There is growing interest in the business community, and particularly among institutional investors, in Environmental, Social, and Governance factors (ESG) and best practices for integrating ESG into an enterprise’s core business operations. It is estimated that more than $20 trillion in assets under management are now invested using ESG principles. Industry data indicate that solid ESG management can lead to financial outperformance, and reductions in various measures of risk and volatility. For corporate executives and board members, this data-backed endorsement of the importance and value of ESG translates into an increasing need to quantify and report on their own company’s integration and use of ESG.
In its simplest form, ESG is a long-term approach to quantifying, measuring, and managing the aspects of a company’s operations that materially affect risk and/or profitability. While guidelines, requirements, and frameworks for ESG compliance are not fully standardized, there are some easy steps a company can take to begin, or update, its ESG efforts:
1. Start simple, by building a basic understanding of the principles behind ESG, and how ESG operates. We have produced a Womble Whiteboard episode specifically to help with this step.
2. BlackRock, the world’s largest asset manager and a strong proponent of the adoption by institutional investors of ESG as a standard investment criterion, has released a series of questions it will ask of executives and board members, along with an explanation of why each set of questions is material. Review these questions and identify how you would propose answering them. Note where you feel there are strengths and shortcomings in your answers and track those areas for future focus.
3. The Global Reporting Initiative (GRI) is among the well-recognized frameworks for corporate reporting of ESG factors. GRI offers a 101 overview, which is available here, and will help you begin the process of exploring how various ESG metrics and categories work together to paint a picture of your company’s operations. Review the GRI metrics and identify those that you are currently able to measure, and those for which you will need to design new policies and procedures.
4. The Sustainability Accounting Standards Board (SASB) provides a series of industry-specific, material metrics here. Identify the correct industry category for your company, determine which metrics you are currently able to measure, and those for which you will need to identify new policies and procedures.
There are a number of additional resources, and approaches, to help you make sense of ESG measurement, management, and reporting. Our Impact Business Group is here to answer any questions, to help you develop an ESG measurement approach that works for your company and your stakeholders, and to assist you in making ESG a core part of your long-term growth strategy.