ESG: Definition, Criteria and Challenges

What is ESG? Definition and Importance

ESG (Environmental, Social, Governance) evaluates a company's non-financial performance across three criteria: how it manages its environmental impact, its social responsibility and the quality of its governance.

These criteria complement traditional financial indicators to reflect an organisation's sustainability and resilience.

For companies, ESG is a competitive advantage: it enables them to meet growing demands from clients and buyers, including through structured reporting frameworks like VSME.

It also supports regulatory anticipation, by initiating the data collection required under CSRD and building a culture of transparency.

Finally, ESG acts as a strategic management tool, measuring internal progress and strengthening stakeholder confidence.

For investors, a strong ESG profile signals better risk management (climate, reputation, supply chain) and facilitates access to sustainable financing, in line with the EU taxonomy.

Corporate Social Responsibility: Definition and Strategic Integration

Corporate Social Responsibility (CSR) consists of voluntarily integrating environmental, social and ethical concerns into management and operations.

According to the ISO 26000 standard, it is built on transparency, responsible governance, human rights and local development.

An effective CSR strategy is structured around four steps:

1. Initial assessment (carbon footprint, lifecycle analysis) to identify major risks and impacts.
2. Setting quantified, time-bound objectives aligned with science-based frameworks such as SBTi.
3. Drafting ESG policies detailing commitments, scope and governance.
4. Implementation and monitoring through measurable KPIs integrated into governance.

This approach embeds sustainability in business strategy at the same level as growth or innovation.

Responsible Procurement: A Key Pillar of ESG Policies

Responsible procurement aims to integrate social and environmental criteria into supplier selection and evaluation.

It extends the ESG approach throughout the value chain by holding business partners accountable.

Implementation involves:

• A responsible procurement policy overseen by the procurement function.
• A supplier code of conduct setting out rules on ethics, human rights and environmental responsibility.
• Clear performance indicators: share of suppliers assessed on their CSR approach, code of conduct signature rate, audit frequency.
• Continuous improvement through regular policy updates and consolidation of ESG data collected.

This is precisely what assessments like EcoVadis measure and structure for suppliers.

CSR Audit: Assessing Performance and Structuring Governance

A CSR audit measures the maturity and effectiveness of an organisation's sustainable management system. Its purpose is to objectify progress, identify gaps and prioritise corrective actions.

Key objectives

• Assess performance across the three ESG pillars.
• Steer strategy by identifying areas for improvement.
• Strengthen compliance, notably through ISO 14001, EcoVadis or CSRD protocols.

Typical approach

1. Define the project scope and governance.
2. Analyse material issues and map stakeholders.
3. Collect and document key ESG indicators.
4. Audit and correct, following the PDCA cycle (Plan-Do-Check-Act).

The most commonly tracked indicators include GHG emissions, share of renewable energy, employee training rates and supplier compliance — all covered by the EcoVadis score.

ESRS Standards: The Regulatory Foundation of Non-Financial Reporting

The European Sustainability Reporting Standards (ESRS), developed under the authority of EFRAG, define the mandatory content of non-financial reporting for companies subject to the CSRD. They establish a standardised, auditable and comparable framework for measuring ESG performance.

The standards cover twelve environmental, social and governance topics, require a double materiality analysis, and mandate external audit of the data.

Although the data volume was reduced by around 60% through the Omnibus I regulation (adopted in 2026), ESRS reporting remains significantly more demanding than voluntary approaches.

Materiality Analysis: The Foundation of a Credible ESG Strategy

A double materiality assessment identifies the ESG issues most relevant to a company and its stakeholders.

It prioritises risks, impacts and opportunities across two dimensions:

• The company's impact on the environment and society.
• How ESG issues affect the business model.

This approach strengthens the coherence of ESG reporting and focuses the CSR strategy on tangible, legitimate priorities.

It relies on stakeholder mapping, impact analysis (lifecycle, risks, opportunities) and integration into strategic planning.

Measuring and Managing the Carbon Footprint Toward Neutrality

The carbon footprint quantifies a company's greenhouse gas emissions (Scopes 1, 2 and 3). Its measurement, through a GHG inventory or carbon assessment, follows international standards (GHG Protocol, ISO 14064).

The net-zero target defined by SBTi requires science-based emissions reductions across all three scopes, complemented by avoidance and sequestration actions.

A rigorous pathway involves four steps:

1. Full emissions audit.
2. Setting short- and long-term SBTi targets.
3. Building a costed, managed transition plan.
4. Transparent progress reporting through CDP or CSRD.

Due Diligence: Transparency and Risk Management

Recommended best practices include:

• Identifying and reducing social and environmental risks across the value chain.
• Publishing a human rights and ethics policy, accompanied by a grievance mechanism.
• Ensuring clear governance, with a designated owner for monitoring and corrective actions.

The coherence between these commitments and measured outcomes is at the core of credible, lasting CSR performance.

ESG: Definition, Criteria and Challenges — Key Takeaways