Corporate sustainability jargon busting
As more requirements come into effect that will directly affect the corporate world, we explain pertinent sustainability-focused terms…
Following our previous explanation of sustainability terms, and with more requirements coming into effect such as the Corporate Sustainability Reporting Directive (CSRD), Sustainability Editor Megan Hickling focuses on the corporate world and how businesses will understand, manage and set about improving their impact.
Regulations such as the EU CSRD and the EU Sustainable Finance Disclosure Regulation (EU SFDR) require more transparency and disclosure of the different sustainability aspects of businesses. These regulations, alongside other pressures, are compelling shoreside superyacht industry businesses to enact meaningful changes to enhance their sustainability credentials and effectively communicate these strategies and progression.
Several corporate sustainability tools serve this purpose, enabling the assessment, enhancement and monitoring of performance across environmental and social aspects. They can also facilitate the transformation of this data into recognisable formats for communication.
Although not widely adopted in the superyacht industry at present, here we explore these tools and their functionality, especially as the imperative for all businesses to comprehend and enhance their impact becomes more significant.
Environmental, Social & Governance (ESG)
ESG is a framework to assess, measure and track the performance of an organisation and its policies within these three categories.
The environmental aspect centres on the organisation’s environmental impact and its management. This primarily encompasses activities related to decarbonisation, as well as those influencing natural resource consumption, pollution and waste.
Social considerations include human rights, labour standards in the supply chain, and local community relationships. Essentially this is the relationship between the company and the people it affects, whether that’s employees, customers, suppliers or other communities impacted by the organisation.
Governance pertains to the internal structures of the business influencing its operations. This includes internal leadership, salary and incentive structures, transparency, shareholder rights, diversity, business ethics, compliance, integrity and accountability.
ESG is gaining popularity due to various factors compelling companies to evaluate their sustainability credentials, whether driven by mandatory regulations, investors and businesses utilising ESG as a metric to rank and measure performance influencing business decisions, or self-motivated businesses aiming to use ESG to identify risks and opportunities affecting their business strategy.
Corporate Social Responsibility (CSR)
CSR is a management concept wherein an organisation recognises its responsibility in four different areas: environmental, ethical, philanthropic and financial. These responsibilities are integrated into business strategy and operations to manage and enhance their impact.
Environmental: Making business operations less harmful to the environment through reducing pollution, waste and consumption of energy, water and other natural resources.
Ethical: Ensuring a business is operating fairly and ethically for its employees, clients and customers.
Philanthropic: How a company spends its money to better the world, such as donating profits to charitable causes or supporting employee philanthropic efforts.
Financial: Enabling the other elements of CSR through direct financial investments or research and development.
This is similar to ESG but differs in a few ways. ESG quantitatively measures impacts, whereas CSR adopts a more qualitative approach. ESG is externally regulated as it can be linked to business valuation and involves measurable goals and audits to assess progress. CSR is a more holistic, self-regulated approach that implements improvements through corporate culture, values and brand management.
Effectively, while CSR is an internal method to improve a business’s sustainability aspects, ESG is a more externally recognised measure of performance related to sustainability.
Carbon accounting evaluates and quantifies how much greenhouse gas (GHG, also referred to as carbon dioxide equivalents) emissions are produced by an entity or activity. Typically, there are three different scopes to these emissions:
Scope 1: Direct emissions created by the company’s activities, for example emissions from company vehicles or facilities.
Scope 2: Indirect GHG emissions released into the atmosphere from the consumption of purchased electricity, steam, heat and cooling.
Scope 3: Emissions generated from upstream and downstream of the company, such as emissions from waste sent to landfills, purchased goods/services, transportation and any emissions associated with the products produced by the company.
Some companies also identify a Scope 4 which is similar to a carbon handprint in that, unlike the other scope emissions or carbon footprint, it represents the reductions in GHG emissions from directly using the product or service. An example of this would be using a more energy-efficient product compared to a less efficient model.
For instance, in a shipyard context, Scope 1 would include emissions from on-site generators and manufacturing processes, Scope 2 from additional purchased electricity, Scope 3 from the superyachts produced and emissions linked to the shipyard’s purchases, and Scope 4 could signify the emission reductions from a more efficiently produced and operationally improved yacht compared to others.
Carbon accounting has similar benefits to ESG and CSR as it can reduce risks that may be associated with current or future GHG regulations and the costs of carbon emissions.
These methods can be employed within superyacht businesses to assess, monitor and enhance the impacts that influence overall sustainability performance. Whether driven by internal motivation, acknowledging the imperative to improve, or external pressures from regulations or other stakeholders – such as financial institutions demanding businesses to be transparent and accountable and enact positive changes – the motivations to adopt these practices will intensify as we approach the 2030 deadlines.
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