ENVIRONMENTAL SOCIAL GOVERNANCE (ESG)
What is ESG (Environmental, Social, and Governance)?
ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria (sometimes called ESG factors).
ESG is an acronym for Environmental, Social, and Governance. ESG takes the holistic view that sustainability extends beyond just environmental issues.
Overview of E, S, & G
1. Environmental
Environmental factors refer to an organization’s environmental impact(s) and risk management practices. These include direct and indirect greenhouse gas emissions, management’s stewardship over natural resources, and the firm’s overall resiliency against physical climate risks (like climate change, flooding, and fires).
- Examples of environmental factors include:
- Air and water quality
- Biodiversity
- Deforestation
- Energy performance
- Carbon footprint, including greenhouse gas emissions
- Natural resource depletion
- Waste management and pollution
2. Social
The social pillar refers to an organization’s relationships with stakeholders. Examples of factors that a firm may be measured against include Human Capital Management (HCM) metrics (like fair wages and employee engagement) but also an organization’s impact on the communities in which it operates.
A hallmark of ESG is how social impact expectations have extended outside the walls of the company and to supply chain partners, particularly those in developing economies where environmental and labor standards may be less robust.
Social factors address how an organization treats people, including these examples:
- Community relations, including the organization’s connection and impact on the local communities in which it operates and serves
- Customer satisfaction
- Data protection and privacy policies and efforts
- Efforts to fund projects or institutions that help poor and underserved communities globally
- Employee diversity, equity and inclusion (DEI)
- Employee engagement and relations
- Health and safety
- Human rights, including child labor and slavery
- Labor standards
3. Governance
Corporate governance refers to how an organization is led and managed. ESG analysts will seek to understand better how leadership’s incentives are aligned with stakeholder expectations, how shareholder rights are viewed and honored, and what types of internal controls exist to promote transparency and accountability on the part of leadership.
Examples of governance include:
- Company leadership
- Board composition, including diversity and structure
- Corruption and bribery
- Donations and political lobbying
- Executive compensation and policies
- Tax strategy, including audit committee structure, internal controls and regulatory policies
- Whistleblower programs
Why do you need ESG certification?
We have developed our criteria based on ESG insights and audit data built up over the last three decades. The criteria summarize the requirements of popular ESG best practices and sustainability standards.
Complying with our ESG criteria not only leads to an ESG certificate but also established, auditable internal processes, which are the foundation of continual improvement. These will enable your employees and suppliers to commit to their ESG metrics and targets and, in turn, enhance your ESG credentials over time.
An ESG certificate can demonstrate the truth of your ESG credentials to stakeholders, reducing the perception of greenwashing. ESG certification gives you competitive advantages for new market entry, particularly in the tendering and financing stages.
What are the benefits of ESG certification?
- Demonstrate your ESG commitment
- Create mechanisms for continual improvement
- Avoid greenwashing
- Prepare for new market entry
- Go beyond the minimum standards
- Consistently achieve ESG targets
How is it done?
This is a three-year certification scheme which consists of 1 main audit and 2 surveillance audits. Certification activities include:
- Materiality assessment
- Documentation/record check
- Interviews
- Physical/remote site visits