Environmental Social
Governance (ESG)
Unlike CSR, ESG is measured, quantifiable and criteria-led, allowing businesses to fully integrate better environmental, social and governance strategies into their DNA.
ESG
Environmental
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Climate Change Strategy
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Water Efficiency
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Energy Efficiency
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Carbon Intensity
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Biodiversity
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EMS Framework & Policy
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Human Rights
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Labour Standards
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Health & Safety
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Employee Development
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Supply Chain Standards
Social
Governance
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Corporate Compliance
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Business Ethics
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Board Independence
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Executive Compensation
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Tax Strategy
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Board Structure & Diversity
What is Environmental Social Governance (ESG)?
ESG is on the minds of many investors today. It can represent risks and opportunities that will impact a company’s ability to create long-term value. This includes environmental issues like climate change and natural resource scarcity.
It covers social issues like labor practices, product safety, and data security. And it involves governance matters that include board diversity, executive pay, and tax transparency.
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ESG Landscape
Climate
Change
Natural Resources
Pollution & Waste
Environment Opportunity
Carbon emissions
Water
stress
Toxic emissions & waste
Opportunities in clean tech
Product carbon footprint
Biodiversity & land use
Packaging material & waste
Opportunities in green building
Financing environmental impact
Raw material sourcing
Electronic
waste
Opportunities in renewable energy
Climate change vulnerability
Human
Capital
Product
Liability
Social Opportunity
Climate
Change
Labor management
Product safety
& quality
Controversial sourcing
Access to communication
Health
& safety
Chemical
safety
Human capital development
Financial product safety
Supply chain labor standards
Privacy & data security
Access to finance
Access to
health care
Opportunities in nutrition & health
Responsible investment
Corporate Governance
Corporate Behavior
Board
diversity
Business
ethics
Executive
pay
Anti-competitive practices
Ownership
Corruption & instability
Accounting
Financial system instability
Tax
transparency
Health &
demo. risk
Source: MSCI ESG universe
What is ESG reporting?
ESG reporting is known by many names, including purpose-led reporting, sustainability reporting, corporate social responsibility reporting, and ESG risks and opportunities reporting. The market wants to know how companies are weighing risks and shaping business strategy in the context of ESG issues.
Providing this information can help burnish a company’s reputation, while withholding ESG information could potentially harm a company’s valuation, access to capital, or its brand reputation in the market. In short, ESG reporting is disclosure of material ESG risks and opportunities, from both a qualitative and quantitative perspective. It also includes explaining how and where those ESG risks and opportunities inform the company’s business strategy.
The maturity scale
for ESG disclosure
Judged by how well they tell their ESG story through disclosures, companies generally fall into one of the three stages of maturity:
Straggler
Companies that don’t have anything documented on corporate social responsibility, either in a report, on the website, or anywhere else. They haven’t identified material ESG topics. In addition, they have not taken into consideration insights from investors or other stakeholders and their views on ESG topics. Essentially, ESG efforts of companies in this stage of maturity may still be anchored in philanthropy efforts rather than incorporating a strategic business focus.
Halfway Runner
Companies that may be publishing a sustainability or corporate responsibility report or disclosing information on a webpage, but do not have a cohesive ESG strategy that is linked to their business purpose and embedded in their core operations. They likely do not have standardized metrics to measure progress or the data gathering processes and controls required to do ESG reporting consistently and on a timely basis. Board oversight is scant at best.
Front Runner
ESG strategy is regularly reviewed by board/committees and embedded in core operations. The company has adopted commonly accepted ESG/sustainability standards and reporting frameworks to guide their ESG disclosures. Robust processes, controls, and governance are in place to ensure disclosures are “investor grade.”
ESG roadmap
Take stock of your stakeholders:
Develop and report metrics:
Identify each stakeholder group, including employees, and determine which aspects of your business are most important to each.
Lead with purpose:
Incentivize employees through their participation in setting the company’s goals and by connecting aspects of compensation to achieving them. Changes in PEST can lead to changes in stakeholder views. Periodically assess whether the metrics continue to resonate with stakeholders.
Incentivize & re-evaluate:
Develop consistent and controlled policies for quantifying and reporting metrics. Align & organize metrics, offer comparison figures to demonstrate consistency, and implement controls over the preparation and reporting of metrics.
Now that you know what is important to stakeholders, define your purpose, set related goals, and lead accordingly. Differing aspirations among stakeholders may make it difficult to gain acceptance on a set of measures. Be intentional with achievable goals.