The writing is on the wall: why it’s time to shape up on ESG

Jerwin Tholen, Partner, ESG Advisory, KPMG in the Netherlands

Fewer than one in five Dutch business executives believe their company’s environmental, social and governance (ESG) strategy, targets and systems are in good order, according to a recent KPMG survey¹.

It’s a sobering statistic. It suggests that the vast majority of Dutch companies (more than 80%) need to do better on putting ESG into action – and they know it.

Unless you’ve been living under a rock for the past few years, you’ll know that ESG is now an undeniable focus for businesses around the world. It’s even more the case here in Europe, where the EU is committed to leading the world in creating a cleaner, greener, and fairer society.

Yet many Dutch companies are still coming to grips with what ESG actually is. For some, it seems like only yesterday that it was enough to be a good corporate citizen by making charity donations, reducing business travel, and organizing volunteer programs. It can be a steep learning curve for some to implement ESG in practical terms across their organizations.

At KPMG, we advise our clients to get the ESG basics right as a prelude to deeper strategy work that helps them integrate ESG into their business planning and transformation programs. Like building a house, an effective approach to ESG requires a strong foundation.

A good place to start is by taking an honest look at your company’s current state of ESG performance in order to understand the areas you may already be strong in and the areas where you need to do work. This will give you a clear picture of where you are, how to move forward, and what you need to prioritize.

We like to think of this as an ESG health check. Just as there are vital signs of human health – like blood pressure, heartbeat, and lung function – there are functional indicators that reveal the fitness level of your organization’s approach to ESG.

For example, is your organization clear about its ESG ambition – whether it aims to be an ESG pioneer, a fast follower, one of the pack, or a late mover? Do you have the right fundamentals in place, such as up-to-date ESG policies and performance targets? Do you know how you stack up against sector peers and competitors? How well is your corporate ESG vision integrated into your company’s culture and processes? Are your IT systems ESG-ready? Are you aware of and prepared for the new ESG regulations in the EU pipeline?

All these and more are crucial questions to ask.

Conducting an ESG health check is the first step towards ensuring that your business is fit for the future and ready to thrive in Europe’s green transition. After all, dynamic changes are underway that affect companies of all sizes and in all industry sectors.

Take Europe’s financial system, for example, which is being reshaped to direct capital away from businesses that harm people and the planet and towards those that can prove they are more sustainable. Banks and investors must now consider your company’s ESG performance when deciding whether to invest in or lend to you.

Or consider the forthcoming EU Directive that will soon require large companies to look at the environmental and human rights records of their suppliers. This will affect not only large companies, but also the smaller businesses that supply them. If you are one of them, your customers may start to walk away if your ESG performance and reporting is not good enough.

Or think about the dozens of EU initiatives and regulations designed to promote the circular economy, reduce waste, and ease pressure on natural resources. Many businesses are adapting or even completely redesigning their products, services, and business models as a result.

The whirlwind of ESG change currently sweeping Europe offers huge opportunities for the quick and the nimble. At the same time, there are risks for those who do not move fast enough. The writing is on the wall: it is time to shape up on ESG. Taking an ESG Health Check is a good first step.

Improve your understanding of your company’s ESG strengths and weaknesses by taking KPMG’s ESG Health Check. 

¹ KPMG in the Netherlands, ESG Barometer 2022