Across Europe, directors are waking up to what still needs to be done to comply with the Corporate Sustainability Reporting Directive, which centres around Environmental, Social and Governance (ESG) reporting.
ESG is a framework used by companies and investors to assess the sustainability and ethical impact of businesses. Listed companies on regulated markets are due to report on ESG in their 2024 annual reports.
Companies are being encouraged to raise their ethical standards by focusing on factors other than profits. There is a new focus on the environmental impact of business, such as energy use and resource conservation, as well as social issues such as labor practices, human rights, employee diversity and inclusion, community engagement and consumer protection.
Strengthening governance by establishing structures and practices that ensure transparency, accountability and ethical business conduct should improve the way business is conducted. This requires greater transparency, accountability and a commitment to professional risk management and internal controls that enhances trust for shareholders and the community at large.
Pushing for stricter regulations on environmental and social issues will raise awareness of ethical behavior as business leaders see the impact it has beyond making profits, bringing more value to their business in the long run.
Pope Francis has voiced his support for the principles behind ESG, though he has not mentioned it by name. ESG reflects the values of environmental protection, social justice and ethical governance that he prioritizes. Laudato Si It focuses on the interdependence of social and environmental issues. Protecting the environment is a moral imperative and a responsibility shared by all. The encyclical has played a decisive role in encouraging religious and secular organizations to take environmental stewardship into account in their activities and investments. The Vatican has revised its Investment Policy Statement to align with ESG goals, demonstrating a clear commitment to investment strategies that promote human dignity, economic justice and the common good.
Vatican Archives Menchulam BonhamThe “Guidelines for Investment” published by the Pontifical Academy of Social Sciences in 2022 are guidelines for investors to make wise and morally acceptable investment choices, encouraging them to take into account values that reflect Catholic social doctrine when choosing companies to invest in. Values such as social justice, respect for human dignity and respect for the common good are fundamental criteria for choosing good companies. Pope Francis said: Laudato Si “No one is advocating a return to the Stone Age, but we need to slow down and look at reality from a different perspective…to recover the values and grandiose goals that have been lost through our restrained delusions of grandiosity” (114).
The effectiveness of ESG initiatives depends on how seriously business leaders take up the challenge of transforming their businesses. It is true that ESG can lead to more ethical companies, but this cannot be taken for granted. Greenwashing, or making companies appear more environmentally friendly than they actually are, is one of the factors analysts consider when considering companies for investment. There needs to be a real motivation and commitment to implement such policies to serve the public interest.
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