Environmental, Social, Governance (ESG) Guide

The exact definition of ethical and fair tends to be subjective, even if ESG is considered to be a more quantifiable form of Corporate Social Responsibility (CSR). This article aims to show how you could go about implementing ESG according to your organization.

What are the ESG Factors?

The multitude of ESG criteria is typically divided into 3 major categories, which are also known as the ESG factors: (1) Environmental; (2) Social; and (3) Governance. The specific ESG metrics and the weight of each factor is ultimately decided by the company’s chosen ESG ratings provider or rating agency. Unlike other industry standards and best practices, ESG is measured by private organizations such as MSCI, Sustainalytics, S&P, ISS, and Bloomberg.

According to Bloomberg Intelligence, the ESG factor that drives excess returns (i.e., returns that perform better than expectations, projections, or benchmarks) is governance. However, this doesn’t mean that the other two factors should be neglected. Instead, companies should strive to be well-rounded in their ESG performance. 

What are the ESG Criteria?

Common criteria for ESG factors include the following:

Environmental

• Air Quality and Pollution
• Biodiversity Practices
• Carbon Emissions
• Climate Change Risk
• Energy Efficiency
• Green Energy Initiatives
• Water Management
• Waste Management
• Raw Material Sourcing
• Resource Efficiency

Social

• Human Rights 
• Human Capital Development
• Community Relations
• Product Quality and Safety
• Fair Labor Practices
• Occupational Health and Safety
• Diversity and Inclusion
• Talent Retention
• Employee Engagement
• Consumer Welfare
• Privacy Protection
• Data Security

Governance

• Business Ethics
• Competitive Behavior
• Executive Compensation
• Board Composition
• Lobbying and Public Policy
• Bribery and Corruption
• Tax Transparency
• Regulatory Compliance
• Systemic Risk Management
• Crisis Management

How to Implement ESG

The key to implementing ESG is to take action instead of relying on policy-making. A quote by Anywhere Sikochi (who is a co-author of the paper Why is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings) in an article written for Harvard Business School Working Knowledge states that, “We’d rather see that a company has planted trees, instead of seeing that they have policies about not destroying trees.” 

1. Assess Current Performance

   To get a good grasp of what to improve, it’s important that a formal and comprehensive assessment is undertaken to spot areas of non-compliance or areas within an ESG criteria that the company is currently deficient in. Though ESG initiatives should be led by those in C-suite positions, it may be more appropriate for those between mid- and high-level management to conduct this assessment. The reason for this is that a C-suite executive may lack the capacity to go into the finer details required by this assessment.

   To quickly identify ESG deficiencies, the person conducting the assessment should categorize and score the areas in each ESG criteria. If this is too complicated to do, the company may also opt to categorize and score only the ESG criteria and just note the deficiencies related to that criteria.

2. Start Projects that Focus on Action

   After getting the lowest scoring areas or ESG criteria, the company can begin planning for projects that would help improve those ESG criteria and the areas under them significantly. It’s crucial that, instead of policies, companies start action-based sustainable projects that really make an impact on the actual situation and not just the ESG metrics on paper. Ideally, these projects should involve complete employee participation. While there should be a designated project team and project team leader, it would be better if employees also wholeheartedly support the project and turn it into daily practice.

3. Monitor Results and Reevaluate

   Once projects kick off, either a project team member or an employee outside of the project team should be assigned to monitor project impact on company practices. If an employee outside of the project team is to be assigned, they should have adequate knowledge of the ESG criteria that the project is attached to and have the skills and training to measure the performance of the project accurately. Aside from selecting the employee responsible for monitoring, do the following as well:

   • How long the monitoring period should be for each project can be decided by the company, though the safest way to get sufficient results is to monitor the project for at least 3 months. After 3 or more months, the assigned person should compile their findings and observations into a formal report that’s submitted to both the project team leader and C-suite executives.

   • The C-suite executives and project team leader should comment on the report separately so that they aren’t influenced by one another. When everyone has individually submitted their comments, the assigned person can review them and make recommendations. These recommendations, along with the initial report, will be sent to the C-suite executives for review. 
   • At least 6 months after adjustments to projects have been made, the same assessment should be conducted again and the results of the previous and current one compared. If the results have improved (particularly the scores that the projects were supposed to improve), then projects can continue. If a result or score hasn’t improved, major adjustments need to be made to the project and/or its implementation. 
   • The company should also keep an eye out for areas or ESG criteria not targeted by any project and which have lowered considerably since the last assessment. The company can choose to either continue monitoring these areas or ESG criteria or begin developing projects or initiatives to help improve the scores.

How iAuditor Can Help with ESG

Though your company’s ESG score is up to the ESG ratings provider, iAuditor by SafetyCulture can help you take action towards a better ESG score and make long-lasting improvements that investors will notice. Ensure that your company remains an attractive investment by using iAuditor, a digital operations platform available as a web-based software and as a mobile app on iOS and Android.

iAuditor features for ESG include the following:

• Use premade ESG checklist templates or create a customized assessment template with a variety of response types, scoring, and reporting preferences. Attach your company logo to templates and reports.
• Bring ESG to the frontline with Actions, Issues, and Heads Up. Assign an action when you need something done. Use the Issues QR code or web link to enable employees to report issues and observations. Send a multimedia update to an employee, a group of employees, or the entire company and request acknowledgment using Heads Up.
• Encourage employee engagement and foster employee buy-in by providing training that educates employees on the benefits of participating in ESG-related activities.
• Conduct unlimited inspections, audits, checks, and assessments to maintain the consistency of ESG best practices and to measure ESG performance.

Get started with iAuditor for free.