ESG is a set of principles to measure environmental and social impacts. In 2006 the United Nations debuted ESG- the acronym for environmental, social and governance issues- capturing the attention of business, governments, and academics. In less than two decades, ESG investing has evolved into a US$35 trillion industry and is expected to grow to $53 trillion by 2025. The E, S, and G are three areas that companies will report on to give stakeholders a snapshot of how sustainable and responsible their company is. Investors use this information to make informed decisions about the companies they will invest in. Thus, ESG reporting is a tool for understanding organizations’ sustainability and potential for longterm enterprise value. Companies voluntarily disclose their environmental and social impact areas, then their responses are verified by a third party to generate ESG scores and these scores are what tell investors about how the companies are performing. While there is still no set of universal ESG reporting standards, there are some best practices, and similar things investors look for. ESG issues throughout your business and supply chain should be constantly monitored, and the most significant should be included in reporting.
Many companies opt to do their ESG reporting through annual sustainability reports and more and more are choosing integrated reporting where they include ESG information in along with financial reporting. Whatever method is chosen, the report should be detailed, transparent, and cover all the criteria. Today’s consumers expect companies to contribute positively to society and now investors are having a say in how that plays out as they rely on ESG ratings to guide their investment choices.
What Actions are Associated with the E, S & G?
E= Environment This can be any aspect of a business that has an effect on the environment with an emphasis on climate, some examples include:
● Greenhouse gas emissions
● Energy use
● Water treatment
● Pollution resulting from business activity & operations
● Waste generation and disposal
● Land use
How companies respond to both ongoing and potential environmental issues determines how they are evaluated. For example, if a company handles toxic or dangerous waste materials, they should report that they are aware of the risks and have strategies in place to mitigate them this demonstrates their competence. Neglecting to report such awareness may suggest ill preparedness and lack of foresight. Investors and customers see companies that don’t report ESGs as non-caring about the risks associated with climate change and the environment, and they are likely to take their money elsewhere.
S= Social
The social metrics refers to how companies manage and interact with people, other businesses, and cultures. For example, does your supply chain adhere to the same values and set of principles? Does your company contribute to local nonprofits? Does it make a difference in the communities in which it operates?
Some of the things that this metric covers are:
● Inclusivity
● Diversity
● Gender issues
● Employee engagement
● Customer interaction
● Labor standards
G=Governance
The governance metric is how a company works internally. Disclosing a company's internal procedures provides insights on how decisions are made and the stability of its management team. Investors want assurances that a company exercises a good deal of democracy in making significant decisions. They also want to know if it follows best practices in its given industry and if it is staying on top of any potential violations of either local regulations or its own internal rules. Governance also covers potential conflicts of interests for board members and it ensures that a company is not using political contributions to harvest any favors. Disclosing governance issues is one way to demonstrate that a company’s management practices are sound and beyond reproach.
How to Get a Good Score
The best way to get a good ESG score is to ensure your business practices and behaviors are closely aligned with sustainable and responsible values and you are disclosing appropriately. The GRI standards are the most widely used global sustainability reporting framework currently available. This framework provides guidance on general, sector and topic specific disclosures and is aligned with TCFD and CDP as well as the UN Sustainable Development Goals. BlueSphere Partners is GRI certified and we are committed to helping organizations positively impact the world through customized, sustainability strategies that can result in strong ESG scores. Please contact us to start your ESG reporting today.