ESG goals: what they are and why they matter to companies

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What does the term ESG mean?

The acronym ESG It is going to Environmental (environment), Social, Governance, or the 3 fundamental areas of sustainability report.

When we talk about sustainability, we tend to think only of environmental aspects, but in order to define a truly sustainable activity, there are three macro-areas on which to act.

1. Environmental: everything that has to do with the protection of the environment and biodiversity, the reduction of CO₂ emissions, the management of waste and toxic substances.
   
   
2. Social: the criteria that concern the conditions and well-being of workers, such as health and safety, support for education and training, and the management of schedules and salaries.
   
   
3. Governance: this area includes corporate ethical choices that concern the fight against corruption, fair competition, the corporate structure and much more.

In practice, the ESG indicators they are useful tools for identifying risks and opportunities related to the three areas of sustainability (environmental, social and governance).

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Why are ESG criteria so important to companies?

‍The ESGs are one fundamental tool to define the work of companies in the eyes of investors and consumers.

Younger generations, but not only, are increasingly careful to verify that the companies they work for, in which they invest or from which they buy, respect their values.

In addition, there are more and more regulatory directives and obligations relating to ESG issues. CSRD directive, for example, the number of companies subject to the obligation to ESG reporting and defines more stringent requirements on the information to be reported.

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How is ESG performance evaluated? Here are the reference standards

To support international organizations, investors and consumers, inreview ESG performance of organizations, there are different reporting, analysis and evaluation tools. These tools are divided into 3 categories:

• standards;
• Framework;
• Rating.
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What are ESG standards and what are the main ones

ESG standards specify the quality level that a ESG report, and provides a clear indication of what information to collect and how to use it to produce the report.

The main standards are:

• GRI standard (Global Reporting Initiative);
• SASB standard (Sustainability Accounting Standards Board);

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ESG Framework: What is it all about

A framework outlines a set of principles that guide and shape the understanding of a given topic, indicating aspects that must be addressed and analyzed in the reporting.

One of the most relevant ESG framework is the one defined by Task Force on Climate-Related Financial Disclosures (TCFD).

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What is ESG rating and what are rating agencies

The rating agencies give a scoring to the maturity and ESG sensitivity of organizations. The information that is disclosed on the basis of standards and frameworks represents a inputs important for the activities of rating agencies.

There are different ESG rating agencies, each with a unique approach and methodology for evaluating performances of a company in ESG issues. The result of their calculations is a score that varies between different providers, not only for the data used in input, but also for the choice of the weights given to each category.

An ESG rating is the performance evaluation of an organization with respect to the themes environmental, social and governance.

The main ESG rating agencies are:

• Carbon Disclosure Project (CDP)
• Bloomberg ESG Ratings;
• Sustainalytics;
• EcoVadis.

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ESG rating: how it is obtained and why it is important for companies

To obtain a ESG rating, we need rCollect information on the actions taken by the company in each of the 3 areas (environmental, social, governance). Once you have obtained all the data And the Infos necessary it is necessary to contact arating agency which, after the necessary analyses and evaluations, will issue a company performance score (ESG rating).

This is most often possible by filling in questionnaires, as for EcoVadis and CDP.

Do you want to start underwent to improve your company's ESG performance? Our study center Up2You Insigh made a guide with the first 3 step to improve the ESG rating.

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Discover Up2You Insight's guide on the 3 steps to improve your ESG rating‍

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What is a high ESG rating for?
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• Attracting investors: having good ESG performance can be crucial to attract partners and investors aligned with the same values, and interested in the ethics of the companies with which they work or in which they invest.
  
  
• Reduce legal and regulatory impacts: the transition to a net-zero economy is one of the main objectives of the European Commission, which in December 2019 adopted the Green Deal, the European Union's development strategy. Being in line with these objectives means avoiding incurring penalties or sanctions for the company.
  
  
• Be in line with consumer interests: consumers want companies to act to improve their impact on society and the environment.
  
  According to a report from Google's Consumer Survey, the 74% of Italian consumers would like brands to be more transparent and provide more information in relation to their sustainability.