Luxembourg
Answer ... There is growing recognition of the importance of ESG factors in the investment decision-making process. As a result, investors are increasingly favouring fund and asset management companies that can demonstrate a commitment to sustainability and responsible business practices.
The design, implementation and communication of a sound and transparent ESG strategy are now crucial in order for a fund to attract and retain clients. Currently we see a different level of ESG integration in the investment process, starting from negative screening (light ones) following the alignment with well-known frameworks such as UN PRI and SDGs, to more “mature” ones that target impact investing and commitments to sustainable investments.
More advanced players are embedding ESG inclusion principles in their processes and focusing on thematic and impact investing.
Luxembourg
Answer ... The board of directors plays a crucial role and is responsible for:
- setting the company’s strategic direction; and
- ensuring that ESG is integrated into its business practices.
The board’s role involves:
- setting ESG policies;
- identifying risks and opportunities; and
- overseeing the implementation of ESG strategies.
To effectively execute an ESG strategy, boards should focus on four key pillars:
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Identify the key internal departments – it is the board’s responsibility to ensure that:
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- each department understands its role and responsibilities in implementing the ESG strategy; and
- the various departments have the necessary resources to execute the tasks effectively.
- Establish an internal ESG team – the board should create or assign an internal ESG team to develop and implement the company’s ESG strategy. This team should consist of individuals at manager level from various departments including finance, HR, operations and legal. They should be responsible for setting ESG goals that are aligned with the company’s overall strategy.
- Designate key personnel to upgrade non-financial information.
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Ensure that the company’s sustainability reporting meets the standards set by external organisations such as the Global Reporting Initiative.
Luxembourg
Answer ... As in relation to the monitoring of ESG strategies, stakeholders increasingly expect companies to demonstrate their commitment to sustainable practices. International sustainability standards:
- provide a framework for companies to manage and report on their ESG performance; and
- help to ensure consistency and comparability across different companies and sectors.
These standards cover a range of topics, including:
- environmental impact;
- labour practices;
- human rights;
- governance structure; and
- supply chain management.
They provide a common language for sustainability reporting, allowing companies to report on their ESG performance in a consistent and comparable manner. This helps investors and stakeholders to evaluate a company’s sustainability performance and compare it with that of other companies. Standards also improve the quality of ESG reporting by providing clear guidance on how to measure, manage and report on ESG issues; this helps to ensure that sustainability reports are accurate, comprehensive and transparent, while in turn building trust and enhancing the reputation of the reporting company.
The ultimate aim of the Corporate Sustainability Reporting Directive is to standardise and simplify sustainability reporting for companies. It seeks to consolidate, within one disclosure, all the needs of EU regulators, investors and other stakeholders. However, fulfilling the requirements of this regulation may prove challenging for enterprises that are not accustomed to the disclosure and monitoring of sustainability requirements.
Luxembourg
Answer ... With the application of the CSRD, the board of directors and its committees will ultimately be responsible for approving the non-financial information under European Sustainability Reporting Standards to be published as part of the company’s management report. This obligation will increase the board’s involvement in the ESG agenda, requiring it to establish a robust ESG strategy and monitor its implementation.
Luxembourg
Answer ... The monitoring of ESG information is the responsibility of the ESG teams.
However, the board of directors must be involved in ensuring the transparency and veracity of the information shared, as this could affect the image of the company. One tool that should facilitate the transition to a successful ESG strategy is the alignment of executive compensation with the ESG strategy; through this, the board can hold management accountable for progress against the strategy.
In addition, ESG criteria should be integrated into remuneration policies. This can be done by:
- identifying the company’s ESG targets and ambitions;
- defining concrete objectives and metrics that are appropriate for inclusion in pay practices (eg, occupational health and safety measures); and
- providing bonuses or equity rewards.
Luxembourg
Answer ... The integration of ESG strategies into business practices is increasingly crucial in meeting the demands of consumers, investors and regulators for greater transparency and responsibility. To this end, companies should adopt certain best practices.
In view of upcoming regulations, best practices include the incorporation of ESG factors into the company’s core business strategy. Moreover, companies should engage with stakeholders such as investors, employees, customers and communities to understand their ESG concerns and priorities. Regular communication, collaboration and feedback mechanisms should be employed to ensure that ESG strategies align with stakeholder expectations. Companies should also prioritise transparency and disclosure in ESG reporting, providing clear and consistent information about their ESG performance and impacts. This can involve using internationally recognised standards and frameworks – such as the Global Reporting Initiative or the Task Force on Climate-related Financial Disclosures – to ensure credibility and comparability.
By applying best practices, companies can:
- manage ESG risks and opportunities effectively;
- enhance their reputation;
- attract and retain talent; and
- create long-term value for stakeholders.
As the world continues to face complex ESG challenges, companies that adopt a proactive and strategic approach will be better positioned to succeed in the future.