Improve your ESG score with this simple guide and get answers to the following questions: What is ESG Governance? What are the ESG Factors? What are the ESG Criteria? How to Implement ESG?
Published 19 Aug 2022
ESG governance is an assessment of a company’s leadership and management. It focuses on how the executives of a company run the business and if it’s done in an ethical and fair way. Different industries and business types will also have their own definitions, metrics, and priorities when it comes to attaining the common goal of conducting business in an ethical and fair manner.
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.
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.
Common criteria for ESG factors include the following:
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.”
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.
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.
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:
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:
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Zarina is a content writer and researcher for SafetyCulture. She enjoys discovering new ways for businesses to improve their safety, quality, and operations. She is working towards helping companies become more efficient and better equipped to thrive through change.
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