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Corporate Sustainability in the Era of Global Warming

Sustainable development requires the establishment of a corporate operational model that is compatible with the developmental trajectory of the biosphere without causing irreversible damage (Hajnal, 2006).

Amidst the current climate crisis, corporate responsibility is increasing: companies must not only follow sustainability principles but also actively contribute to restoring natural balance.

Definition of Sustainable Development (Hajnal 2006 (PDF)): Humanity is part of and an active participant in the evolution of the Universe and life on Earth. Therefore, its development is determined by the evolutionary trajectory and laws of the life-sustaining biosphere.

As a subsystem of the biosphere, humanity can develop safely only if it aligns with the evolutionary direction, organization, and operational model of the life-sustaining biosphere. This means it must integrate harmoniously with the biosphere, causing no irreversible damage while ensuring the long-term availability of resources necessary for justified human needs.

The realization of sustainable development requires regulatory and monitoring activities aimed at ensuring a dynamic balance and lasting harmony between the planet’s natural resources and human system demands.

Key Elements of Sustainable Corporate Operations

Carbon Neutrality and Emission Reduction Achieving carbon neutrality is crucial for all companies. This involves minimizing direct (Scope 1), indirect (Scope 2), and supply chain (Scope 3) emissions. Effective strategies include improving energy efficiency, utilizing renewable energy sources, and developing a low-carbon supply chain.

Carbon Credits and Offsetting Even the most sustainable companies cannot completely eliminate their emissions, so the remaining emissions must be offset by purchasing carbon credits. These credits finance projects that sequester carbon dioxide or prevent emissions, such as forest conservation, regenerative agriculture, or renewable technologies.

Circular Economy Instead of a linear economy (production-consumption-waste), companies should transition to a circular model that focuses on retaining raw materials for as long as possible and recycling them. This reduces the ecological footprint while offering economically efficient solutions. The circular economy is built on recycling and keeping materials in circulation. The blue economy further integrates natural logic, achieving zero waste by transforming all byproducts into valuable resources. The blue economy is thus a more radical and innovative version of the circular economy, not only aiming for efficiency but also mimicking natural systems.

ESG and CSRD Compliance Sustainability considerations are increasingly becoming part of regulations. The ESG (Environmental, Social, Governance) framework and the EU CSRD (Corporate Sustainability Reporting Directive) provide essential guidelines for companies to establish sustainable and transparent operations.

Respecting Planetary Boundaries The “planetary boundaries” concept, defined by the Stockholm Resilience Centre, highlights that human activity must not exceed the resilience of natural systems. Companies must adjust their raw material usage, production processes, and emissions accordingly.

According to Hajnal (2006), sustainable companies do not merely minimize their negative impacts but actively participate in the regeneration of the biosphere. Achieving carbon neutrality, integrating ESG principles, and adopting circular economy practices all contribute to ensuring that businesses align harmoniously with natural systems, securing long-term human well-being.

The use of voluntary carbon credits plays an important role in improving companies’ environmental performance within the ESG (Environmental, Social, Governance) framework.

ESG is widely used to evaluate companies’ sustainability and social responsibility performance.

The following summary highlights their connection.

Environmental (E) Component

The “E” aspect of ESG focuses on companies’ environmental impacts, including reducing their carbon footprint. The use of voluntary carbon credits allows companies to offset their emissions by supporting projects that sequester carbon dioxide, such as reforestation programs or investments in renewable energy. This improves the company’s sustainability metrics while contributing to mitigating global warming.

Social (S) Impacts

Voluntary carbon credits can also support community projects that improve quality of life, such as providing clean energy sources in developing countries. These programs not only contribute to emission reductions but also offer social benefits, which can enhance a company’s “S” score.

Governance (G) Aspect

The use of carbon credits can also be linked to the governance component of ESG, as company leaders and decision-makers are responsible for developing sustainability strategies and ensuring the transparent and ethical use of carbon credits. Effective ESG governance promotes long-term financial performance and a positive reputation.

Integrating carbon credits into ESG enhances companies’ environmental credibility and helps meet the sustainability expectations of investors and consumers.

ESG (Environmental, Social, and Governance) criteria are playing an increasingly important role in evaluating companies’ sustainability and social responsibility performance.

The use of carbon credits can indeed contribute to companies achieving their sustainability goals, including the implementation of the Paris climate goals. Here are some key points:

Striving for Carbon Neutrality

Carbon credits enable companies to offset their emissions by supporting projects that remove carbon dioxide from the atmosphere or reduce emissions. This helps companies achieve carbon neutrality.

Meeting Sustainability Goals

As part of ESG strategies, companies can purchase carbon credits to meet their environmental and sustainability goals. This is particularly important in sectors with hard-to-reduce emissions.

Financial Incentives

The trading of carbon credits provides financial incentives for companies to find innovative solutions to reduce their emissions. This can encourage the development of green technologies.

Reputation and Investor Interest

Companies actively participating in the carbon credit market generally perform better in sustainability ratings, making them more attractive to investors seeking sustainable investment opportunities.

Achieving Paris Climate Goals

The use of carbon credits helps limit global warming to 1.5°C or, more recently, 2°C, which is one of the main goals of the Paris Agreement. Companies actively participating in carbon credit trading contribute to reducing global emissions.

Overall, the use of carbon credits can serve as an important tool for companies to achieve their sustainability goals and implement the Paris climate goals, especially when combined with a comprehensive ESG strategy.

In ESG assessment, carbon neutrality through voluntary carbon credits primarily relates to the E (Environmental) pillar but can also indirectly affect the S (Social) and G (Governance) aspects.

How Can It Contribute 100% to ESG Assessment?

Environmental (E) Aspect – 100% Direct Impact
- Companies can balance their carbon emissions through emission reduction measures (e.g., energy efficiency, renewable energy use) and by purchasing voluntary carbon credits.
- If a company achieves full carbon neutrality, it increases its ESG rating in the E factor by proving it has reduced its ecological footprint.
Social (S) Aspect – Indirect Impact
- Purchasing credits from certified, socially responsible carbon projects (e.g., reforestation, sustainable energy production, community development programs) positively influences corporate social responsibility.
- Supporting local community projects enhances the company’s social reputation and contributes to improving the S factor in the ESG assessment.
Governance (G) Aspect – Indirect Impact
- A transparent carbon strategy and responsible carbon footprint management demonstrate that the company follows a well-governed and responsible sustainability strategy.
- Proper documentation of credit procurement and compliance with recognized carbon standards (e.g., VCS, Gold Standard) can strengthen the company’s ESG rating in the G component.

Summary

If a company fully neutralizes its emissions with voluntary carbon credits, it can contribute 100% to sustainability goals in the environmental (E) aspect of the ESG assessment.
Its impact on the social and governance (S and G) factors depends on the types of carbon projects it supports and the transparency of its process.
Purchasing carbon credits alone does not guarantee a high ESG score, but when combined with emission reduction and a well-documented sustainability strategy, it provides a significant ESG advantage.

The Hungarian government introduced the so-called ESG Act (Act CVIII of 2023) at the end of 2023, which was adopted by the Parliament, creating the national ESG framework. Its goal is to ensure the competitiveness of Hungarian companies during the global economy’s transition to sustainable operations.