on corporate reporting in 2017 and also provided guidelines on climate-related reporting in 2019 without, however, achieving any qualitative improvement in the reports submitted by companies. This is now to be remedied by a proposal from the Commission in April 2021 to amend the previous directive.
Magility ESG Management, Sustainability and ESG Rating
At magility, we define a sustainable business ecosystem as a cross-industry, interconnected value network whose members collectively contribute to the creation and delivery of products and services and sustainable innovation based on the Sustainable Development Goals (SDGs). We support our customers in their sustainability transformation, e.g. by implementing the comprehensive Magility ESG Management System. In doing so, we help companies achieve sustainable and responsible corporate governance with sustainability reporting and ESG ratings.
At magility, we’re here to help. Contact us now – we’ll be happy to answer your questions. Follow us for more news also on LinkedIn. We look forward to hearing from you!
