ESG

In a market where investors are demanding insight into companies’ sustainability credentials, ESG ratings can provide a means of measurement. But with a lack of consistency, opaque methodology and restricted source material, there isn’t a standout solution.

For businesses, there is a fine balance to be struck between establishing the genuine, long-term nature of their ESG stances through valuing virtue over convenience and the actual alienation of the customer stakeholder group.

The post-pandemic world will see an ever-greater focus on environmental, social, and governance issues. Business leaders need to be aware of how ESG risks can affect their company, and register stakeholders’ priorities in this area.

ESG criteria have risen to the top of the list for investors and other stakeholder groups alike, but is it possible for an organisation to reliably quantify its ESG performance?

The identification of concrete links between ESG and financial performance will accelerate the uptake of ESG criteria as a prime driver in investment strategies. We look at the current evidence connecting ESG credentials with the bottom line.

As ESG criteria become increasingly important denominators among the investment community, specific metrics for measuring ESG performance are coming to the fore. But with such a broad range of issues falling under the ESG remit, investors should be considering a wider set of metrics, many of which are much harder to quantify. 

Once CSR was the clarion call for companies looking to do good. But in an increasingly complex landscape, with myriad standards and criteria to judge corporate behaviour against, it has fallen out of step with the sustainability agenda. Enter ESG, the latest evolution of the intentions behind CSR, which provides a framework for greater transparency, greater efforts, and greater good.

The rise of stakeholder capitalism is being thrown into sharp focus through the ESG lens. Each stakeholder group encompasses its own risks and opportunities, and businesses need to be able to track and respond to them all.

Understanding materiality is a key part of business strategy, and with a growing emphasis on environmental, social and governance issues in the boardroom, assessing ESG materiality has become a corporate imperative.

With environmental, social and governance issues growing in prominence in every sector, the ability to manage ESG risks and opportunities is increasingly important to the bottom line. But to calculate its ESG liability, a company first needs to know its ESG score

With so many new developments and related potential pitfalls surrounding ESG issues, businesses are understandably focused on minimising the risks. But alongside those risks lie commensurate ESG opportunities, ripe for development by organisations with a clear understanding of their ESG position.

As the corporate world becomes more aware of the need to incorporate ESG criteria into business planning, it’s important to differentiate between sustainability goals and ESG practices. Sustainability is a central part of ESG policy; a sustainable business will have an ESG policy; but the remit of ESG extends far beyond the boundaries of sustainability.

With the rise of ESG investing and greater public pressure on all organisations to be transparent about their environmental, social and governance policies, it has become imperative for businesses to create an ESG strategy. But rather than a knee-jerk reaction to external influence, it should be built on a foundation of stakeholders’ preferences balanced against business priorities.

Just as ESG means different things to different organisations, depending on their perspectives and priorities, so the definition of ESG performance, whether good or bad, varies wildly between companies and sectors. Taking the measure of a business’s ESG performance requires an understanding of what that business’s ultimate goals are.

While ESG issues are gaining traction, and becoming common corporate parlance, the governance element is often overlooked. But although it may garner less attention, it is the bedrock on which sustainable, long-term value creation is built, and also underpins every organisation’s ability to achieve its environmental and social goals.

With ESG considerations becoming a central element of corporate operations, risk management professionals need to be able to identify, manage and mitigate associated risks, quantifying existing liabilities and incorporating new elements into their ERM frameworks.

As ESG performance becomes ever more central to operational success, the key role sentiment analysis plays in tracking it needs to be recognised.