The importance for organisations to implement ESG criteria with the new ISOs

In recent years, the focus on sustainability and corporate social responsibility has grown hand in hand with the development of and adherence to ESG (Environmental, Social, and Governance) criteria, which have become a fundamental point of reference for assessing the impact of companies primarily on the environment, less, for the moment, on society and internal governance. However, translating ESG principles into concrete action within organisations can be complex, especially for smaller entities such as SMEs, due to a lack of standardisation and not always having clear guidelines. This is where the development by ISO, the International Organization for Standardization, of a specific framework designed to make the integration of ESG criteria more accessible and effective comes into play. This implementation is outlined in ISO - IWA 48:2024 - the environmental, social and governance principles document, providing a structured framework to impact the organisational culture of a business entity.

Professor Leonardo Boni, Assistant Professor at the School of Management of Politecnico di Milano and member of Tiresia, POLIMI GSoM’s research centre dedicated to finance and impact innovation, together with Dr. Laura Zarrillo, a student of our Evening Executive MBA 2023, have studied this topic in depth. “This document was issued by ISO – explains Laura Zarrillo – after a joint effort by the entire community and can help SMEs, not just large companies, to embrace ESG criteria within their organisations.”

Why do ESG policies needed to be implemented?

ISO's publication of this new framework has probably come at the right time. The ESG grammar is reaching maturity, but this way of communicating sustainability does not seem to get a great deal of attention or be appealing, especially in the USA. This is especially due to the greenwashing dynamics of some of the more unscrupulous companies, but also because ESG criteria are too broad and it is often difficult to understand what is ESG is and what is not. “There is the problem of what the ESG world communicates – comments Leonardo Boni – but also of the fact that we only had less than effective measuring instruments at our disposal, which provided inconsistent evaluations. This leads to a disorientation of the market as to whether a company is actually looking at ESG in a clear way. Moreover, voluntary certification mechanisms are not always transparent and lack an underlying clarity of values. Anyone can talk about ESG without there being a barrier to entry or control.”

ISO – IWA 48:2024 principles for the implementation of ESG criteria

IWA 48:2024 takes a holistic approach in proposing key principles to help organisations integrate ESG practices within them. It therefore not only looks at the most immediately sensitive actions related to combatting climate change, but also develops principles closely linked to social inclusion and good governance. Adopting these principles enables the measurement and objective reporting of ESG performance, making it reliable and consistent. The key ESG implementation principles outlined by ISO – IWA 48:2024 are integrity, results orientation, fairness, integration of risks and opportunities into corporate strategies, evaluation of results with attention to direct and indirect impacts, and the promotion of continuous improvement. "To be practical in relation to sustainability, - explain Leonardo Boni and Laura Zarrillo - transparency of practices in the measurement processes is important. Sustainability cannot be reduced to a stamp, a label or a number. Rather, it must become a way of doing business, otherwise the ESG rating will not be able to produce the expected results.”

ESG criteria and ISO Framework: a crucial intervention for SMEs

SMEs make up the majority of the economic fabric not only in Italy, but globally. They often face significant challenges in adopting ESG criteria and risk perceiving it as too complex a commitment. ISO’s practical, structured and concrete approach aims to facilitate their adherence even in the smallest entities. The ISO framework is divided into four main steps for each of the ESG dimensions:

1. identification of risks and opportunities;
2. assessment and impact analysis;
3. definition of desired outcomes, implementation strategies and action programmes;
4. reporting, disclosure and communication of ESG information.

Above all, IWA 48:2024 provides examples of actions and key performance indicators for each ESG dimension, always with a view to supporting companies, in particular the less structured ones. “The goal was to arrive at a possible model – conclude Leonardo Boni and Laura Zarrillo – that could help companies in a practical way. The ISO initiative does not provide a predefined rule, but a useful one, where it is not only technological issues and new opportunities related to the environment that emerge, but also social issues that are always talked about too little. Sustainability as a whole is a new lever for business innovation. Once it was digitalisation, but now it is sustainability and the generation of a social and environmental impact that determines, rethinking the business model, and that is at the same time less polluting and more attentive to the community.”

Sustainability also at the heart of education

A focus on sustainability in all its forms, which underlies the ESG criteria, is central to POLIMI GSoM's training programmes. Not only is it included in all the courses as a clear tool for innovation and development, but it is the matrix around which some specific Masters dedicated to those who want to make a difference in this field - such as the International Master in Environmental Sustainability and Circular Economy or the International Master in Sustainability Management and Corporate Social Responsibility have been designed - just as our Evening Executive MBA and the Executive Sustainability & Impact Leadership programme also look at the transformations and challenges under way