May 19, 2022


ESG: What is Environmental, Social and Governance?

ESG: What is Environmental, Social and Governance?

What is ESG? 

Environmental, social and governance (ESG) criteria are standards within a company's operations that investors pay attention to when considering backing companies. 

Socially conscious investing has been increasing over time and many investors won't even think about investing in a business that doesn't support some sustainable and/or social cause. 

What are environmental, social, and governance (ESG) criteria?

  • Environmental criteria focuses on topics such as nature, carbon neutrality, waste, pollution, and animal treatment. GHG reporting and sustainability reporting are now at the top of the list that investors acknowledge.
  • Social criteria may include with whom businesses have relationships whether they are sustainable vendors or if they help build up the community with their resources. This also includes human rights of employees, communities and others in the supply chain. 
  • Governance criteria include keeping transparent accounting records, avoiding conflicts of interest between board members, and that stockholders are able to vote on important matters. Other concerns would be management structure, employee relations and retention, and compensation of wages.
unsdg chart for esg
Image source: United Nations
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ESG rating / ESG score

ESG reporting requires analyzing specific data so ESG ratings / ESG scores have been created. They are useful for investors and executives so they can calculate ESG performance and risk management. Providers use different measures to give ratings so scores can be calculated differently. No matter the provider, the tangible data gives a realistic view of the performance and what outcomes should look like. Sustainalytics ESG Risk Rating is an example of how well manageable and unmanageable ESG risks could be measured.

While investors raise their standards about what to invest in, conscious consumers are also raising their standards about how eco-friendly their products, services, and preferred brands are. The bar is getting higher every year regarding ESG scores and what sustainability standards should be. Different providers like S&P Global for instance, weigh their scores through documents, data, questions, and anything that is important to them for a clear evaluation of a company's ESG criteria.

esg score rating spglobal
Image source: S&P Global

Corporate disclosure that is verified among other analyses paired with company engagement is the foundation of the S&P Global Corporate Sustainability Assessment (CSA). It's considered one of the most thorough and accurate sustainability assessments. It gives access to ESG criteria to the firm first, using data intelligence to do proper evaluations. Companies participating get very involved as well. 

How does ESG investing work?

ESG criteria is now a very widespread and sometimes necessary factor for investors to consider backing your company. 

  • Investors will dismiss companies that don't offer ESG criteria.
  • Your ESG score matters to conscious investors and firms.
  • Not only will you be overlooked but you're at financial risk if your company isn't contributing to the environment outside of the product or service.

Investors seek businesses that aim for better outcomes for society and that there is an ROI for doing so. Not all companies will achieve every UN SDG, but they should have a philanthropy that goes beyond their product or service, and even more than just one. Corporate social responsibility (CSR) and corporate sustainability are key values now in any sustainable business. Without having any external purpose, companies risk not having investor support at all or at best will experience difficulty finding support.

What companies can do if they are interested in ESG criteria assessments is to compile all of the data they have about their inner workings, with tangible measurements and tracking, such as how Net0 analyzes emissions and gives precise information about the raw data that has been converted to emissions data. Then the business would have information to provide a financial or investment firm in order to do a full assessment and commit to getting engaged.

Moving towards a sustainable future 

The Morgan Stanley Institute for Sustainable Investing recognizes the drastic increase in sustainable investing versus traditional investing in the last two decades. Global warming, social justice, and eradicating plastic are some of the most focused on causes. Receiving recommended solutions from firms that specialize in ESG investing will be a great guide in moving further with a sustainable business. 

Since climate change is such a considerable share of environmental problems, the necessity for benchmarking and strategizing carbon reduction strategies is increasing. It is only through technology that companies will be able to properly calculate, measure, track, analyze, offset, and report on their emissions accurately. This is the only way for companies to prove their transitions to net zero and be able to lower their emissions every year. There is no way to track if they are really being lowered without verifiable GHGP-compliant reports to provide for a fair ESG criteria assessment. In fact, carbon-intensive stocks are so highly priced, that they are actually now high-risk because decarbonization is increasing by the minute whether it be due to government regulations or staying competitive amongst green consumers. Moving towards a sustainable future requires decarbonization amongst other criteria and requires the technology to be able to transition to net zero.

“The enormity of the challenge of transitioning to a net-zero and nature-positive economy requires multisector collaboration—leveraging blended finance, supportive policy and catalytic private-sector investment, to drive sustainable and impactful investments at scale,” says Audrey Choi, a Morgan Stanley senior adviser and CEO of the firm’s Institute for Sustainable Investing. 

Final thoughts

While Net0 is not an ESG reporting system, it is an emissions management platform. Since carbon neutrality is a significant part of the environmental aspect of ESG, having fully loaded carbon accounting software that goes beyond a system of record to measure, reduce, offset, report and certify will help you in your net zero journey and provide the data you need for stakeholders. With investor-grade reporting in real-time that is GHGP-compliant and a simulator tool with predictive analysis, providing data on carbon neutrality for ESG reporting is easy to do with Net0. 

Book a call with us today to experience the demo and learn how you can get carbon neutral certified, fast. 

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