ESG – Navigating beyond simple solutions

I. ESG reporting and ESG communication

One of the critical distinctions that board members need to be aware of is the difference between ESG reporting in the narrow sense and ESG communication in the broader sense. ESG reporting involves standardised disclosures based on metrics that track a company's performance against defined criteria. This process is subject to strict guidelines, such as those of the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) or the Sustainability Reporting Directive (CSRD). The aim of all these standards is to obtain evidence-based data and structured statements that stakeholders can use to assess a company's ESG performance and compare it with that of other companies.

However, ESG communication in the broader sense goes far beyond traditional ESG reporting. It is an integral part of a company's strategic positioning at the communication level and, in some cases, even drives a company's strategic positioning in its business areas, most recently also including its supply chains. ESG communication is less about adhering to fixed key figures or paths and more about presenting a vision, convictions, strategic commitments and credibility in implementation. While reporting is bound by precise guidelines, ESG communication is a comprehensive undertaking that aims to engage various stakeholders – from investors and employees to consumers and communities.

II. Pitfalls of an overly simplistic ESG narrative

ESG has become an important factor in reputation. Anyone who succumbs to the temptation to address the issue with vague words is living dangerously. This applies to companies, but also to critics, such as those from the NGO scene. Even at the highest globa l level of justification for the issue, the 17 Sustainable Development Goals of the UN (UN SDGs), there are conflicting goals that require careful and not always easy consideration. Here are a few examples:

• Pesticides: Although pesticides are often criticised for their impact on biodiversity (SDG 15, Life on Land), they play a crucial role in ensuring food security and agricultural productivity (SDG 2, Zero Hunger). Effective pest management can prevent crop failure and secure the livelihoods of farmers, especially in developing countries. The annual locust plagues in numerous countries in the Global South, with devastating consequences for the supply of food to the population, call for a differentiated view. The challenge is to reconcile the need for pest control with the imperative of minimising ecological damage, which requires innovative approaches and sustainable practices. The dilemma with the equally criticised use of artificial fertilisers is that those who do without them reduce their yield per unit of agricultural land. For countries such as Brazil, past experience shows that farmers then increasingly clear the rainforest, an important CO2 sink.
• Weapons: The defence industry is often criticised for its association with violence and conflict. However, the geopolitical landscape, as illustrated by the conflict in Ukraine, demonstrates the importance of defence capabilities for national security. For nations and compani es involved in the manufacture of defence equipment, the ethical implications are complex. Responsible governance in this sector involves strict compliance with international laws, respect for human rights and transparency. Just as critics of the arms indu stry cannot demand a ban on all weapons on the basis of SDG 16 ("Peace, Justice and Strong Institutions"), arms manufacturers cannot use the geopolitical situation as a "free pass".
• Clothing: The fast fashion industry is often criticised for poor working practices and environmental damage (SDG 8 "Decent Work...", SDG 3: "Good Health"). However, it also provides employment opportunities in poorer countries. When managed responsibly, these jobs c an offer a way out of poverty and contribute to economic development (SDG 1: "No Poverty"). The key to this is ensuring fair labour practices, equitable wages and sustainable production processes.

It is not uncommon for companies to be criticised by pressure groups when they operate in supposedly "evil" business areas. However, supervisory boards should not be swayed into action by short-term public pressure. Instead, they should ask themselves: Wha t exactly is the dilemma? Where do the interests lie that need to be weighed up? What is the company's position? It is important to take a long-term perspective and to be anchored in principles. The example of the arms industry shows that  assessment criteria can change, sometimes very quickly. Since Ukraine has been fighting for its survival, it has become clear that arms can be central to the preservation of democracy, and that the supply of arms has not only become socially acc eptable, but a necessary and therefore good deed.

III. Taking complexity into account in ESG strategy

The task for supervisory boards is not to distance themselves from these complexities, but to shape them for themselves and their companies. This requires a multifaceted approach:

1. Stakeholder engagement: It is important to understand the perspectives and concerns of various stakeholders. This requires active dialogue with investors, employees, customers and communities. Supervisory boards should provide forums for these discussions, explicitly invite their critics to participate, andincorporate stakeholder feedback into strategic planning.
2. Information-based decision-making: Decisions should be based on a comprehensive understanding of the options available and their potential impacts. "Listen to the science" means carefully examining what the current "state of science and technology" means, rather than uncritically following a minority opinion simply because it is loudly articulated. This means using data and expert insights to navigate grey areas. For example, the use of novel and intelligent pest control or application methods can reduce de pendence on pesticides while maintaining agricultural productivity. The use of genetically modified seeds, which help to increase the resilience of crops to climate change-induced drought, for example, must also be reassessed in this context.
3. Use existing or emerging framework models: More and more standards are emerging that offer companies guidance on new requirements. For the emerging topic of biodiversity, where it is very difficult to define the "footprint" unlike with CO2 emissions, this is the Taskforce on Nature-Related Financial Disclosure (TNFD). Or the WWF Biodiversity Risk Filter, to name another example.
4. Transparent communication: Transparency is crucial for building trust and credibility. Supervisory boards should ensure that their company's ESG communication addresses both progress and difficulties in a transparent and honest manner. The "greenwashing" that was common in the past not only does not work, it also jeopardises credibility and reputation. This includes the company acknowledging the areas where there is still room for improvement and outlining the steps that are being taken to address these issues.
5. Long-term perspective: ESG strategies must be aligned with long-term corporate goals and societal expectations. This requires a forward-looking approach that anticipates regulatory changes, technological advances and shifts in stakeholder values. By focusing on long-term sustain ability, supervisory boards can create lasting value for their companies.
6. Compliance structure: The supervisory board must have a clear compliance, supervisory and risk management concept and implement this by issuing instructions to the management board.

IV. Defining and maintaining ESG values

Ultimately, companies must define their ESG values for themselves and use them as a guide. This process involves articulating a coherent ESG vision that aligns with the company's mission and strategic objectives. For example, a company might prioritise investment in renewable energy not only for regulatory compliance reasons, but as a core part of its commitment to environmental responsibility.

However, setting ESG values also means being prepared to withstand external pressure and criticism. This requires a strong governance framework in which the board plays a central role in maintaining the integrity of ESG commitments. By promoting a culture of accountability and resilience, boards can guide companies through the inevitable tensions and conflicts.

V. Summary and conclusion

Mastering the complexity of ESG requires more than just compliance with reporting standards; it requires a holistic and differentiated approach to communication and strategy. This is both a duty and an opportunity. Thanks to comprehensively designed and im plemented ESG communication, supervisory boards have the opportunity to position their companies credibly and authentically, thereby increasing their long-term value