ESG: Frequently Asked Questions
Environmental, Social, and Governance (ESG) refers to the three central factors used in measuring the sustainability and societal impact of a company. In other terms, it is an approach that allows organizations to measure their contributions to sustainability and ethical practices in a way that provides transparency to the market, financial benefits to the organization and benchmarking for industry.
Conceptually, ESG has been around for quite some time with Corporate Social Responsibility (CSR), environmental sustainability and the Triple Bottom Line concepts existing since 1950s. They were unstructured and qualitative in nature, and also lacked decision-making support. With ESG, on the other hand, structured and quantified criteria was established that aids in confidently assessing risk, long-term viability and social contribution of a business.
The ability to successfully manage and report ESG is an indication of strong corporate leadership and governance and defines organizations as an employer or partner of choice. In today's economy, organizations can also deliver higher business value and sustain competitive advantage by investing in ESG initiatives.
While ESG frameworks focus on reporting, the basis of that reporting will be the efficiency and awareness of organizational processes. Management systems that integrate environment, health and safety, supply chain and quality management processes will be important for ensuring your ESG reporting reflects the operational excellence you’ve achieved in your organization.
An ESG score or rating is a measure of a company's performance on a wide range of environmental, social and governance risks. ESG ratings help investors identify companies that are lagging or leading in their industry, which may flag opportunities or risks not captured in conventional financial analysis.
As ESG disclosures become more commonplace, businesses that manage and improve their overall ESG performance will gain a competitive advantage over their peers in reputation, resiliency, ability to attract talent and ability to attract capital.
Some studies show that the companies with strong ESG performance are more likely to provide strong financial returns and reduce risk. Thus, ESG invites special attention from the investor and financial community. In addition, customers, employees and suppliers/partners are becoming increasingly diligent about associating with the companies creating positive impact for the environment and society.
ESG reporting software provides organizations with an automated system for reporting to multiple frameworks and provides visibility on ESG results and performance improvement efforts. ESG reporting software efficiently compiles ESG data for disclosure reporting, benchmarks ESG performance against peers and optimizes processes and operations that directly contribute to ESG results.
ESG reporting is used by investors to determine the financial risk an organization faces from environmental performance, social practices or regulatory compliance. ESG reporting allows organizations to monitor environmental, social and governance performance.
Given the increased ask from the investors for the consistent, comprehensive and comparable ESG data, many countries are increasingly moving towards implementing mandatory ESG disclosure requirements. Some of such countries include United Kingdom, European Union, Singapore and the United States (currently at the proposal stage).
There are many voluntary reporting frameworks mostly built by the non-profit organizations that provide the guidelines and standards to disclose ESG data in a structured way. Some of the popular ESG reporting frameworks include Global Reporting Initiative (GRI), SASB, CDP, UN Global Compact (UNGC), Science Based Targets and more
Investors are increasingly looking for high quality, comparable data that they can use to support their investment decisions. With ESG data becoming more important in investment decisions, the financial community expectation is that ESG data will offer the same high quality as that of the financial reports. This means automated, accurate, comparable, consistent, timely and auditable data.
Materiality is a concept that defines why and how certain issues are important for a company or a business sector. A material issue can have a major impact on the financial, economic, reputational and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.
A materiality assessment or analysis is a process in which a company identifies the environmental, social, governance and broader emerging issues, such as digitalization, innovation and geopolitical events that are most important given the operating context of a business.
Materiality assessment guides the organization's ESG reporting foundation as well as the ESG strategy, as it helps with a meaningful target setting based on data-driven approach to choosing and prioritizing ESG metrics to track and report.
There are two major perspectives around materiality. The first perspective concerns the external impacts an organization’s activities have on the environment and society (also called environmental and social materiality). The other one is centered around the actual or potential impacts of climate change risks on the organization’s business and performance (also called financial materiality).
Carbon footprint is the total amount of greenhouse gases (GHG) emissions caused directly and indirectly by an individual, organization or a product.
Carbon management software enables organizations to collect, calculate, manage and report their carbon emissions in a simple and efficient way. It supports organizations in tracking their performance against the emission reduction goals, allowing them to more efficiently manage their climate change programs.
With the increasing attention on climate change, organizations are expected to be transparent about tracking and reporting their GHG emissions. It helps to identify excessive energy usage or other inefficiencies to reduce the organization’s impact on the environment.
Carbon offsetting is a way of compensating for your emissions by funding an equivalent carbon saving elsewhere. It allows organizations to fund environmental projects such as reforestation, renewable energy, etc. and make up for the emissions from their businesses.