Environmental, social, and governance (ESG) refer to the three central factors in measuring the sustainability and societal impact of business. The concept of ESG has roots in Corporate Social Responsibility (CSR) and Sustainability, though it has evolved considerably over time. Today, ESG considers the environmental impact, the social impact on people and communities, and the company’s governance structure and ethical behavior.
As a concept, it first appeared in the early 2000s and, until recently, was not a mainstream concept. In fact, using Google Trends, we see that ESG didn’t find itself in the mainstream until about 2020.
Why is ESG Important?
ESG is important because it provides a framework for evaluating the sustainability and societal impact of business, which until recently was poorly defined.
Additionally, ESG can also be necessary for the companies themselves, as it can help improve their operations and achieve long-term financial performance, and satisfy the changing needs of employees, consumers, and investors.
What is an ESG Score?
An ESG score is a numerical rating that reflects a company’s performance on environmental, social, and governance criteria. These scores are typically calculated by specialized rating agencies or research firms, such as Veritrove, using a variety of methodologies and data sources.
Companies are often assigned separate scores for each of the three ESG factors, as well as an overall score that reflects their performance across all three dimensions.
ESG scores are often used by investors to evaluate the sustainability and societal impact of an investment. A high ESG score can indicate that a company is well-managed, has a positive impact on the environment and society, and is likely to be a good investment over the long term. On the other hand, a low ESG score can indicate that a company has significant ESG-related risks and may not be a good investment option.
ESG scores are often used by investors to evaluate the sustainability and societal impact of an investment. A high ESG score can indicate that a company is well-managed, has a positive impact on the environment and society, and is likely to be a good investment over the long term. On the other hand, a low ESG score can indicate that a company has significant ESG-related risks and may not be a good investment option.
ESG scores can even affect a company’s credit rating. According to a recent report by Moody’s, 20% of organizations with a “highly negative” or “very highly negative” score suffer adverse effects on their credit rating. On the other hand, receiving a “positive” rating positively impacts credit scores. However, only about 4% received a “positive” rating leaving room for massive improvement.
In short, investing in ESG helps a company in business and impact in the long term, and avoiding sustainable efforts can harm a company’s credit rating, public perception, and investment opportunities.
How Do I get an ESG Score?
If you are interested in obtaining an ESG score for a company, there are a few different options you can consider. One option is to work with a consultant, such as Veritrove, that can walk you through the complicated process.
Another option is to use an online tool or calculator that provides ESG scores. These tools are often available on the websites of investment firms, rating agencies, or other organizations that focus on sustainable investing. You can typically use these tools to enter information about a company and get an ESG score based on that information. However, beware that these tools can not take a customized approach, so working with a consultant produces a better result.
What is a Good ESG Score?
At this time. there is no universally agreed on numerical score that businesses need to target, as different organizations and governments may have different criteria for evaluating ESG performance. However, as a general rule, the higher the score, the better.
It is also important to note that ESG scores are not a definitive measure of a company’s overall performance and should be considered along with other information (sustainability initiatives, carbon accounting, employee satisfaction, reports, and accreditations, etc.) when evaluating a company.
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If you are interested in starting your ESG journey, contact us for a complimentary initial consultation to learn how implementing ESG and sustainability initiatives can benefit your company.
