How to Use ESG Data
What is ESG data and how is it being used?
Sustainability, business ethics, and ESG data in general have become popular, yet contentious topics in modern society. Now more than ever, people are interested in understanding what a business is doing besides making profits.
What is a company's environmental impacts and goals? How do they treat their employees? How does the business relate to the government or simply to its regulating bodies? These are some of the questions that have led to the advent of ESG data. We're not here to debate the topic or address the controversy; instead, let's understand what ESG data actually is.
What is ESG Data?
ESG data is an acronym that stands for environmental, social, and governance data in a business. This data serves as a metric to evaluate a company in ways that go beyond traditional profit-making and tax-compliant reporting metrics.
How a company impacts the environment, and what they are doing to help (or hurt) the environment is considered environmental data.
The treatment of employees, suppliers, customers, non-customers, and the general community is considered social data.
A company's relationship with its governing authorities is considered governance data. Governance data also covers the company's executives with regards to their pay, allowances, and privileges.
What is an ESG score?
An ESG score is calculated from ESG data. It is an objective evaluation of a company, its funds, performance, or any other factor related to a company with respect to environmental, social, and governance (ESG) issues. LSEG is a major provider of ESG scores, and has additional information on ESG data on their website.
Like any other evaluation or measurement, the specific details of the evaluation criteria are dependent on the platform offering ESG scores. For example, Refinitiv is a major provider of ESG scores. However, all the factors considered by the different rating platforms fall within the three categories: environmental, social, or governance.
ESG scores must incorporate issues that are widely accepted and meaningful across industries. For example, issues such as global climate change, diversity, equity and inclusion in the workplace, and human rights are issues that are important across the board. ESG scores may encourage companies to create a positive impact related to these issues.
The ESG rating platform usually defines an industry-accepted standard that weights all the evaluation criteria. A company is then evaluated against each criterion that they have defined. The final score that the ESG rating platforms gives to a company or business is usually an average of the different criteria used.
What are the three components of ESG reporting?
Environmental, social, and governance (ESG) reporting refers to a type of self-reporting by a company with regards to ESG concerns. A company writes a report about itself with regards to how they have made strides in ESG issues.
Meaningful and effective ESG reporting is a critical factor in developing an attractive profile for investments in a company. A company's ability to do ESG reporting well is closely linked to how well it can define and improve its sustainable culture.
What components should a company focus on in ESG reporting? Below is a brief description of those components.
Environmental Sustainability Reporting
This component covers the environmental impacts of a business and what they are doing to ensure environmental sustainability. Under environmental reporting, a company should focus on climate change, water conservation, sustainable land use, recycling efforts, greenhouse gas emissions, pollution, deforestation, and resource depletion.
Social Responsibility Reporting
This component covers the human capital and labor standards for a company. It also covers business suppliers and the local and global community at large.
Under social reporting, a company should focus on the working conditions of their employees, the health and safety concerns of their employees, the local community, the global community, the diversity and equity inclusions in their workforce, the ongoing humanitarian crises, and various human rights.
This component covers the corporate strategies of a company. Under governance reporting, a company should focus on issues relating to taxes, the executives of the business and their pay, bribery and corruption concerns, cyber security measures, data privacy regulatory compliance, director nominations, and the diversity of the board of directors.
How to Use ESG Data to Achieve Your Company's ESG Goals
ESG data is a good way to define and refine a company's goals in terms of its environmental, social, and governance needs. With well-laid-out data on what a company has done or desires to do with regard to ESG, it becomes easier for the company to achieve its goals.
A company that shares respectable ESG data has an easy time establishing trust. For instance, if you want to get money from governments or investors, you need good ESG data.
Increase Employee Productivity
The need for reputable ESG data will force companies to recruit and sustain highly motivated employees. This in turn will keep employee productivity at an all-time high and also help the overall business mission.
How to Stay Up-to-Date on ESG and Industry Trends
As more companies share their ESG data and new industry trends emerge, it's important to stay updated on trending topics within your industry/areas of focus. This includes being informed on environmental, social, and governance trends within your network.
With an abundance of information, it's hard to sift through news sites and company webpages to find relevant info. Tools like ModuleQ can help. Seamlessly integrated into Microsoft Teams, you can stay effortlessly in the know with what your competitors, clients, and colleagues are doing and saying, without spending extra time researching.
For more information on how to incorporate a PeopleFacing AI copilot into your workflow, check out ModuleQ.