This is the ESG introductory guide you’ve been looking for. We’ve kept it brief so that by the time you finish reading this article, you’ll have a better understanding of the basics of his ever-changing ESG landscape.
What is ESG?
ESG refers to environmental, social and governance factors that investors measure when analyzing a company’s sustainability efforts from a holistic perspective.
Many companies publish ESG reports in line with ESG reporting frameworks, standards, regulations, or investor expectations, demonstrating transparency and creating an environment that contributes to the overall risks and opportunities associated with their business. , social, and governance factors.
ESG reporting requirements can vary by jurisdiction and industry and are still evolving. His ESG information most relevant for companies to report is based on their operations, management and stakeholder expectations.
There is more to ESG data than just the individual impact of each company. It also includes partners, community influence, and companies within his supply chain. The types of data included range from greenhouse gas emissions to labor practices, workforce diversity, executive compensation, and more.
Still confused? Don’t worry, we’ll break this all down for you.
The “E” in ESG stands for corporate environmental responsibility. This includes how we use energy and how we manage our environmental impact as stewards of the planet. Examples of environmental issues include:
- carbon emissions
- energy consumption
- Impact of climate change
- waste disposal
- Renewable energy
- resource depletion
The data disclosed in the social responsibility portion of ESG covers a wide range of topics, from how companies nurture people and cultures to diversity statistics and impacts on communities. Examples of social topics include:
- human rights
- community relations
Governance in ESG covers how companies are directed and managed, and how leaders are held accountable. Increased transparency in corporate governance is rapidly becoming an expectation. Examples of topics related to governance include:
- executive compensation
- Rights of shareholders
- takeover defense
- staggered board
- Outside Director
- Board election
- political contribution
- ESG Strategy Checklist
Not sure how to formulate an ESG strategy? Start here:
1. Identify ESG stakeholders and build teams
Once you have determined which internal and external stakeholders to serve, use your internal network to build a team of self-motivated individuals who are passionate about supporting your ESG program. Build a diverse, cross-functional team with expertise in a variety of areas, including finance, human resources, internal audit, investor relations, and risk.
2. Research peers’ ESG reports
Download the ESG report and compare the data disclosed by your peers to the ESG framework you use. Based on this research, work with ESG stakeholders to brainstorm the metrics that matter to your organization, identify the ESG data you already collect, and determine what data you still need.
3. Identify ESG materiality and develop an ESG reporting roadmap
Use information gathered from stakeholders to improve the metrics and value that matter to your organization. She then maps the path to achieving her ESG reporting and her overall ESG performance goals.
Why Are ESGs Complicated?
Global and industry ESG reporting standards are changing rapidly. Regulations, frameworks and standards, whether related to supply chains, ESG goals or performance, do not all align with the information companies require. This has led many companies to disclose only what is required or to use ESG frameworks that make the most sense to their stakeholders.
ESG rating agencies and rankers use different criteria and methods to determine ESG scores. Many companies don’t collect his ESG data or have the structure and teams to put together a full ESG report. Working across departments to compile, analyze and report financial and non-financial data for ESG disclosure is not always easy. This is where ESG Framework and his ESG reporting software and platform come into play.
What data is used for ESG reporting?
ESG data includes environmental, social and governance data from your business and its value chain (including customers and suppliers). The variety of ESG data companies can disclose is vast.
Environmental aspects can range from greenhouse gas emissions, to water and raw material use, to waste management.
Social ESG data may include statistics on corporate diversity, human and animal rights, as well as information related to labor practices in a company’s supply chain.
ESG disclosure on governance brings transparency to a company’s leadership and operations. Investors often want details about company values, employee relationships, corruption concerns, and employee and executive compensation.
What metrics are used to determine ESG scores?
Most ESG rating agencies and ranking officials determine a company’s ESG score through a proprietary evaluation process that offers limited transparency. His ESG metrics in line with the framework and criteria generally inform these scores, but raters and rankers may also include media trends, controversy analysis, and other public information. ESG metrics serve as a consistent baseline for ESG reporting and provide guidance for companies beginning their ESG efforts.
Many companies use ESG reporting frameworks to generate consistent reports that address industry standardized ESG metrics. The purpose of ESG metrics is to produce consistent and comparable reporting and to encourage companies to reduce their environmental impact, improve their social impact and have better internal governance.
What is ESG reporting?
ESG reporting involves disclosing information about a company’s operations and risks in three areas: environmental management, social responsibility and corporate governance.
Investors can use ESG reports to identify companies to invest in that pose less financial risk due to their environmental impact, social standards, or governance structures. The ESG report helps investors avoid companies that may be impacted by his more stringent ESG metrics in the future, as well as other risks associated with the ESG data contained in the report. This is called His ESG Investing, and companies are now adjusting their ESG strategies to focus on providing more information and transparency in their ESG disclosures.
Why are ESG reports important?
Investors and capital providers are increasingly using ESG reports as a factor in their decision-making process. ESG reports provide transparency to investors and enable more informed business decisions. We also analyze and assess the impact companies have on our world, help them move forward in setting and achieving their ESG goals, and realize business value in the process.
ESG reports do more than encourage companies to disclose their impact on our world. It helps hold companies accountable for their impact. ESG reporting is not mandatory for all companies, but the corporate landscape is moving in the direction of expecting a company to be transparent about his ESG impact.
What is ESG investment?
ESG investing is the prioritization and consideration of environmental, social and governance performance and metrics by investors in the investment decision-making process. Pressure from modern investors and the broader investment community is pushing companies to become more transparent and publish ESG reports.
Below are some results from the 2021 Workiva-commissioned ESG Perception Survey.
- More than half (61%) of adults want to know if their moral beliefs align with a company before investing.
- More than half (64%) agree that public investors need to pressure companies to be more transparent.
- Majority (68%) say they want reliable data
For years, companies didn’t have many rules to follow regarding ESG reporting, but the U.S. Securities and Exchange Commission has for years required publicly traded companies to disclose financially material climate-related matters. I have instructed As regulators around the world finalize his ESG reporting requirements, more and more organizations are following the Global Reporting Initiative standards, the Sustainability Accounting Standards Board standards, and the recommendations of the Task Force on Climate-related Financial Disclosures. Comply with ESG reporting frameworks and standards, including or GRI Standards, SASB Standards, and TCFD Recommendations.
Among ESG reporting software providers, Workiva embeds top frameworks in its platform to help companies map ESG data to frameworks and standards when preparing their annual ESG reports.
What is ESG score?
ESG scores can be viewed as ESG risk indicators. They are generated based on company performance across numerous environmental, social and governance indicators. Simply put, an ESG score is a number that helps simplify her ESG risk and performance assessment of a company for comparative purposes.
However, these ESG scores are complex. This is because score providers, rating agencies, and rankers evaluate different criteria to determine scores. Some request information from companies through surveys and questionnaires, some confirm public information, and some do a combination of these. ESG scores are important because they provide a baseline for assessing a company’s ESG risks, but without a broad and standardized reporting framework (and regulations to enforce accurate and complete reporting), ESG Scores are only as accurate as the data companies choose to disclose. Or anything you can find online.
Nonetheless, investors use these scores to assess where their funds should be directed in the absence of standardized disclosures.
ESG vs Sustainability
Sustainability and ESG often seem interchangeable, but they are not. The implications of sustainability can be wide-ranging, but are generally focused on protecting the planet and its people. ESG focuses on material issues such as emissions, water use, diversity, equity and inclusion. These pose immediate financial risks to companies due to their industry, business practices and operations.
ESG frameworks and standards
A number of ESG frameworks and standards exist to help produce comparable disclosures. It also helps companies determine how to report and measure. A single company can use multiple frameworks and customize reports to share the most relevant ESG data. In addition to reaching out to stakeholders about their disclosure needs and starting there, we recommend researching which ESG frameworks similar companies in the same industry use.
Dive deep into ESG
We’ve only scratched the surface of ESG and ESG reporting, but hopefully you’ve learned something new in this guide. If you’re looking for more ESG benefits, our ESG Content Hub keeps you up to date with the latest and timely articles. Also, check out her ESG talk podcast by host Mandi McReynolds for her latest ESG trends, topics, and tips.
First published on Workiva and 3BL Media newsroom.
Image credit: Bela Geletneky via Pixabay