Interview: How to Get Ahead with Early ESG Engagement

Hello there, Radim. Can you please give our readers a quick introduction to who you are and shed some light on your role at Adastra?

Greetings. I specialize in digitizing sustainability, or ESG, where data plays a crucial role. At Adastra, we assist companies in streamlining their data collection by digitizing and automating the process, especially when they hit a roadblock in gathering and evaluating data.

We often come across the term ESG. Could you explain its significance and why it's getting so much attention?

Absolutely, ESG stands for Environment, Social, and Governance, and it goes beyond the traditional measures of financial performance. It adds a layer of sustainable development considerations. While financial results provide insights into a company's past and future financial performance, what about its existence 5-10 years later? Could it be affected by new trends like climate change? Is the company heavily reliant on fossil fuels? These might not be relevant in a decade. Is the company prepared for that? ESG places a company's actions within a broader context.

Is ESG something only big corporations need to worry about, or should small and medium-sized businesses also be engaged?

Given what I just mentioned, all companies should be involved in sustainability due to their societal responsibilities. Legally, ESG initially applies to banks and will soon extend (by 2025) to larger firms with over 250 employees and 40 million EUR in turnover. However, smaller businesses are included because they often play a role in supply chains dominated by bigger companies that report on sustainability and require data from their smaller suppliers.

I think smaller businesses would be interested in this, but they might be concerned about the costs or potential lack of returns on investment – seeing it as an unnecessary expense.

Absolutely, companies can view ESG as a risk assessment – evaluating what ESG-related risks might affect them. For instance, future emission regulations could impact even smaller companies or introduce pollution taxes. Companies need to ask themselves: Are we operating in an environmentally unfriendly way? How can we quantify that?

And addressing the "E" aspect is already a focus. This connects with entry risks – are our suppliers environmentally friendly? Can we replace them with more ESG-conscious ones? The reason is simple – inputs like production materials that harm the environment contribute to a company's overall footprint. The goal is to use cleaner inputs.

So, there are definitely investment returns in this.

Absolutely. The returns might not be immediate, but they are more of a medium to long-term gain. Smaller businesses that supply larger companies will need to embrace ESG because their major clients will demand it. In the long run, emissions permits, and carbon taxes will come into play – delaying ESG improvements might lead to paying more in taxes and fees to the government, money that could have been invested in enhancing ESG measures.

ESG reporting is an evolving field. It requires clear guidelines, standards, and rules. If a small or medium-sized business decides to tackle this, where should they start?

Taking it step by step with the guidance of a professional is crucial. For those seeking quick solutions, partnering with a smaller consultancy firm would be the way to go.

Could a business manage sustainability data using tools like Excel? Is there a standard template?

Certainly, Excel can suffice for smaller businesses, at least for a few years. Unfortunately, there isn't a standardized template – understanding how ESG reports are structured, identifying a company's areas of focus, collecting and recalculating data, and more, requires expertise.

It sounds like the average person might struggle with it. Can Adastra provide assistance here?

Adastra primarily supports larger companies that have outgrown Excel. These companies need to collect data from various sources like subsidiaries or suppliers. They've been working on ESG for a while, often having dedicated teams, and they need to progress – automating data collection, presenting it visually online, generating on-demand reports, setting and monitoring KPIs in real-time.

Lastly, we're curious about your thoughts on the future of ESG. What trends and challenges do you foresee?

I often hear people liken ESG to GDPR – do it once and you're set. But that's not the case. ESG is a long-term journey. Regulations will become stricter, more refined, and pollution will start getting taxed gradually. I can envision progressive carbon taxes, where consistent polluters pay less and larger ones pay more, incentivizing greener practices. Those who start early will definitely have a competitive edge. Plus, the push for greener production, especially in terms of energy, should also come from government initiatives.