What is ESG?

Sustainability and corporate social responsibility are playing an increasingly important role in the operations of companies. The ESG (Environmental, Social, Governance) approach is not only a necessity dictated by global trends and consumer expectations, but also the key to the long-term success of companies. Integrating ESG principles is important not only from an ethical standpoint but also from legal and financial perspectives, as stricter regulations governing companies’ environmental, social, and governance practices are being implemented in many countries around the world.

Why is ESG important for companies?

ESG consists of three main areas:

1. Environment (Environmental): Environmental factors focus on reducing the ecological impact caused by companies. This includes energy efficiency, reducing carbon footprints, using sustainable resources, and waste management.

2. Social (Social): Social factors focus on employee rights, contributions to communities, and issues of equality. Companies must consider workplace diversity, ethical principles, human rights, and responsible engagement with local communities.

3. Governance (Governance): Governance factors relate to the management structure, decision-making, and transparency of companies. Ethical business practices, compliance with financial regulations, and the protection of shareholder rights all contribute to ensuring the reliability and long-term stability of the company.

Regulatory Expectations and ESG

ESG is not only a voluntary choice for companies, but the regulatory environment is increasingly encouraging them to operate sustainably.

Starting from 2024, for example, the EU Taxonomy Regulation and the Corporate Sustainability Reporting Directive (CSRD) impose stricter reporting obligations on large companies in the European Union, requiring them to provide detailed accounts of their application of the ESG approach.

1. EU Taxonomy Regulation: The aim of the EU Taxonomy is to provide a uniform and transparent system for defining sustainable economic activities. Companies must demonstrate how their activities align with the principles of environmental sustainability and whether these activities meet legal criteria.

2. Corporate Sustainability Reporting Directive (CSRD): The EU’s new reporting regulation requires companies to present ESG topics in detail in their financial reports. Large companies must provide detailed information annually starting from 2024 regarding the sustainability goals they have achieved and their fulfillment.

3. EU Transparency Regulations: To enhance corporate transparency, the EU has introduced various regulations aimed at making it easier for investors and consumers to access ESG-related corporate information. Such regulations help ensure that companies report not only on their financial performance but also on their sustainability performance.

Who does ESG apply to?

The new regulation came into effect on January 1, 2024, for the following companies based in Hungary:

1. Large enterprises qualifying as public interest entities, where any two of the following three indicators exceeded the following thresholds on the balance sheet date of the previous business year:

• total assets exceed 10 billion HUF,
• annual net revenue exceeds 20 billion HUF,
• average number of employees exceeds 500;

2. large enterprise, where any two of the following three indicators exceeded the following thresholds on the balance sheet date of the previous business year:

• total assets exceed 10 billion HUF,
• annual net revenue exceeds 20 billion HUF,
• average number of employees exceeds 250; and

3. small and medium-sized enterprises qualifying as public interest entities.

 

While the above thresholds apply to those subject to sustainability due diligence obligations, the scope of those required to report on sustainability will be defined by the accounting law, which will be amended in a slightly different manner compared to the above.

A public interest entity is defined as an entity whose transferable securities are admitted to trading on a regulated market in any state of the European Economic Area, as well as any entity that is classified as a public interest entity by law (for example, certain insurers, banks).

Organizations that do not meet the specified thresholds are also required to comply with the provisions if they voluntarily or contractually undertake ESG data reporting under the ESG law, or if a law makes ESG data reporting mandatory for them. The ESG law also applies to ESG certifiers, ESG consultants, companies that sell and manufacture sustainability software, and institutions that educate ESG consultants.

The new ESG law fundamentally prescribes mandatory corporate sustainability due diligence obligations for the businesses it covers, while the amended accounting law will define the obligations regarding sustainability reporting.

The ESG provisions are included in the CVIII. Act of 2023 published in the Hungarian Gazette No. 187 on December 22, 2023, which serves to promote sustainable financing and the rules of corporate social responsibility that take into account environmental, social, and societal aspects.

ESG as a Market Advantage

In addition to regulatory requirements, considering ESG provides numerous market advantages for companies. In an increasingly sustainability-driven economic environment, companies that successfully apply ESG principles can strengthen their competitive advantage.

– Investor Interest: Investors are increasingly making decisions based on ESG criteria. Companies committed to ESG are more attractive to responsible investors who want to make sustainable and profitable investments in the long term.

– Customer Awareness and Brand Building: Consumers are increasingly making purchasing decisions based on ESG principles. Corporate social responsibility and environmental awareness provide companies with an opportunity to build strong brands and create a loyal customer base.

– Reducing Regulatory Risks: Companies that consider ESG factors are better able to adapt to the constantly changing regulatory environment. Ensuring legal compliance not only protects companies from penalties but also facilitates smooth operations.

How can companies integrate ESG?

For companies, successfully applying ESG principles not only provides legal and financial advantages but also contributes to their long-term sustainability. The following steps can help integrate the ESG approach:

1. Developing ESG Strategies: Companies should set clear and measurable ESG goals and integrate them into their long-term business strategies.

2. Compliance with Regulatory Requirements: To comply with legal requirements, it is advisable to seek expert assistance in fulfilling reporting obligations and developing ESG strategies.

3. Transparency and Communication: Companies must clearly and regularly communicate their ESG results to the public, investors, and customers to strengthen their credibility and build trust.

Conclusion

ESG is not only the foundation of responsible corporate operations but is also crucial for compliance with regulations, gaining competitive advantage, and ensuring sustainable development. For companies, applying ESG principles not only ensures compliance with legal requirements but also offers long-term financial and reputational benefits. Those companies that adapt to ESG in a timely manner will be able to secure a sustainable future and successful operations in the global economy.

ESG and Eco-Friendly Cleaning Products

How does green cleaning affect ESG scoring?

Implementing green cleaning practices can positively influence a company’s ESG score by reducing environmental impacts, promoting social responsibility, demonstrating good governance practices, and showcasing a commitment to sustainable and ethical practices.

The impact of green cleaning services on ESG scores

Green cleaning can positively influence a company’s ESG (Environmental, Social, and Governance) rating by contributing to the environmental and social factors evaluated in ESG scoring.

• Environmental factors: Green cleaning practices utilize eco-friendly products and methods that reduce the amount of harmful chemicals and waste. This can lower the company’s carbon footprint by mitigating air and water pollution, conserving water and energy, and reducing greenhouse gas emissions.
• Social factors: Green cleaning can have social benefits, such as creating a healthier and safer workplace for employees. Reducing the number of harmful chemicals and waste entering the environment can also benefit the broader community by promoting long-term environmental sustainability.
• Governance factors: A regular green cleaning program demonstrates a company’s commitment to responsible governance, as it shows that the company is taking steps to minimize environmental impact and ensure the safety and health of employees and other facility users.

Environment and Health

Cleaning and disinfecting agents are essential for ensuring public health. However, their use can negatively impact the environment and human health. The toxic components of commercial cleaning and disinfecting agents can expose cleaning staff and other facility users to concentrated chemicals, leading to skin and eye irritation, respiratory issues, and in rare cases, death.

Additionally, some surfactants used in traditional cleaning products break down slowly or transform into more toxic, persistent, and bioaccumulative chemicals, which can threaten aquatic life. Similarly, phosphorus or nitrogen components can contribute to nutrient loading in water bodies, adversely affecting water quality.

Further concern arises from volatile organic compounds (VOCs) found in cleaning agents, which can affect indoor air quality and contribute to smog formation in outdoor air.

Therefore, it is important to use cleaning agents that have low VOC content and minimal environmental impact. This can help minimize the potential harmful effects of cleaning agents on the environment and human health.

Social Equity

Green cleaning practices can improve workplace equity by creating a healthier and safer environment for all employees.

Green cleaning products and practices prioritize the use of non-toxic and eco-friendly materials, which can reduce the risk of health problems and diseases that disproportionately affect marginalized communities.

By promoting a safer and healthier work environment, green cleaning can also reduce the number of sick days taken by employees and enhance productivity, benefiting all employees regardless of socioeconomic background.

Moreover, promoting eco-friendly practices can help reduce the negative impact of cleaning agents on low-income and minority communities, which are often disproportionately affected by pollution and toxic waste.

Corporate Governance

Implementing green cleaning practices demonstrates responsible corporate governance in several ways.

• By reducing the harmful effects of cleaning agents on the environment, it shows a commitment to environmental stewardship. By using non-toxic and eco-friendly cleaning agents, organizations can reduce their carbon footprint and promote sustainability.
• It demonstrates a commitment to social responsibility. By using non-toxic and eco-friendly cleaning agents, organizations can promote the health and safety of their employees and the broader community. This can help reduce the negative impact of cleaning agents on low-income and marginalized communities, which are often disproportionately affected by pollution and toxic waste.
• By promoting transparency and accountability, it shows a commitment to ethical governance. By implementing proper labeling and training, organizations can ensure that employees and the public are aware of the environmental and health impacts of cleaning agents. This can build trust among stakeholders and promote greater accountability.

Simple methods for introducing green workplace cleaning

Methods for reducing waste and environmental impacts include implementing the following while maintaining high cleaning standards:

• Reusable cleaning tools: Choose reusable tools instead of disposable cleaning tools. Create a rental program for collecting and washing mops, shop towels, and microfiber cloths. This approach reduces waste and associated costs.
• Dilution control systems: Using excessive amounts of chemicals can damage surfaces, equipment, people, and the environment. Dilution control systems dispense the appropriate amount of chemicals needed for the task, reducing waste and improving cleaning results.
• Smart paper towel dispensers: Traditional paper towel dispensers generate unnecessary waste. Switch to adjustable-length, automatic setting dispensers that reduce the use of excess paper towels.
• Floor mats: Placing walk-off mats at entrances helps capture dirt and debris, reducing the need for frequent cleaning and chemical use.
• Products and services: Facility or company managers can take significant steps towards compliance with ESG regulations by using and engaging cleaning products and services that meet specific requirements.

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