Introduction to ESG and ESG Frameworks
ESG, the acronym for Environmental, Social, and Governance, involves the three categories of interest for socially responsible investors. Apart from merely considering the profitability or risk of an investment opportunity, these investors consider environmental and social concerns an important part of their investment selection. ESG reports help investors analyse and measure the important factors and keep an eye on issues such as human rights, carbon emissions, and the use of natural resources. Other than investors, ESG reports provide transparency to the company’s employees and customers.
Traditionally, ESG had been a focus for sustainability-minded leaders. However, today, ESG and ESG frameworks have become important for all executives looking to improve company performance. Let’s understand the three pillars of ESG reporting.
What is the Environmental Factor?
Environmental factors include water, air, and ground pollution and emissions like greenhouse gases. It includes how a company uses its resources in production processes and cycles back the products into the economy rather than a landfill. Furthermore, land concerns like deforestation also fall under this category. Reporting on positive sustainability aspects of the company can help with long-term business advantage.
What is the Social Factor?
Reporting on how the company provides goods and services to the economically backward sections of society can increase its social worth to the investors. The issues under the social factors involve how a company manages its labour practices and employee development. Furthermore, it includes the quality and safety of the product, supply chain labour, and health and safety standards within the company.
What is the Governance Factor?
The governance factors of a company include its board diversity, shareholder rights, compensation of executives, and how the compensation lines up with the company’s sustainable performance. Moreover, corporate behaviour issues like corruption and anti-competitive practices also come under the governance factor of ESG.
What is an ESG Framework?
ESG frameworks are the systems used to standardise the reporting process and disclose ESG metrics. Companies use these sustainability reporting standards to identify what and how they report. Today, ESG is considered a reporting framework. However, earlier, it was a framework used to evaluate the company’s sustainability-related disclosure for investors. Currently, there is no standard ESG reporting framework, only a consensus on the issues covered.
There are several ESG frameworks, and companies can report applying one or more of these frameworks. Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) are the most commonly used ESG reporting frameworks.
Importance of ESG Frameworks
The ESG reporting frameworks are gaining increasing importance in organisations. Here’s why:-
- Consumers are pressurising businesses to be more environmentally and socially responsible.
- More and more investors are considering ESG as an important factor in the investment process.
- It can improve employee morale and productivity.
- Robust ESG policies help businesses reduce waste, water, and energy costs and adopt a more strategic resource allocation process.
Wrapping it Up!
ESG and ESG frameworks allow companies to be more transparent with investors, employees, and consumers regarding their approach toward environmental, social, and governance issues. With various ESG reporting frameworks used all around the globe, it can become overwhelming to choose the best reporting framework for your company. However, fret not! You can contact a DataTracks expert @ +31202253702 or email at enquiry@datatracks.eu to learn about ESG reporting and the best framework for your reporting needs in the EU.