ESG Risk Management: The Key to Sustainable Business Growth

Modern businesses operate in a rapidly changing environment, where sustainability is not just a trend but a necessity. ESG risk management (Environmental, Social, Governance) is a comprehensive approach that integrates environmental, social, and corporate governance aspects into a company's strategy, impacting its financial performance and reputation.

Benefits of ESG Risk Management

Incorporating ESG factors into the risk management system allows companies to:

ESG Risk Management Examples in Different Areas

Regulations on Sustainable Development Risk Management

In response to the growing importance of sustainability, several regulations have been introduced to promote and enforce ESG practices in companies. In the European Union, the CSRD (Corporate Sustainability Reporting Directive) requires companies to report on ESG issues, aiming to improve reporting standards and promote sustainable economic development by standardizing and expanding the scope of reporting.

Furthermore, the European Banking Authority (EBA) has developed guidelines for managing ESG risks in the banking sector, emphasizing the integration of these aspects into financial risk management processes, which directly impacts businesses financed by banks.

Specific Disclosures in Sustainable Development Risk Management

IRO (Impacts, Risks, and Opportunities) are key elements of the European Sustainability Reporting Standards (ESRS) and the CSRD Directive. This framework helps companies identify and assess their key sustainability issues.

Key aspects of IRO:

The IRO Triad forms the central foundation of ESRS. Companies must implement a process to identify, measure, and manage impacts, opportunities, and risks in order to report the success of their sustainability efforts. ESRS requires companies to describe how they identify and manage significant impacts, risks, and opportunities.

IRO categorization is as follows:

Conclusion

ESG risk management is an integral element of modern business, enabling the creation of lasting value, minimizing potential risks, and maximizing the benefits of responsible operations. Integrating environmental, social, and governance aspects into a company’s strategy is key to achieving success in today’s increasingly conscious world.

Sponsor Engagement in Sustainable Development Projects – Key to Success

Implementing sustainability initiatives is not just about regulatory compliance or enhancing a company’s image. It is a deep organizational transformation process that requires effective change management. One of the most critical success factors is the engagement of a sponsor—a high-ranking executive, such as a board member, who will support the project from the very beginning.

Change Management in ESG Transformation

Transitioning to a business model based on sustainability principles, particularly in the context of low- and zero-emission operations, is one of the biggest challenges for organizations. This transformation involves:

Change management is the process that enables organizations to navigate these stages effectively, minimizing resistance and increasing the chances of success.

The ADKAR Model as the Foundation for Effective Implementation

The ADKAR method, developed by Prosci, is one of the most widely used change management models. It consists of five key stages:

Without strong sponsor support, guiding an organization through these stages—both strategically and operationally—becomes extremely challenging.

The Role of the Sponsor in Sustainability Projects

  1. Strategic Support and Awareness Building

The sponsor should be a board member or senior executive with real decision-making influence. They must clearly understand why and how the organization invests in sustainability. Their role is to communicate the benefits of these changes to both internal and external stakeholders.

  1. Overcoming Resistance to Change

Every organizational change faces resistance—stemming from concerns about additional responsibilities, increased costs, or the need to acquire new skills. The sponsor serves as a change advocate, actively promoting the project and persuading skeptics. This means the sponsor not only endorses the project but also takes responsibility for its execution.

  1. Ensuring Resources and Integrating ESG into Business Strategy

Many ESG initiatives fail because they remain at the declaration level without sufficient resources—financial or human. The sponsor plays a key role in:

  1. Addressing Challenges and Sustaining Change

Every transformation encounters obstacles—legal challenges, employee resistance, technological difficulties, or unclear success metrics. The sponsor must actively address these barriers and ensure the changes become embedded in the organization. A committed sponsor ensures that implemented changes are sustainable—e.g., by integrating ESG goals into performance management systems and corporate policies.

Why Must Senior Management Be Engaged?

Board-level engagement is essential because:

Conclusion

A successful transition to a sustainable business requires not just knowledge and technology but, above all, effective change management. The ADKAR model provides a structured approach to guiding an organization through this adaptation process, but the key role belongs to the sponsor—a senior executive who supports the project at every stage.

Without an engaged sponsor, ESG initiatives risk remaining ambitious plans with no real impact on business operations. Therefore, the first step for any organization implementing a sustainability strategy should be to secure board-level support and appoint a strong change leader.

Sustainability Reporting as a Key Pillar of the Financial System

The modern financial system cannot function effectively without tools to assess the long-term stability and responsibility of businesses. Just as financial reporting standards—initially met with resistance in the early 20th century—have become a cornerstone of economic transparency, sustainability reporting (ESG) is not a passing trend but a necessity driven by global economic and regulatory shifts.

A Historical Parallel: Financial vs. ESG Reporting

The evolution of financial reporting was a response to market needs, and ESG reporting is following a similar path.

The Impact of ESG Reporting on Investment Decisions

Sustainability data is now a critical component of investment risk analysis. Investors use key ESG indicators to avoid companies with long-term vulnerabilities, such as:

✅Industries reliant on depleting resources (e.g., fossil fuels).
✅Businesses with high water consumption in drought-prone regions.
✅Companies lacking consistent ESG standards, leading to information gaps that weaken investment efficiency and create systemic financial risks.

The EU’s Regulatory Push for ESG Reporting

The European Union is systematically strengthening the importance of ESG disclosure through key regulations:

RegulationImpact
2014/95/EU DirectiveMandated large companies to disclose environmental, social, and governance (ESG) information.
Corporate Sustainability Reporting Directive (CSRD)Expands reporting obligations to more companies and introduces detailed ESG disclosure standards.
EU TaxonomyDefines which business activities align with sustainability and green transformation goals.

These regulations increase transparency, reduce greenwashing, and drive sustainable investments across industries.

The Benefits of ESG Reporting for Businesses

1️⃣Better Access to Capital

2️⃣Stronger Risk Management

3️⃣Enhanced Transparency & Trust

4️⃣Competitive Advantage

Conclusion

Sustainability reporting is not just a bureaucratic requirement—it is the foundation of the modern economy.

Just as financial accounting became standard practice, ESG reporting is set to become an essential element of financial markets. Companies that adapt early will not only reduce risks but also gain a competitive edge in an evolving business landscape.

The Future Through the Eyes of CEOs

The 28th Annual CEO Survey conducted by PwC gathered insights from 4,701 CEOs worldwide, revealing a divide between two groups of business leaders: those who actively adapt to new realities and those who remain stagnant.

Two Approaches to the Future

The first group of leaders is actively investing in key areas such as generative artificial intelligence (GenAI), climate transformation, and new business models, seeing them as opportunities for growth and value creation.

On the other hand, more conservative leaders rely on minor adjustments to existing business models to maintain competitiveness. However, with rapid technological and regulatory changes, this strategy may prove risky.

High Expectations for GenAI

Generative AI is generating great enthusiasm among business leaders. Currently, one-third of CEOs have already seen revenue and profitability growth due to its implementation, and half expect further increases in the coming year.

Despite these benefits, trust in AI remains a challenge, slowing down its full-scale adoption.

Sustainability as a Growth Driver

Investments in climate-positive actions are increasingly proving to be profitable. The PwC study found that:

However, these benefits are not evenly distributed:

Blurring Industry Boundaries

The business landscape is undergoing rapid transformation, with traditional industry boundaries disappearing. Nearly 40% of CEOs stated that their companies entered new sectors in the past five years.

At the same time, 40% of leaders believe their companies will become unprofitable within a decade if they fail to pivot their business strategies. This underscores the importance of flexibility and adaptability in today’s market.

Slow Pace of Transformation

Although many CEOs recognize the need for change, the pace of transformation remains slow. On average, only 7% of companies’ revenues over the past five years have come from new business activities.

The main barriers to transformation include:

Optimism Despite Challenges

Despite these challenges, business leaders remain optimistic.

How Can Companies Create Value Through Climate Action?

Building long-term value through sustainability starts with CEO-driven decisions focused on developing eco-friendly products, services, and technologies.

Already, one-third of companies are generating revenue from climate transformation investments. This number is expected to grow as decarbonization accelerates.

Next Steps:

  1. Optimizing resource and energy consumption
    • Companies face the "energy trilemma": ensuring stable energy supply, reducing emissions, and minimizing costs.
    • Many firms are becoming "prosumers"—both producers and consumers of renewable energy—allowing them to use and sell excess power back to the grid.
  2. Leveraging Data for Competitive Advantage
    • Companies must develop a robust data strategy for sustainability.
    • This helps meet ESG reporting requirements and provides insights for strategic decision-making.

Conclusion

Businesses are at a turning point. Those investing in technology, climate transformation, and new business models have the opportunity for rapid growth.

Meanwhile, companies that remain stagnant risk losing competitiveness. The future of business will be shaped by flexibility, adaptability, and innovation—and sustainability is at the core of this transformation.

🔗 Source: PwC CEO Survey

Polish Translation of the Voluntary Sustainability Reporting Standard for SMEs Now Available

Polish micro, small, and medium-sized enterprises (SMEs) now have a new tool for reporting their sustainability efforts. The Ministry of Development and Technology has published the official Polish translation of the Voluntary Sustainability Reporting Standard for Non-Listed Micro, Small, and Medium-Sized Enterprises (VSME). This standard, developed by the European Financial Reporting Advisory Group (EFRAG), was originally published on December 17, 2024.

Purpose of the VSME Standard

The VSME aims to support SMEs in:

Structure of the VSME Standard

The VSME consists of two modules:

1. Basic Module (11 Key ESG Disclosures)

This module covers the minimum reporting scope, including:

2. Comprehensive Module (9 Additional Disclosures Required by SMEs' Business Partners)

This module expands reporting to include:

Importance of VSME for Polish SMEs

Although the VSME Standard is voluntary, its adoption can significantly facilitate cooperation between SMEs and large corporations, as well as improve access to financing. Companies implementing this standard will also be better prepared for future ESG reporting regulations.

EFRAG has announced further work on additional materials to support standard implementation, such as guides, digital tools, and educational training.

The Polish translation of the standard is the result of cooperation between the Ministry of Finance, the National Chamber of Commerce, and ESG experts, ensuring its alignment with local regulations and market expectations.

The full text of the standard in Polish is available at:
🔗Polish version

The English version of the standard can be found here:
🔗English version

Roadmap for Sustainable Finance in Poland – The Key to Green Transformation

Poland faces the significant challenge of transforming its economy toward climate neutrality by 2050. Achieving this goal requires a substantial increase in investment in sustainable financing. The document "Roadmap for the Development of the Sustainable Finance Market in Poland", developed as part of an EU project, outlines how to overcome barriers and create a dynamic financial ecosystem supporting sustainable development.

Key Takeaways from the Roadmap

1. Investment Gap – €1.9 Trillion by 2050

To finance the green transition, Poland needs an additional €1.9 trillion by 2050. Public funds alone will not suffice—mobilizing private capital is essential.

2. Major Barriers to the Development of the Sustainable Finance Market

The report identifies four key obstacles slowing down market growth:

Four Pillars of the Roadmap

To effectively develop the sustainable finance market, the report proposes four strategic pillars:

1. Legal and Competency Foundations

2. Transformation of the Financial Market

3. Mobilization of Financing

4. Poland as a Regional Center for Sustainable Finance

Priority Recommendations

The report highlights specific actions that should be implemented first:

Implementation Timeline

The Roadmap implementation is divided into four phases:

The Roadmap is an ambitious plan that can make Poland a leader in sustainable finance in Central and Eastern Europe. The key to success lies in public-private sector collaboration and the swift implementation of necessary reforms.

Will Poland seize its opportunity for a green transformation? Time will tell, but one thing is certain—the future of finance is sustainable.

The Roadmap for the Development of the Sustainable Finance Market in Poland is a project by the Ministry of Finance, developed in cooperation with the European Commission’s Directorate-General for Structural Reform Support (DG REFORM) and funded by the European Union through the Technical Support Instrument.

The full report is available here: https://www.gov.pl/web/finanse/zrownowazonefinanse.

Facts and Myths About the EU Deforestation Regulation

The European Union Deforestation Regulation (EUDR) aims to curb global deforestation by regulating products entering the EU market. However, many misunderstandings have arisen around this regulation. Below, we clarify the most common myths and the reality behind them.

Myth 1: "A farmer cannot cut down and sell their own tree."

✅Reality: The EUDR does not impose a blanket ban on farmers cutting down trees on their own land. Farms are generally classified as agricultural land and are not directly subject to EUDR regulations. However, if part of the farm includes forest land (over 0.5 hectares and meeting specific criteria), tree felling is permitted as long as the forest is not degraded and is allowed to regenerate.

EUDR does not impose legal obligations on farmers unless they are directly placing regulated products on the EU market. The regulation’s goal is to promote sustainable and legal forestry practices, not to hinder them.

Myth 2: "Every single coffee bean must be traced back to its exact source."

✅Reality: Supply chains are complex, involving multiple stages where products from different farms may be mixed. EUDR allows for aggregated traceability, meaning companies can report all sourcing areas collectively rather than linking each individual product to a specific location.

In such cases, companies can assign all sourcing areas to their final products. They can also "declare a surplus" if only a portion of the sourced materials is placed on the market (e.g., when selling part of a bulk grain shipment). However, products should not be mixed with non-compliant or unidentified sources.

Myth 3: "EUDR creates a massive paperwork burden."

✅Reality: Due diligence statements are submitted electronically via the EU’s Information System. EUDR requires companies to have clear visibility into their supply chain origins to prevent deforestation and forest degradation.

Submitting geolocation data is the simplest and most direct way to comply. The Information System, which will be available before the regulation takes effect, is designed to reduce administrative burdens and improve efficiency.

Additionally, an API interface will allow businesses and national authorities to integrate their existing systems with the central registry, eliminating manual data entry. Companies can also reuse previously submitted information without needing to re-enter it.

Myth 4: "EUDR is discriminatory and creates trade barriers."

✅Reality:EUDR is non-discriminatory. It applies equally to EU-produced and imported goods, ensuring that all companies selling in the EU market adhere to the same sustainability requirements.

The regulation is fully compliant with WTO (World Trade Organization) rules and does not create arbitrary or unjustified discrimination against producers from third countries. Instead, it is an autonomous EU measure aimed at environmental protection and fulfilling the EU’s international commitments, including trade agreements and WTO requirements.

➡EUDR does not ban any country or product—it ensures that only sustainably sourced goods enter the EU market.

Conclusion

The EUDR promotes sustainable practices and ensures that products entering the EU do not contribute to deforestation. It is essential for companies and stakeholders to fully understand the regulation’s actual requirements and avoid common misconceptions.

Companies managing supply chains should take EUDR into account. These sustainability aspects also impact ESG reporting and corporate sustainability disclosures.

📌Source:
🔗EU Commission – EUDR Myth Buster

DEI – Is It Worth It?

In today's increasingly complex business world, organizations face pressure not only in terms of financial performance but also regarding social and environmental issues. Diversity, Equity, and Inclusion (DEI) have become key topics of discussion among business leaders, with their impact on financial performance being the subject of numerous studies. But does diversity actually translate into better business results? What factors determine an organization’s success in this area?

Diversity and Financial Performance – A Strong Connection

The Diversity Matters 2023 report, which analyzed 1,265 companies across 23 countries on six continents, provides clear conclusions: organizations with more diverse leadership teams achieve better financial performance. Companies that rank highest in gender diversity at the board level are 39% more likely to outperform the market average, compared to those that do not prioritize DEI. In terms of ethnic diversity, this likelihood stands at 27%.

Interestingly, companies where women make up more than 30% of the board significantly outperform those that do not reach this threshold. Conversely, organizations with low board diversity are 66% less likely to achieve above-average financial results.

Similar patterns emerge when looking at diversity in supervisory boards. Companies with a higher percentage of women in these roles are 27% more likely to achieve superior performance, while those with greater ethnic representation see a 13% higher chance of financial success.

Good Intentions Are Not Enough – Strategy Matters

Despite the positive research findings, simply increasing diversity is not enough to make an organization more effective. The key factor is how companies manage diversity and whether they are willing to make structural and decision-making changes to support inclusion.

Many organizations make the mistake of treating diversity as a one-time recruitment initiative, whereas real success comes from leveraging employees' diverse knowledge, experiences, and perspectives. Studies show that merely increasing representation from underrepresented groups does not automatically improve business efficiency—what truly matters is creating an environment where diversity becomes an asset.

A New Paradigm for Managing Diversity

As early as 1996, the Harvard Business Review introduced the learning-and-effectiveness paradigm, which argues that the real benefits of diversity come from building a learning-oriented organization that embraces cultural and identity differences. Companies that adopt this approach:

✅ Build a culture of trust – Employees must feel safe to express their opinions and experiences freely.
✅ Actively combat discrimination – Organizations need concrete policies that eliminate barriers to advancement and ensure equal opportunities.
✅ Give real decision-making power to diverse leaders – Only when leadership is truly diverse (in terms of gender, ethnicity, and experience) does diversity begin to deliver measurable business benefits.

Unlike traditional "inclusion slogans," this diversity management model requires deep structural changes in organizational hierarchy and decision-making processes.

Conclusion

Diversity in organizations positively impacts financial performance, but simply increasing the number of women or ethnic minorities in key positions is not enough. What truly drives success is implementing strategies that actively leverage diverse perspectives and experiences.

Companies that treat diversity as a strategic asset—and make meaningful changes to their organizational culture and decision-making structures—can not only boost financial performance but also gain a competitive advantage in an increasingly demanding business environment.

Sources:

🔗 McKinsey – Diversity Matters
🔗 Harvard Business Review – Getting Serious About Diversity

Assurance of Sustainability Reports

With the entry into force of the Corporate Sustainability Reporting Directive (CSRD) on January 5, 2023, European businesses face a new obligation to report sustainability-related information. This directive mandates companies to disclose data in accordance with the European Sustainability Reporting Standards (ESRS) and introduces a requirement for independent assurance of these disclosures. The goal of these regulations is to enhance the reliability of reported data and enable stakeholders—such as investors, consumers, and policymakers—to make informed decisions that promote sustainable development.

What Is Sustainability Report Assurance?

Assurance is the process of independent verification of the information contained in a company's sustainability reports. Conducted by certified auditors or other independent assurance service providers, this process aims to enhance the credibility of reported data. It is important to note that assurance does not evaluate a company’s actual sustainability performance but rather focuses on the accuracy and completeness of the disclosed information.

The Assurance Process

The assurance process follows a risk-based approach and consists of three main stages:

Types of Assurance

Sustainability report assurance can take the form of limited or reasonable assurance:

National Assurance Standard 3002PL

In response to the CSRD requirements, on January 23, 2025, the National Council of Statutory Auditors in Poland adopted Resolution No. 854/20a/2025, establishing the National Assurance Standard for Sustainability Reporting 3002PL – "Limited assurance engagement on sustainability reporting." This standard was approved by the Polish Audit Oversight Agency on January 28, 2025, and applies to reports for financial years starting after December 31, 2023.

The KSUA 3002PL has no equivalent in international standards, making Poland one of the few EU countries with its own assurance standard. It will remain in force until the European Commission adopts a EU-wide sustainability reporting assurance standard.

The Importance of Assurance for Stakeholders

Independent assurance of sustainability reports enhances the credibility of disclosed information, which is crucial for investors, consumers, and other stakeholders. It allows them to make informed decisions based on reliable data while promoting transparency and corporate accountability regarding environmental and social impacts.

The mandatory assurance requirement for sustainability reports is a significant step towards improving the transparency of corporate ESG (Environmental, Social, Governance) practices. Through independent verification, stakeholders can trust that the reported information is accurate and complete, fostering trust and supporting sustainable development efforts both at the national and EU levels.

EU Taxonomy – A Key Tool for Sustainable Economic Transformation

The European Union is steadily implementing its sustainable development strategy, with the EU Taxonomy as one of its most powerful instruments. This innovative classification system supports green investments, increases market transparency, and helps companies align with new environmental regulations.

What Is the EU Taxonomy?

The EU Taxonomy acts as a "green guide," defining which economic activities genuinely contribute to climate and environmental goals. This enables investors to make more informed decisions and helps companies avoid greenwashing (false environmental and social claims).

Key Objectives of the EU Taxonomy

The EU Taxonomy was developed to:

✅Redirect investments toward sustainable projects aligned with the European Green Deal.
✅Reduce greenwashing by ensuring greater transparency in the financial markets.
✅Support businesses in planning and financing their green transition.
✅Create unified standards for evaluating sustainable investments, making it easier to compare their impact.
✅Channel capital into initiatives that have the greatest environmental benefits.

The EU Taxonomy and Other Key Regulations

The EU Taxonomy is closely linked to other EU sustainability regulations, such as:

RegulationPurpose
CSRD (Corporate Sustainability Reporting Directive)Requires companies to report their environmental and social impact.
EU Green Bond DirectiveEnhances transparency in green bond issuances to support sustainable finance.

Benefits of the EU Taxonomy for Businesses

The EU Taxonomy is not just a regulation—it’s a strategic tool that allows companies to:

✔Access cheaper financing – through preferential loans and investment funds linked to sustainability.
✔Increase competitiveness – businesses aligned with the Taxonomy attract investors and sustainability-conscious customers more easily.
✔Prepare for future regulations – failing to integrate ESG principles may lead to a loss of market position.

Progress and Challenges in Implementing the EU Taxonomy

Since its introduction, the EU Taxonomy has played a key role in mobilizing capital for green investments.

📈Revenue from Taxonomy-aligned activities grew by 22% (from €670 billion in 2022 to €814 billion in 2023).
📈Capital expenditures (CapEx) on green projects rose by 32% (from €220 billion to €291 billion).
📈Total sustainable investments in key sectors exceeded €530 billion between 2022 and 2023.

Challenges

Despite its success, the implementation of the EU Taxonomy presents challenges, such as complexity and high reporting burdens for businesses.

Planned Simplifications of the EU Taxonomy

To enhance the efficiency of the Taxonomy, the EU Platform on Sustainable Finance has proposed four key simplifications for the European Commission:

1️⃣ Reducing Reporting Burdens by One-Third

2️⃣ Simplifying the Green Asset Ratio (GAR) for Loans

3️⃣ More Practical "Do No Significant Harm" (DNSH) Criteria

4️⃣ Supporting SMEs in Accessing Sustainable Finance

The Future of the EU Taxonomy: Simplified Reporting and Global Integration

The European Commission has announced that by November 2024, it will introduce a consolidated "Omnibus" regulation to streamline reporting obligations across the EU.

Additionally, the EU Taxonomy is influencing global markets—over 58 countries are now developing their own sustainable investment classification systems. Harmonization with international standards could strengthen capital flows and expand the reach of green investments.

For the full EU Platform on Sustainable Finance report, visit:
🔗Read the Report