What impact does ESG have on your business?

We see ESG playing an increasing role on the ground. Companies can no longer ignore ESG. ESG refers to environmental impact, social responsibility and good corporate governance,

We foresee that that ESG is not just a temporary trend in practice, but will become a permanent feature that will structurally influence companies’ strategic decisions and risk management. Enough reason to put ESG under the magnifying glass. In this article, we therefore explain what impact ESG will have on your company.

What is ESG?

ESG covers three topics: environment, social responsibility and governance:

(a) ‘Environment’ covers the impact of business activities on the environment. For example, companies should have a climate policy and report transparently on their emissions to manage their environmental impact. This should also take into account, for example, emissions from suppliers.

(b) ‘Social responsibility’ concerns a company’s relationships with internal (shareholders, investors, board) and external stakeholders (employees, suppliers, customers, local community). This includes, for example, whether the company pays proper attention to employees’ working conditions, has a future-proof business model and holds its suppliers and customers to ESG standards.

(c) ‘Good corporate governance’ includes how the company deals with management diversity and remuneration, conflicts of interest and the extent to which the company is transparent about certain decisions, finances and taxes.

The role of ESG in your company

ESG can play an important role in your company by integrating various aspects of sustainability and corporate social responsibility.

The Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These directives require large companies to be transparent about their sustainability performance and ensure long-term ESG integration. For the time being, these obligations from these directives only apply to large companies but will also apply to SMEs in the future. In addition, smaller companies will also find that ESG plays an increasingly important role. For instance, because companies that do have to report or ‘green’ investors expect small companies to also do well on ESG.

It is therefore advisable to give ESG a place in your company. This can lead to, for example:

1. Reputation and trust: A strong ESG strategy can improve image and build trust with customers, investors and partners.
2. Cost savings: Investment in environmentally friendly technologies and more efficient use of resources can reduce costs in the long run.
3. Risk management: By paying attention to social and governance issues, such as working conditions and good governance, your company can reduce legal and financial risks.
4. Competitive advantage: ESG can help attract investors who increasingly value sustainable companies.
5. Innovation: By focusing on sustainability, your company can encourage innovation, for example by developing environmentally friendly products or more efficient processes.

Implementing ESG

From a legal perspective, you can encounter or start implementing ESG in various ways.

• Investors may select potential companies based on their ESG performance. This will particularly occur when the investor itself is conducting its
• Due diligence, the buyer can investigate whether there are ESG risks, such as environmental and social issues.
• Specific warranties and indemnities on ESG-related risks can be included in the transaction documents.
• After the acquisition, the focus is on integrating ESG within the new corporate structure, including monitoring and compliance with ESG standards.
• For example, a shareholder agreement can include that board decisions on ESG issues are subject to approval by the general meeting and that the board reports on ESG to the general meeting.

Conclusion

ESG will have an increasing impact on companies, large and small, in the future. It is essential to proactively implement ESG strategies to comply with future regulations and maintain competitive advantage. Contact our lawyers today for expert legal advice and guidance on integrating ESG into your business operations.

Get advice

Do you have any questions? Then contact one of our lawyers by mail, telephone or fill in the contact form for a free initial consultation. We will be happy to think along with you.