The ESG Framework: Criteria for Environmental, Social, and Governance

In the past, most companies boasted how excellent they were or why they were important to invest in based on their numbers. Although those factors are essential, they aren’t the only thing investors and customers look into.

As climate change continues to be an issue, more and more stakeholders want to know about the corporate ESG of a company.

A solid company is more than its numbers; its social responsibility principles, environmental practices, and ethical governance practices are just as important. Continue reading below to learn more about corporate ESG, its importance, and who you can contact to help move your company in the right direction. 

What is ESG?

Corporate ESG, also known as environmental social and governance, are a set of criteria standards that discuss a company’s socially conscious behaviors. This is often used by certain investors who want to see how the company plans on addressing climate change or if they have any other safeguards to try to protect the environment. 

What Is the ESG Framework?

The ESG framework is divided into three main criteria: environmental, social, and corporate governance. Under the environmental criteria, investors want to learn more about a company’s impact on the environment and its plans to reduce its carbon footprint. Investors may request that a company provide information on their energy efficiency, conservation of water, and other types of natural resources. 

Social Factors

Social factors include how a company stands in the local community and how they manage its relationships with other businesses. Do they have a diverse and inclusive range of staff members? Who is the board of directors?

Additional questions this framework answers:

  • What charitable contributions has the company made?
  • Does the company use child labor?
  • Are the workers on strike?

Investors may also want to know about the company’s policies. Do these policies put the health and safety of their employees first? At its core, this part of the framework focuses on the worker’s rights, wellness and training, and human rights. 

Corporate Governance

Corporate governance looks at the company’s internal processes. This includes accounting methods, board composition, and stakeholder and employee relationships. It also looks into the regulations set in place to prevent unethical behavior or any conflicts of interest. 

Why Is Corporate ESG Important?

The effects of the coronavirus furthered the importance of ESG and its impact. Of course, there were initiatives put in place before the pandemic. Still, the pandemic, in addition to climate change, has made investors want to look more into certain companies holistically before investing. 

Incorporating environmental, social factors, and corporate governance is excellent in determining financial growth. This is because these three main criteria have the ability to impact a company in the long run. If those three are not in order, there is a chance the business won’t last long. 

ESG Importance for Companies

ESG is not only crucial for investors, but it is also essential for companies. If you wish to have investors put money into your business, you should take a look at your company models. Make sure they reflect the core values of ESG. 

Don’t do this to get investors. Do this to ensure that your business will be able to withstand the ever-changing climate of business and the environment.

Focusing on socially responsible and sustainable initiatives brings you the right investors. This also improves your company’s reputation. 

Employees Stay Longer 

Retaining employees is an essential factor in the success of a business. Employees expect jobs to supply them with more than healthcare and increasing wages. Employees want to work with companies that align with their own personal values. 

The pandemic showed how companies cared about their employees. It showed how willing they were to take care of them when disaster hit. Many companies were able to keep up with the changes.

Whereas others quickly cut their employees to focus on their bottom lines. Companies that wish to champion change for the sake of the climate retained the most employees. This was also because they sought to improve the lives of their employees. 

How Does ESG Work?

Most companies measure their own performance by using the corporate ESG standards. They then show these results in documents such as their annual reports. ESG performance is often measured and reported by companies such as MSCI and Bloomberg. 

To find out how a company scores based on its ESG, investors can take a look at websites such as Sustainalytics. On that website, they can see how your company ranks when compared to similar businesses in your industry.

Investors have the opportunity to search online for an “ESG report.” To ensure that they’re getting the correct information, they may seek third-party validation. 

Pros and Cons of Corporate ESG

In the past, many people didn’t respect socially responsible investors as much as they do now because many assumed they were sacrificing an investment because of their personal views. This was seen a lot, especially when certain investors chose not to invest in the tobacco industry. Regardless of how well tobacco did and still currently does, they refused to put their money into the industry. 

On the other hand, because certain investors are more socially conscious than others, they’ve been able to avoid any blowback that happens when a company is found to operate in unethical behaviors. For example, BP’s Gulf of Mexico oil spill. That whole situation cost the company billions of dollars while their stocks took a hit. 

How To Initiate ESG

If your company has not already tried to incorporate corporate ESG, there are a few things you can do to get into it. To start ESG reporting, you can begin by first understanding ESG data. 

You can identify the opportunities and gaps from your data and create insights for each of them. Doing this on your own can be a tedious task, especially if you are an already busy person.

Running a business isn’t easy; making sure you initiate and integrate ESG can take some time. Instead, you can leave that job to a reputable company, such as ACG Advocacy, to handle it on your behalf. We can help manage your reporting requirements while regularly checking in on your company’s ESG performance and data. 

Speak With Your Investors

ESG reporting is an excellent tool to create conversations with your investors about your efforts. To ensure that your reports fair well with the investor, you want to make sure the reports are clear, consistent, accurate, compliant, and comparable. 

There is software out there that you can use to streamline the reporting process and data compilation. To ensure that your documents are in order, you should reach out to a professional for more help. 

Understand Stakeholder Demands

Investors aren’t the only stakeholders demanding transparency from the companies they invest in. Customers and regulators, too, wish to learn more about a company’s efforts and performance towards ESG. 

To meet your client’s demands, it helps to understand their perspective on specific ESG issues. From there, you can create a strategy that includes their demands.

Comply With Regulatory Frameworks

Investors are more likely to invest in a business that follows a recognized framework. ESG frameworks are cohesive and widely recognized amongst the most socially conscious investor.

There are other frameworks, such as SASB and TCFD, that you could use as well. It is best that you do your research to see which framework suits your company and how you wish to present your data. 

Is ESG the Same as CSR?

CSR, or corporate social responsibility for long, is related to ESG, but they are not the same. Corporate social responsibility is a model that drives companies to create socially responsible programs that have positive impacts on the community while still maximizing their profits. ESG is a criterion that assesses how socially responsible a company is.

CSR provides businesses with the mission and vision to be more accountable for their responsibility and sustainability goals. ESG offers a specific framework for companies to adhere to.

ESG for Corporations Organization Sustainability

Corporate ESG is more than a phrase thrown around to win over investors or customers. Environmental social and governance is essential not only for sustainable growth but also to ensure that you take good care of your employees and work towards achieving net-zero emissions.

As the need for sustainability continues to change and evolve, your stakeholders’ expectations will also change. Contact us to ensure you have the correct data to present to your potential investors and other important stakeholders. 

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