Many moons ago, I had written about ESG as an idea whose time has come. (https://www.linkedin.com/pulse/esg-idea-whose-time-has-come-jaideep-mehta/?trackingId=eqrzGMD2SO%2BA8ycJ1z%2Bujw%3D%3D)
Here are two recent developments for you to consider: The SCDDA – Supply Chain Due Diligence Act in Germany requires companies to establish preventive and remedial mechanisms to prevent human rights violations and environmental breaches. The law applies to companies with over 3,000 employees (1,000 employees from 2024) thus ensuring that not just large corporates but also mid size ones must ensure that their suppliers and partners are on the right side of labour practices and environmental regulations. This law will ensure the pervasiveness of ESG measures across the economy.
Human rights and pollution related matters are also a big concern for the French. Starting from 1 January 2023, all products sold in France must comply with Article 13 of the French Circular Economy law. This regulation requires disclosure of various environmental characteristics based on the product type, including recycled content, recyclability, presence of hazardous substances, and traceability. Failure to provide this information may result in products being removed from the French retail market and fines of €15,000 per non-compliant SKU or 10% of global turnover. The idea is to promote the circular economy and preserve the environment by ensuring that customers are well informed.
Moving on, investors now routinely demand ESG reports from investee companies, and most hearteningly, young consumers tend to favour buying from companies that have demonstrable green creds, a visible respect for workers and transparent operations. This augurs well from a perspective of sustained responsible capitalism. In response to this new demand, global leaders such as MSCI Inc.(Climate Action Index) and S&P Global (ESG Index) have responded with new benchmarking and indexation tools. “Good” companies now have the facility to get credible third party validation of their efforts.
At an operations level, ESG progress across the value chain requires periodic diligence exercises and continuous monitoring exercises. While these have been traditionally costly and time consuming projects delivered by consulting companies, new age diligence and monitoring platforms from the likes of RZOLUT (rey-zo-lute), a Singapore based company and UNTAP are taking away the pain and cost through tehnology. RZOLUT, for example, has developed an intelligent data platform that heavily relies on a mix of domain knowledge, data science and machine learning to help its customers execute efficient and rapid due diligence exercises. Their ESG framework makes it easy for a customer to rapidly gauge how a supplier is doing on this front and whether there is any adverse news published anywhere about them.
I write this after reading about the devastation caused by wildfires in Hawaii; personally, I was supposed to up in the Himalayas this weekend but had to cancel due to a severe weather warning. Climate change is real, and making ESG real is one of the many weapons humanity needs to deploy to fight it. Going forward, as citizens, investors, workers or simply observers, we must keep the pressure on to ensure that corporate sectors across the world ensure positive environmental practices, good working conditions for their employees (especially vulnerable women) and best-in-class governance. Companies, in turn, should leverage the latest tech and data to stay on top of the compliance requirements, and develop a mindset to treat these requirements as a starting point rather than the goal.
