Pollution control and labor rights are complicated topics requiring multilateral perspectives. ESG criteria can facilitate the discussions surrounding such challenges. Investors want companies to comply with ESG frameworks. Therefore, ESG metrics affect the success of corporate fundraisers. This post will explain how to measure different types of ESG metrics.
What Are the ESG Performance Metrics?
ESG metrics are business assessment factors to verify that a company is actively trying to improve its sustainability across the environmental, social, and governance pillars. So, ESG consulting firms create detailed reports describing several ESG performance metrics.
These reports guide the managers and corporate leaders in compliance enhancements. For example, organizations can use peer benchmarks to track competitor compliance levels. Besides, doing so often helps business strategists understand the trends in the industry.
Investors care about ESG compliance because sustainability criteria can decrease carbon emissions, child labor, and workplace mistreatment. Therefore, a company’s efficiency improves, and it witnesses reductions in employee attrition rate and legal risks.
ESG ratings, or scores, are numerical indicators, between 1 and 100, depicting how well a company has complied with sustainability guidelines and frameworks. So, investors often want to buy the stocks of a company with an ESG rating above 70.
How to Measure ESG Performance Metrics
1| Understand the Categories of ESG Metrics and Frameworks
An ESG framework determines how companies must approach sustainability disclosures and performance tracking. Multiple ESG frameworks are available worldwide. However, all these frameworks arrange the metrics into the three pillars of ESG performance metrics.
1.1| Environmental Pillar
ESG’s environmental pillar addresses the concerns related to the following challenges.
- Climate change,
- Pollution control,
- Biodiversity preservation,
- Waste management and recycling.
Therefore, this category of ESG consulting reports includes the performance metrics mentioned here.
- Replacing conventional energy resources with cleaner alternatives,
- Reducing waste generation and encouraging scalable recycling methods,
- Reforestation and animal protection programs.
These recommendations translate into using ESG data services to monitor carbon emissions and research green technology. If a company has deployed some eco-friendly initiatives in this direction, its ESG ratings will improve.
1.2| Social Pillar
The social considerations in the ESG consulting analysis often address the following issues.
- Cultural diversity,
- Physical and neurological uniqueness,
- Empowering women and marginalized communities,
- Prevention and policing of worker abuse, sexual harassment, and child labor.
Also, these dynamics highlight some performance metrics that help you measure corporate ESG compliances, as described below.
- Number and authority of women in leadership,
- The recruitment success rate of candidates with culturally diverse backgrounds,
- Protocols and training sessions regarding workplace harassment.
Moreover, you want to provide personal protective equipment (PPE) to protect workers from on-job hazards. Your company must support its employees through retirement schemes and insurance programs. Also, these activities increase their ESG scores.
1.3| Governance Pillar
Corporate governance requires your corporation to comply with the following regulatory areas.
- Regional and international laws,
- Accounting and taxation standards,
- Privacy and cybersecurity guidelines.
Therefore, the ESG consulting partners investigate how your company performs on the ESG metrics enlisted below.
- Bribe prevention protocols,
- Transparent financial documentation,
- Accurate tax calculations,
- Periodic data backups and IT infrastructure upgrades,
- Professional lawyers are working for the firm.
These metrics help organizations keep their confidential data secure. Also, improvements in corporate governance mean positive relationships with national and international regulators.
2| Identify the ESG Metrics Relevant to Your Industry and Business Model
Consider the textiles and pipe manufacturing sectors. They use machinery, energy, and polymer packaging under specific circumstances. However, both sectors rely on a unique mix of raw materials and production technologies. Their clients are also distinct, while their retail and wholesale deals vary scale-wise.
All industries and sectors have a particular impact on the environment and society. Besides, different jobs expose workers to various workplace hazards. Likewise, business models often affect all such considerations related to ESG metrics.
An ESG consulting firm can help you select the most relevant performance metrics. After all, you want to allocate your resources strategically to optimize the expenses of ESG compliance efforts.
For example, oil transportation ships can damage marine life due to mid-ocean accidents and oil leakage. So, their impact on the biological systems of the oceans is remarkable. Biodiversity preservation and pollution control are relevant metrics to the vessels in the import-export commerce that carry oil.
3| Select ESG Data Services to Create Benchmarks and Measure Metrics
Your team requires reliable auditing partners that allow the employees to learn where the company stands before forming an ESG compliance strategy. Benchmarks guide you in this operation. However, incorrect datasets can interfere with your benchmark development process.
If you try to create in-house teams to build peer benchmarks, this initiative can demand a lot of time and capital resources. Alternatively, you can find and adopt ready-made solutions to reduce the costs of benchmark creation.
Still, you can leverage the data management capabilities of professional ESG services to create unique benchmarks without excessive liabilities. A suitable benchmark acts as an indicator of your position in the contemporary ESG rankings.
4| Specify Realistic Time-Bound ESG Compliance Goals
SMART is a goal-determination philosophy that suggests your goals must be specific and well-detailed. They must be measurable using appropriate progress quantification techniques. Also, the mathematical probability of achieving goals within a relevant timeframe should be high.
ESG peer benchmarks reveal the business’s weaknesses and risks that can reduce its ESG score. So, companies must recognize these strategic threats.
However, some corporations need more financial and workforce resources to accomplish their targets promptly. Therefore, consulting ESG data services can benefit you in specifying feasible performance goals for ESG metrics.
Example of Realistic Goals Adjustments to Measure ESG Metrics Effectively
Consider a company that trades in two countries. Also, assume that the lack of resources limits this company’s capabilities to address the sustainability problems in both countries at the same time. Therefore, the company must assess its financial needs to optimize and reschedule its ESG compliance efforts.
It might find that its offices and factories in one country are at a higher risk of facing legal penalties due to non-compliance. However, it must also support compliance efforts in another country to protect investor relations (IR) in that region.
Simulating different scenarios is possible through advanced ESG data services. They allow the company to understand the potential consequences of changing the sustainability strategy in each region. After all, one country might require more time to accomplish the ESG goals.
5| Enlist Compliance Improvement Methods
Your goal determination process preceded this phase of finding methods that enhance your ESG compliance. You want to learn whether a business decision can increase or decrease your ESG ratings before it is too late.
After all, investor relations might become hostile, and investors might leave if you proceed with a strategy that reduces your ESG scores. The non-compliance risks also increase because governments around the world are working on devising new sustainability disclosure protocols.
ESG consulting agencies might help manage non-compliance risk factors. They often facilitate long-term business improvement roadmaps using reliable research modules. For example, another company might have used an innovative waste disposal workflow to enhance its ESG ratings.
Examples of Activities to Measure Metrics and Improve ESG Compliance
These solutions help other businesses once they start implementing them at the organizational level. Other compliance improvement solutions could involve:
- End-to-end encryption of electronic communication channels,
- Periodically conducted internal and external audits of accounts and human rights,
- Switching to cleaner energy supply partners who utilize renewable resources,
- Reducing packaging materials that depend on petroleum derivatives and non-degradable polymers,
- Enrolling workers into pension plans and insurance schemes,
- Recruiting women who want to resume their careers,
- Developing assistive technologies to help the special needs of workers,
- Using biometrics to implement digital governance and attendance control,
- Allocating more funds and manual efforts to CSR (corporate social responsibility) programs.
6| Monitor Progress Using ESG Data Services
Finally, you want to know whether your ESG compliance efforts have given positive results. Otherwise, you waste company resources while society, environment, and investors gain no benefits.
Performance tracking allows companies to prevent inefficient activities and revise their strategies. It can also highlight what your ESG initiatives still need to deliver results. After all, creating value for the community is often difficult with unforeseeable risk factors.
Business leaders might choose proprietary application software to monitor their progress. However, traditional project reporting techniques suffer from delays and the disadvantage of static documentation.
Consulting firms offering advanced ESG data services can allow you to create dynamic datasets to measure performance metrics. For example, the reporting can timely reflect changes in the ESG trends across public channels and academic research. Therefore, your team can avoid manual efforts and delays in final reports.
Pollution has endangered humans and other life forms on Earth. This planet has so much potential, but human activities often do more to harm it. Investors acknowledge the need to address such concerns, ensuring the next generations can breathe without oral purifiers.
Also, water scarcity increases every year. Meanwhile, emotional abuse at the workplace results in young people making harmful choices. However, ESG performance metrics enable organizations to lead the healing process for the Earth and its inhabitants.
Integrating renewable energy resources into production engineering reduces the damage to humans and other life forms. Besides, empathy-driven communication can lower employee attrition and workplace stress. Investors want your company to lead these initiatives head-on.
A leader in ESG consulting, SG Analytics empowers organizations to develop ESG benchmarks to identify compliance enhancement strategies. Contact us today if you want automated data sourcing across 25,000 authoritative sources of sustainability insights.