FAQ

ESG stands for Environmental, Social & Governance and refers to a company’s environmental, social, and governance responsibilities. ESG is increasingly used by investors, companies, and authorities as a benchmark for how responsibly a business is managed.

The three main pillars of ESG:

1. Environmental - How does the company impact the planet?
   This area covers a company’s environmental impact, including:

• CO₂ emissions & climate change – How does the company reduce its climate impact?
• Energy consumption & renewable energy – Does the company use fossil fuels or green energy?
• Resource use & waste management – How are materials optimized and recycled?
• Biodiversity & pollution – How are chemical emissions and other environmental impacts managed?

1. Social – How does the company impact people?
   Social sustainability concerns relationships with employees, customers, suppliers, and society:

• Working conditions & employee wellbeing – Pay conditions, working environment, diversity, and inclusion.
• Human rights & supply chain management – Ethical production conditions and responsible sourcing.
• Consumer safety & product responsibility – Transparency, quality, and health-related aspects.
• Local community engagement – How the company contributes to society through, for example, charity and CSR initiatives.

1. Governance – How is the company governed and managed?
   This area covers the company’s ethical guidelines, transparency, and compliance:

• Board composition & responsibilities – Independence, diversity, and competencies in leadership.
• Anti-corruption & ethical guidelines – How bribery, fraud, and conflicts of interest are handled.
• Data protection & cybersecurity – How the company safeguards customer data and confidential information.

Compliance & reporting – How transparency in the company’s ESG data is ensured

ESG is essential for companies that want to be competitive, credible, and future-proof.
It is not only about the environment but about a strategic approach that reduces risks, strengthens reputation, and creates financial value. ESG is already a requirement for the largest companies subject to the CSRD. Even if a company is not subject to CSRD and therefore not directly required to report on ESG, it may be indirectly subject to ESG through partners and customers. This means a company may be excluded if it cannot present a correct and robust ESG report.

1. ESG reduces risks
   Without an ESG strategy, companies risk financial challenges:

• Supply chains – Resources become more expensive or regulated.
• Investors – ESG documentation is often required for financing.
• Recruitment – Talented employees choose value-driven companies.

1. ESG attracts investors
   More investors prioritize sustainable companies. A strong ESG profile provides:

• Better loan terms and financing opportunities
• Increased investor interest
• Long-term value for shareholders

1. ESG strengthens brand and competitiveness
   Customers and partners choose companies with responsible business models. ESG can:

• Differentiate the company from competitors
• Create loyalty and stronger customer relationships
• Prevent accusations of greenwashing

1. ESG drives innovation and new markets
   ESG opens up new business opportunities, such as:

• Circular models where waste becomes new products
• CO₂ reduction as a competitive parameter
• Sustainable materials that meet future requirements

1. ESG makes the company attractive to employees
   Talent seeks companies with strong values. ESG contributes to:

• Better employee retention
• A healthy work culture with well-being and diversity
• Increased productivity through better working conditions

Greenwashing is a form of misleading marketing in which companies present themselves as more environmentally friendly than they actually are. This often happens through unclear statements, vague wording, or visual branding that creates a green image without real sustainability initiatives behind it.

Greenwashing harms not only consumers but also companies themselves, as it can lead to loss of trust, legal issues, and potentially financial consequences.

The Danish Consumer Ombudsman advises against using the following terms
The Consumer Ombudsman strongly advises against the use of words such as:

“Sustainable”
“Green”
“Environmentally friendly”
“Climate-friendly”
“CO₂-neutral”
“Natural”
and other synonyms

These terms are too broad and can mislead consumers if they are not supported by documented, measurable, and verifiable data. The Consumer Ombudsman has emphasized that all claims must be provable by an independent third party. Even with verification, it is extremely difficult to document that something is completely green or sustainable, as no products or companies are so in an absolute sense.

Why is it almost impossible to document “sustainability”?
For something to be called sustainable, it must be proven that it does not deplete resources, harm the environment, or negatively impact future generations. This is practically impossible, as all products and services have an environmental impact - regardless of how many measures are taken to reduce it.

For example:

A T-shirt may be made from organic cotton, but production still requires large amounts of water, transportation, and energy.
An electric car emits less CO₂ during use, but requires rare metals and resources for battery production, which come with significant environmental costs.

No products or companies are 100% sustainable because the entire value chain must be assessed. Therefore, any environmental claim requires precise wording, for example:

“Sustainable packaging” → Misleading, as nothing is fully sustainable
“Packaging made from 80% recycled plastic” → Concrete and documentable (but you still need documentation)

Consequences of greenwashing

Legal sanctions: Greenwashing can lead to fines and legal consequences, especially under tightened EU directives on sustainability communication.
Loss of consumer trust: Customers often see through exaggerated claims and may reject brands that fail to live up to their promises.
Investor risk: ESG investors place strong emphasis on transparency, and companies with questionable environmental claims may lose access to financing.

Greenwashing can therefore have serious consequences - both financially and reputationally.

Does your company need help avoiding greenwashing? Contact us for advice on ESG and credible communication.

The same rules apply to voluntary ESG reporting
Even if a company chooses to report voluntarily on ESG and is not subject to the CSRD Directive, the same rules apply to environmental claims. The Consumer Ombudsman’s guidelines on environmental marketing apply to all companies, regardless of whether ESG reporting is voluntary or mandatory.

This means that companies must not use misleading or undocumented environmental claims, even if they are not covered by the new reporting requirements. Environmental statements must still be concrete, precise, and verifiable by a third party, and broad claims such as “sustainable,” “green,” or “environmentally friendly” may be misleading if they are not supported by solid data.

Examples of problematic statements:

“We strive for a sustainable future with the company.” – Vague and undocumented. No one can guarantee a fully sustainable future.

“We can calculate precise CO₂ emissions from food waste.” – CO₂ calculations depend on complex factors and can rarely be described as “precise” without qualifications.

Such wording can mislead consumers and business partners and should not appear in ESG reports or marketing unless supported by concrete data, third-party verification, and precise definitions.

In other words: Voluntary ESG reporting does not exempt companies from the rules on truthful and documentable environmental communication.

Sustainability is about using resources in a way that ensures a balance between environmental, social, and economic needs - both now and in the future.

The UN’s Brundtland Report from 1987 defines sustainability as:

“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Sustainability consists of three core dimensions, all of which must be in balance to achieve truly sustainable development:

Environmental sustainability
The preservation of natural resources, reduction of pollution and CO₂ emissions, and the development of circular solutions that reduce resource consumption and waste.

Social sustainability
Good working conditions, equality, human rights, and fair access to resources. This also includes areas such as education, health, and social responsibility.

Economic sustainability
A business model that is long-term and responsible, without coming at the expense of people or the environment. A healthy economy should support both social and environmental stability.

Sustainability is more than the environment

Many people mistakenly believe that sustainability is only about climate and the environment, but without social and economic sustainability, there is no real sustainable development.

For example:

• A company may reduce its CO₂ emissions, but if it exploits its employees or has unethical working conditions, it is not socially sustainable.
• An organization may promote social justice, but if it is not economically viable, it cannot survive in the long term.
• A financially strong company may create jobs, but if it pollutes and damages ecosystems, it is not environmentally sustainable.

Therefore, all three dimensions of sustainability must be considered together to create responsible and lasting development.

Sustainability is a process, not a state

No company or product is 100% sustainable, because all activities have environmental, social, and economic impacts. Sustainability is therefore not about perfection, but about taking responsibility and continuously improving processes, products, and policies.

Companies, organizations, and individuals can work with sustainability by:

• Documenting their actual climate and environmental impact using transparent data.
• Ensuring good working conditions and fair treatment of employees.
• Implementing economic models that ensure long-term stability without harming people or the environment.
• Avoiding greenwashing and instead communicating honestly and precisely about sustainability efforts.

Sustainability is not a fixed destination, but an ongoing process where we must continually strive for better solutions.

But remember: nothing is ultimately 100% sustainable - everything has an impact.
Products, services, and companies will always have environmental, social, and economic effects. Sustainability is not about eliminating all impact, but about minimizing it and taking responsibility for the consequences.

CSRD (Corporate Sustainability Reporting Directive) is an EU directive that imposes stricter requirements on companies’ ESG reporting. It was adopted in 2022 and replaces the former NFRD (Non-Financial Reporting Directive).

The purpose of CSRD is to increase transparency in companies’ sustainability efforts, giving investors, authorities, and consumers access to credible and comparable ESG data. Under CSRD, companies must report in detail on their environmental, social, and governance impacts in accordance with the new European standards, ESRS (European Sustainability Reporting Standards).

CSRD requires ESG reporting to:

• Be data-driven and follow standardized reporting requirements.
• Be integrated into the company’s annual report at the same level as financial data.
• Be verified by an independent auditor to ensure credibility.
• Be based on the principle of double materiality, meaning both how the company impacts the environment and society, and how sustainability-related factors impact the company.

CSRD will be phased in from 2024 to 2028, depending on the company’s size and financial thresholds.

CSRD vs. voluntary ESG reporting

Many companies that are not directly subject to CSRD still choose to report voluntarily on ESG. However, there are significant differences between what is required in a CSRD report and a voluntary ESG report.

Double materiality principle
CSRD requires companies to report both on how sustainability affects the company and how the company affects the environment and society. Voluntary reports often focus on only one of these aspects.

Structured standards (ESRS)
CSRD reporting must follow the ESRS (European Sustainability Reporting Standards), ensuring consistency and comparability across companies. Voluntary ESG reports are often less standardized.

Requirement for third-party verification
CSRD reports must undergo external assurance to ensure the accuracy and reliability of the information. Voluntary ESG reports are rarely verified by an independent third party.

Integration into the annual report
CSRD requires ESG reporting to be integrated into the company’s official annual report, whereas voluntary reports are often published separately and without legal obligation.

Long-term ESG targets and risk assessment
CSRD requires an in-depth explanation of the company’s long-term ESG strategy, risk assessment, and concrete future targets. Voluntary reports are typically more flexible and less detailed.

What does CSRD mean for companies?

• Increased transparency: ESG claims must be data-driven and documented.
• Greater compliance requirements: Companies must collect, analyze, and report significantly more ESG data.
• More responsible marketing: Greenwashing becomes more difficult, as unsupported environmental claims may lead to legal consequences.
• Impact across the entire value chain: Large companies will require ESG data from their suppliers and business partners.

Although CSRD applies directly only to the largest companies, the requirements will spread throughout the business community. Many small and medium-sized enterprises will therefore be indirectly affected, as large companies will demand ESG data from their suppliers and partners.

Companies that do not prepare for CSRD risk losing business opportunities, investors, and competitiveness in a future where ESG becomes a decisive factor.

Many companies choose voluntary ESG reporting to position themselves strategically, meet customer requirements, or prepare for future regulatory demands. However, ESG reporting is not merely a communication exercise or a simple data point; it is a tool that must be usable both operationally and strategically.

Several software solutions on the market promise that ESG reporting is simple, but no software can automatically produce a useful and credible ESG report if the company does not have control over its data, an understanding of the purpose of the reporting, and a strategy for how it will be used.

Why does ESG reporting require more than just software?

Even though voluntary ESG reporting is not subject to CSRD (Corporate Sustainability Reporting Directive), this does not mean that filling in a few fields is sufficient to produce a useful report. An ESG report must be strategically applicable—otherwise, it is simply a waste of resources.

For ESG reporting to create real value, a company must:

Understand and be able to analyze data
ESG reporting is not just about entering numbers. It requires understanding which data is relevant, how it should be analyzed, and what they reveal about the company’s sustainability performance. Without understanding the meaning of the data entered, the result may be a report that provides no actionable insight.

Understand where data should be placed
ESG data must be comparable, measurable, and usable. If data are categorized incorrectly, or if a systematic framework such as the VSME model is not followed, the ESG report will lack credibility. Incorrectly classified data can lead to misunderstandings and poor decision-making.

Understand how the ESG report should be used strategically and operationally
An ESG report is not something that is prepared once a year and then filed away. It should:

• Inform decision-makers about where the company needs to improve.
• Be part of strategic planning to reduce risk and increase competitiveness.
• Be integrated into daily operations so that ESG becomes a natural part of how the business is run.

Understand how to develop policies
An ESG report is more than a collection of figures. It must document how the company works with sustainability across environmental, social, and governance areas. This requires the ability to develop concrete policies on topics such as climate, human rights, and supplier management.

Understand how to develop procedures to streamline the process
ESG reporting is not a one-off exercise; it is an ongoing process that requires the company to:

• Implement systematic procedures for data collection and reporting.
• Develop internal guidelines for how ESG data should be handled.
• Ensure that ESG is embedded in the company’s governance structure, rather than handled by one person or department once a year.

What does it take to produce a useful ESG report?

For an ESG report to be genuinely useful, it requires:

• Knowledge of the VSME model or another recognized framework to ensure a systematic approach.
• Collection of valid and comparable data that can be measured and analyzed over time.
• The ability to conduct a materiality assessment so the report focuses on what matters most.
• An understanding of how ESG reporting can be translated into action and business development.
• Documentation of ESG claims to avoid greenwashing.
• Internal expertise or external advisory support if the necessary knowledge is not available in-house.

When does it make sense to prepare a voluntary ESG report?

• When the company has the resources to collect, analyze, and understand data correctly.
• When the company has a plan for how the ESG report will be used strategically.
• When customers, partners, or investors request ESG data.
• When the company wants to improve its ESG performance and has a long-term sustainability plan.

When does it make less sense?

• When the company lacks internal resources to ensure credible reporting and is unwilling to invest in external support.
• When the ESG report is intended purely as a branding exercise, without real data collection and analysis.
• When the company does not know how to use the ESG report in its operations and strategy.
• When it is assumed that software alone can produce a useful ESG report without genuine effort from the company.

Conclusion

Voluntary ESG reporting can be a strategic advantage - but only if it is done properly. If the ESG report is merely the result of data entry without an understanding of analysis, strategic application, or a long-term plan, it becomes worthless.

It is not enough to purchase ESG software and assume that reporting will automatically be useful. The company must understand its data, be able to analyze them, and implement ESG strategies in practice.

If ESG reporting is to be used operationally and strategically, it requires knowledge, planning, and resources. Without these elements, companies risk producing a report that makes no real difference and cannot support decision-making.