ESG (Environmental, Social, Corporate Governance) reporting is becoming a standard for an increasing number of organisations. For companies, it is not only a sign of their responsibility for environmental, social, and governance issues, but also a path that allows them to stay ahead of the competition in the ever-changing world. Soon, ESG reporting will become mandatory. On April 21, 2021, the European Commission presented the project of CSRD (Corporate Sustainability Reporting Directive) which requires all companies, both public and private, to report on ESG issues. Companies with more than 250 employees will be obligated to prepare a non-financial report. In line with the policy, in years to come the regulations will cover all companies with over 10 employees that are listed on the regulated market.
Let’s start from the beginning. ESG indicators present company data in the following areas: environmental, social and governance. Companies use them to comprehensively report their activity instead on focusing on financial data only. For example, the clothing industry often reports such ESG indicators as: the level of company’s greenhouse gas emission; information on the ways the company cares about human rights in countries where its clothes are manufactures; or the number of reported incidents of ethics violation in the company.
Respondents of this year’s “Edelman Trust Barometer” survey believe that business is still not doing enough when it comes to environmental and social issues such as fighting climate change (52%), economic inequality (49%), they also notice flaws in reliable communication (42%). To put it simply, we may say that companies face two main challenges. The management must, first and foremost, change the way of thinking, grow to embrace change and show willingness to act. Secondly, it is important to expand knowledge about ESG, develop the plan of action and present one’s genuine influence in a transparent way.
ESG indicators may come in handy in meeting these challenges. They help define the process of obtaining reliable data showing which areas we impact the most, how we want to change and introduce appropriate actions to make a real difference. For example, if we know that an average of 2,700 litres of water is needed to manufacture a cotton T-shirt and, for comparison, what is the water consumption in the production of a T-shirt made from materials such as polyester or tencel, and what is the environmental impact of dyeing it white or green, we may make data-driven decisions about a given product. The right data gives us a chance to design clothes more responsibly. What’s more, we can also prove in a reliable and complete way how the company is changing, which is a very important part of the company’s communication with the public nowadays.
More frequently than ever, companies are sharing data on their environmental and social impact with their customers, employees and business partners by publishing non-financial reports. The largest, especially stock-listed companies, are obligated to do so. According to planned changes, from 2025 such an obligation will apply also to large, unlisted companies; and in the following years, it will also cover smaller companies. In the coming years, OTCF S.A. will be one of the companies obligated to provide non-financial reporting. Corporate responsibility is frequently discussed internationally, so it should be expected that there are more regulations to come in this area and these will strongly affect the credibility of companies. One of such package of solutions that will be of great importance to the clothing industry is the EU Strategy for Sustainable and Circular Textiles. Its goals are to introduce ecological design so that products available at the stores are durable, repairable and recyclable, as well as to introduce services facilitating recovery and repair, to address the issue of microplastic release from textile materials, and to introduce product passports.
The apparel industry still has a lot of work to do. On the other hand, I’m really pleased that the most responsible companies that are aware of the significance of ESG and its challenges are taking concrete steps. OTCF S.A. is one of them. The company began launching new business models based on such services as garment repair and rental. Certainly, the leaders of change – companies that will take responsibility for their impact on the environment and society and will take concrete steps to minimise this negative influence – will gain the respect of their customers and employees. We need to remember, however, that it’s a long and difficult process. One of the important challenges for fashion companies is to measure their impact in particular areas, namely to determine the ESG indicators. Companies that want to measure their impact must closely investigate the processes within the organisation and examine their supply chain: from the cultivation of plants that materials are sourced from, through the manufacture of a product to the end of its lifecycle. At Accenture we believe that digitisation, changing the way business thinks and building company credibility are key to success in this area. It’s a long and bumpy road ahead, but we’re pleased that OTCF S.A. has already taken the first steps.