ESG indicators: what they are and what are the benefits for companies
ESG indicators: context and definition
The modern concept of ESG takes shape in the early 2000s, but its underlying principles can be traced back much earlier. Governments and citizens have long been aware of the role that companies play in the society in which they operate and, therefore, have often attempted to monitor and manage their impacts.
In recent years, awareness of the power of corporations in shaping society is becoming more profound, highlighting how unsustainable the current economic system is and how much of a reversal is needed for our well-being. Younger generations are increasingly careful to make sure that the companies they work for, invest in, or buy from respect their values.
Investors and executives are beginning to recognize that the long-term success of an organization is closely linked to that of its consumers, staff and suppliers.
As a result, ESG indicators are becoming a key tool for defining the performance of companies in the eyes of investors and consumers. Indeed, they are useful tools for identifying risks and opportunities related to the 3 domains of sustainability (environmental, social and governance).
The ESG standards.
There are numerous ESG standards, each with different objectives and methodologies. We have explored two particularly relevant ones:
- Global Reporting Initiative (GRI)
The Global Reporting Initiative (GRI) helps companies, governments and other organizations understand and communicate their impact on environmental, social, economic and governance issues such as climate change, human rights and corruption.
It is the most widely used reporting system:82% of the world's 250 largest companies by revenue create reports aligned with their guidance.
GRI standards fall into 3 categories: universal, sectoral and thematic. Each contains useful tools for publishing ESG impact and obligations that must be met to generate a compliant report. Specifically, an organization that intends to report according to GRI standards must:
- identify the most significant impacts to its reality, whether current or potential, internal or external, generated or suffered;
- based on them, identify the material issues, on which to generate the report, and document them;
- collect data related to the material issues, calculate the impacts and make the information public.
- Sustainability Accounting Standards Board (SASB)
The SASB standard provides a set of rules for identifying, managing and communicating material sustainability information to investors. The process for implementing SASB standards follows these steps:
- companies identify the most relevant standards in each industry in which they operate;
- once the standards have been identified, they define the material topics to be included in the report;
- relevant data are collected, and then performance against risks and opportunities is calculated through a methodology specified by the standard.
The choice of how to present information to investors is left to the companies.
ESG standards are not the only reporting, analysis and evaluation systems: there are also frameworks and rating agencies, other very important figures in ESG issues.
These 2 figures are specifically addressed in our comprehensive white paper on ESG indicators. Click the link below and download it for free.
Download the free white paper
Benefits of implementing ESG in the company
To recap, environmental, social, and governance factors influence every company and therefore should be included in decision-making assessments. But what are the benefits of having a strong ESG proposition? Let's look at the main ones.
Attracting and retaining investors
ESGs are used by investors mainly for two reasons: to reduce the risk of their investments by including analysis of environmental, social and governance factors, and to obtain financial returns with a positive impact on society.
Have better financial performance
It is often believed that introducing ESG factors, as well as economic factors, into one's decisions results in worse financial returns. On the contrary, several studies have shown that companies with a strong ESG strategy have experienced lower capital costs, lower volatility, and fewer fraud and corruption cases over time.
Reduce legal and regulatory impacts
At the international level, the setting and pursuit of global climate and sustainability goals are becoming increasingly important. With the signing of the Paris Agreement, 183 nations pledged to limit the increase in temperature relative to the period
Want to understand how to introduce ESG in your company? Download our free white paper to learn more!
