“THE FIRST STEP CORPORATE
LEADERS CAN TAKE TO PREPARE FOR
THE SHIFT IN FOCUS IS TO RECOGNIZE
THE FORCES DRIVING IT”
-Robert G. Eccles
As a student, I am always trying to learn more about my field and seeking new job opportunities, that can allow me to gain more skills and better understand the impacts felt in different business sectors. As consumers become more conscious of their purchasing habits and research various company policies regarding their sustainability goals and achievements, corporations are creating and following guidelines to achieve environmental, social, and governance goals. It is not only consumers who encourage companies to disclose their ESG practices but also investors/stakeholders as they too want to see more accountability from companies. Investors are becoming more interested in sustainable investing, and this is shifting how companies operate, as many companies are releasing their sustainability reports, sharing their ongoing activities and how they are reaching their goals to be more sustainable in all areas of their operations.
What does ESG stand for?
ESG stands for Environment, Social, and Governance. It is a framework used by companies to measure how they operate past their financial performances.
Environment
The Environment in the acronym ESG looks into the physical environment of a company's business activities. It refers to focusing on how a company uses natural resources and the impacts that can have on our planet through each stage of the company's operations, be it directly or indirectly. Today, when consumers learn about the impacts companies have on the environment within their country of operation or in the international community it can lead to boycotts and ruined reputations. Many large companies in various industries are working to ensure that they take the necessary steps to lower their environmental footprint, companies like Apple, Google, Volkswagen, and more.
Several elements are focused on in “E” of ESG within a corporate setting, these can include energy consumption, waste management, GHG emissions, water consumption, and more. Looking into these elements allows companies to understand their impacts, as well as create policies that can change their footprints on the environment. Minor changes can lead to great achievements in lowering a company's environmental impact, one example can be seen in waste management as reducing paper waste by having documents shared on an online platform, reduces the need for paper.
Social
The “S” in ESG is defined by the employees that are part of a company. It involves various aspects of business relationships and includes:
- Companies being able to create a positive working environment
- Diversity and equity
- Employee health and safety
- Community involvement
- Employee rights and labour standards
Governance
Governance in ESG considers the policy and decision-making factors within a company. It focuses more on how the policies, and internal regulations that affect the employees and the way the company is run. In a business investors/stakeholders look at the ESG of a company and they want to see transparency and accountability when it comes to policies and how executives follow through with them. Policies involving business ethics, compensations, and general risk tolerance are some examples of what investors/stakeholders may be looking for.
What is ESG reporting?
ESG reporting is the publishing of companies' environmental, social, and governance data. This report showcases companies' goals for meeting their ESG targets and the actions they have taken to do so, this is made to be transparent for investors/stakeholders as well as for consumers who want to know more about the company, they buy products or services from.
Today’s investors are looking for companies that have sustainability in mind, companies now need to be more accountable in how they produce their products and services. ESG reporting for a while had not been made a mandatory practice, but many countries have been creating new policies in which ESG reporting will become mandatory.
Canada is also starting to make ESG reporting mandatory, as the Canadian Securities Administrators (CSA) has made ESG reporting mandatory starting this year. It will require large Canadian banks, insurance companies, and federally regulated financial institutions to report their ESG practices and climate disclosures.
ESG Rating
Currently, ESG rating is not a requirement, but for companies who take that step there many ESG rating agencies around the world, which are used mostly by asset managers and investors. Though the criteria for these ratings vary it is an excellent way to measure a company's performance in creating a more sustainable business.
Examples of ESG rating organizations:
- MSCI — https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-key-issue-framework
- Bloomberg Professional Services — https://www.bloomberg.com/professional/product/esg-data/
- Refinitiv ESG scores — https://www.lseg.com/en/data-analytics/sustainable-finance/esg-scores
Brightest. (n.d.). Canada ESG Reporting Requirements in 2024 — Laws, Rules & Regulations. Brightest. Retrieved February 1, 2024, from https://www.brightest.io/canada-esg-reporting#:~:text=The%20CSA%20does%20not%20currently
CARBON, T. I. (2023, January 23). A Beginner’s Guide to ESG Rating Agencies and Methodologies. IRIS CARBON®. https://iriscarbon.com/a-beginners-guide-to-esg-rating-agencies-and-methodologies/#MSCI_Morgan_Stanley_Capital_International_ESG_Ratings
Dhillon, T. (2023, November 22). A Guide for Canadian Businesses on ESG Reporting Requirements. TheFutureEconomy.ca. https://thefutureeconomy.ca/op-eds/esg-reporting-ted-dhillon-figbytes/#:~:text=Recently%2C%20the%20Canadian%20government%20announced
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PWC. (2022). ESG Reporting and Preparation of a Sustainability Report. PwC. https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/esg-reporting.html
Tocchini, F., & Cafagna, G. (2022, March 9). The ABCs of ESG reporting: What are ESG and sustainability reports, why are they important, and what do CFOs need to know. Www.wolterskluwer.com. https://www.wolterskluwer.com/en/expert-insights/the-abcs-of-esg-reporting#:~:text=What%20is%20ESG%20reporting%3F
What is ESG and why is it important? (n.d.). The Corporate Governance Institute. https://www.thecorporategovernanceinstitute.com/insights/news-analysis/what-is-esg-and-why-is-it-important/#:~:text=Environmental%2C%20social%20and%20governance%20(ESG)%20is%20a%20set%20of
What is ESG? (2022, May 2). BDC.ca. https://www.bdc.ca/en/articles-tools/sustainability/environment/what-esg-and-what-does-mean-business#:~:text=It%20is%20a%20set%20of
