Environmental, Social, and governmental (ESG) Compliance is regarded as the set of rules

and guidelines of a company for managing the internal standards and policies under the
supervision of regulatory bodies. It is an essential aspect of corporate governance.
It is based on three major principles those are:
1
1. Environmental: it states that the central aspect that the company looks into is what
measures it takes to impact the environment and risks to reduce it. Thus, it also
includes the concept of carbon footprints for sustainability.
2
2. Social: The social aspect of ESG compliance in a company deals with the
relationships among various company members, such as employees, customers,
investors, shareholders, stakeholders, etc.
3
3. Governance: Governance regarding this compliance considers how the company is
managed and functioning and leads to positive impact and changes.

IMPORTANCE OF ESG IN CORPORATE FIRMS AND BUSINESSES

ESG compliance is considered very important in every firm and business. These days, the
whole corporate world, along with their work, engages in the concerns related to
environmental, social, and other government-related queries. Human rights, climate change,
and maintaining companies in their working and functioning are important topics of
discussion. Some of the other factors are as follows:
4
1. Transparency - The establishment of these ESG rules and guidelines will provide
more transparency to the investors and stakeholders and would make a more informed
decision.
5
2. Long-Term Sustainability - ESG compliance in these firms and businesses would
provide long-term sustainability by keeping track of progress. It would enable brand
loyalty and advertisements by considering the importance of ESG initiatives, such as
reducing 6carbon emissions, promoting diversity and inclusion, and supporting local
communities for proper sustainable development.

1
Navigating Regulatory Changes: Staying Compliant in Your Industry – Lombard
Accountants. https://la.ie/2024/01/04/navigating-regulatory-changes-staying-compliant-
in-your-industry/
2
https://idealsboard.com/esg-compliance/
3
Ibid
4
https://www.techtarget.com/whatis/definition/environmental-social-and-governance-ESG
5
Ibid
6
FedEx: Facts And Functions. https://www.the-next-tech.com/web-stories/fedex-facts-
and-functions/
 7
3. Risk Management - A well-implemented ESG framework would lead to better
working standards for these firms along with the maintainability of these sustainable
goals.
4. Regulatory Compliance - These firms, whether private or governmental or any other
governmental bodies, implement more regulations regarding ESG Compliance. This
will help avoid fines and any other legal issues.

CORPORATE CHALLENGES IN ESG COMPLIANCE

 8As ESG gains momentum and captures attention, businesses must step up and show
their commitment. However, they face several hurdles along the way. Here are the
main challenges they are dealing with:

 9
No Clear Rules: Companies must consistently report their ESG efforts. This makes it
tricky for investors and stakeholders to compare and understand a company's ESG
performance.
 Complicated Reporting: Companies need help communicating their ESG initiatives
effectively. They need to be transparent and consistent in sharing their efforts, which
involves providing accurate data and engaging openly with stakeholders.
 Overstating Efforts: Some companies might be overstating their commitment to ESG,
harming trust in genuine ESG initiatives. This makes it hard for stakeholders to
identify the genuinely responsible companies.
 10
Hard to Get Good Data: Collecting reliable and relevant data for ESG compliance is
challenging, especially for businesses operating across multiple locations. It is
resource-intensive and often poses difficulties for smaller businesses.
 Making Big Changes- Transitioning to sustainable practices involves significant
operational and supply chain changes, which can be daunting for businesses used to
traditional models.

 Some of the real-life examples are as follows:

7
Ibid
8
https://www.irisbusiness.com/leveraging-technology-to-navigate-esg-risks-and-opportunities-a-roadmap-for-
corporate-transformation/
9
ibid
10
Ibid
Patagonia's Supply Chain Transformation: 11An example is Patagonia is an outdoor clothing
brand that has fully embraced sustainable practices. The company restructured and
redesigned its supply chain so that sourcing and production are ethically based. 12This
involved sourcing organic cotton and using recycled materials even with the initial proven
difficulties and costs. This is because loyalty amongst the consumers has strengthened
remaining committed to environment friendly practices.

IKEA's Sustainable Product Offerings: 13The IKEA of the past may not be the same IKEA as
today because they have been working towards being more sustainable. In the case of the
Swedish giant, furniture products began being manufactured from recycled and replaceable
biomass. For example, they also introduced a line of pillows with covers fashioned from
recycled plastic and wood. The Company had to grapple with issues of product quality and
pricing which was followed by a successful overcoming of these obstacles proving is
possible.

Unilever Modifies its Working Methods, Processes, and Operations - The Focus Being
Sustainability: Unilever has made exhaustive targets concerning operational sustainability
which in turn affects the business operations of the corporation. The company intends to
achieve net-zero emissions from its products by 2039. For that to be achieved, every aspect of
the business will need to be reorganized from sourcing the raw materials to increasing the
manufacturing and distribution of the products. Unilever has been putting resources in
renewable sources of energy and cooperating with its suppliers to bring down carbon
emissions in the supply chain.

Tesla's Contributions to Green Transportation: Tesla has transformed the automotive world
by bringing electric vehicles to the mass market. 14There is a considerable need for new
product offerings and also operational changes in the automotive industry to move from fuel-
11
https://www.patagonia.com/our-footprint/supply-chain-environmental-responsibility-program.html
12
Surf Clothing Brands to Try | Share Here Blog. https://sharehereblog.com/22710-surf-
clothing-brands-to-try-02/
13
https://www.sesamm.com/blog/esg-sdg-focus-on-ikea-private-practices
14
Insanely Expensive Stuff Elon Musk Owns - New Trader U.
https://www.newtraderu.com/2024/07/04/insanely-expensive-stuff-elon-musk-
owns/
powered combustion engines to pure electric vehicles. Tesla has put great financial effort into
battery technologies, charging solutions, and manufacturing enabling efficiency and
practicality in electric vehicles to the average users. This shift helps in minimizing carbon
emissions and pushes other automotive companies into adopting better methods of doing
business.

Starbucks’ Attitude toward Sustainability in Supply Chains and Products in the Recent Past:
Efforts have been made by the company towards sustainability responsibly. 15The company
seeks to achieve back its customers by making environmentally friendly cups and other
packaging materials and procuring their coffee supply from safe growing areas. The shift
included how dull coffee beans are obtained and disposed of at the store as waste. Challenges
faced by corporations in implementing sustainable practices are illustrated by Starbucks’
efforts of building farmer support centers and pursuing becoming resource-positive.

The lessons learned in these cases reveal that embracing sustainable economies is certainly
quite several setback in changeover from monoculture models but is achievable and
beneficial to businesses, the environment, and society as a whole.
Such measures will help companies improve their ESG performance and improve the trust
and confidence of investors, regulators, and customers.

OPPORTUNITIES OF THE COMPANIES IN ESG COMPLIANCE

15
https://stories.starbucks.com/uploads/2024/02/2023-Starbucks-Global-Impact-Report-ESG-Priorities.pdf