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What is ESG and why is it important for your business in 2023

Environmental awareness is one of the most significant factors driving the increase in sustainability. One-third of Millennials say they would be willing to pay more toward a product if it came with sustainable practices, whereas only 20% of Baby Boomers said the same.


Sustainability has become an essential component of any business strategy and is increasingly being seen as a necessary aspect of doing business. Investors are now rewarding companies that not only practice sustainability and actively seek to reduce their own carbon footprints, but also those that do what they can to encourage the practice among their customers. Governmental regulations surrounding carbon emissions and pollution have also made it more difficult for organizations with unsustainable practices to hide.


What are the differences between sustainability and ESG?

ESG and sustainability are two different approaches to corporate responsibility. Sustainability is more focused on environmental issues and social responsibility, while ESG is focused on the environment, social responsibility, and governance.


ESG can be defined as environmental, social, and corporate governance. It is a measurement of the environmental and social performance of a company. Sustainability, on the other hand, is an outcome resulting from continuous process improvements by defining clearer targets for decision-making and extending to a broader range of stakeholders.


There are many ESG metrics that measure sustainability performance while there are not that many ESG ratings measuring sustainability performance


ESG metrics :


Environment ESG metrics

Environment refers to everything that encompasses our planet and the natural world. This includes ecosystems and wildlife, the landscape, and the climate. In the ESG framework, the environment is analyzed through the impact of human activities.

  • Greenhouse gases (GHGs)

How it’s measured: Levels of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and carbon monoxide (CO).

  • Air pollution

How it’s measured: Particle matter per aerodynamic diameter, gas monitors.

  • Energy consumption

How it’s measured: Kilowatts per hour (kWh)

  • Water consumption

How it’s measured: Liters or cubic meters consumed.

  • Waste output

How it’s measured: Kilograms, tons, cubic meters.

  • Nature usage

How it’s measured: Land use, nature loss, and resource depletion.

  • Environmental policies

How it’s measured: Yes/no to having certain policies and implementations.


Social ESG metrics

Social refers to the factors that revolve around society, communities, and individuals — the human aspect of ESG.

  • Comparative living wages

How it’s measured: Average wage in relation to local cost of living.

  • Diversity, equity, and inclusion percentage

How it’s measured: Workforce diversity percentage by group, in relation to societal demographics.

  • Gender pay gap

How it’s measured: The ratio of what men earn compared to women for the same work.

  • Employee engagement

How it’s measured: Employee surveys, employee net promoter score, self-reported happiness, and engagement.

  • Reskilling/training

How it’s measured: Amount invested in training, severance payments.

  • Health and safety

How it’s measured: Incidents recorded, health and safety policies.

  • Human rights

How it’s measured: Human rights violations, adoptions of human rights policies.

  • Charity

How it’s measured: Funding for scientific research, raising money for causes, and community volunteering.

  • Wealth generation

How it’s measured: Investment in infrastructure, investment in small businesses, investment in new products and services.


Governance ESG metrics

Governance encompasses the factors around how businesses are operated. This includes executive structure, strategic decision-making, ethical considerations, and the relationship between business and the state.

  • Executive pay ratio

How it’s measured: Executive compensation in comparison to average employee compensation.

  • Quality of governing body

How it’s measured: Diversity ratio of the executive board, number of other

commitments.

  • Ethics and anti-corruption policy

How it’s measured: Yes/no to having an anti-corruption policy.

  • Tax paid

How it’s measured: Amount of tax paid, tax paid in relation to revenue.

  • Ecosystem ESG

How it’s measured: Key ESG metrics of vendors, supplies, partners etc.


Why ESG metrics are important

ESG metrics quantify and enable the measurement of progress toward ESG goals. This is necessary for the following reasons:

  • Tangibility of commitments: Without ESG metrics, your verbal commitments can’t be grounded in any data. This can often lead to big promises without any accountability.

  • Optimizing what you measure: If you aren’t keeping track of the numbers, it can be difficult to know if you are making progress or not. You won’t be able to decide If you need to adjust if you have nothing to base the decision on.

  • Transparency against progress: ESG involves many stakeholders including the public, investors, governments, and business partners. These stakeholders want to see accurate reports including details of ESG metrics so that they can evaluate your company's ESG initiatives.


How can I calculate and monitor my company's sustainability metrics?

Earning a high sustainability score will give your company access to sustainable business opportunities, such as sustainability investment and advisory services.

There are many tools for calculating a company's sustainability metrics but ers scorecard is the most widely recognized. It helps you calculate and monitor your company's sustainability metrics by using three categories: environmental, social, and economic.


Sustainable investing is a growing topic of conversation, with more and more institutional investors taking sustainability and ESG metrics into account.

Sustainable investing is a growing topic of conversation, with more and more institutional investors taking sustainability and ESG metrics into consideration as major factors in their investment portfolios. This section will discuss the new trends arising from institutional investors in this field, how sustainability reporting has become a focal point for these investors, and what ESG metrics are becoming more important.

Conclusion: Why the future is looking bright for sustainable businesses

Sustainable business is what all organizations are striving for to stay in business nowadays. The future looks bright for sustainable businesses as they will have greater freedom to invest in human-centered initiatives, focusing on long-term needs instead of short-term goals.



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