What are ESG factors? When the United Nations released a report titled, “A New Global Partnership: Eradicate Poverty and Transform Economics through Sustainable Development,” it marked an important turning point in making the world a better place.
The report built on the gains from another publication, The Future We Want, which was released in2012, to call for environmental, social and governance (ESG) sustainability reporting. Now, sustainability is a big thing, a focal point that you must execute well because every stakeholder is calling for accountability.
At the core of sustainability reporting are the three ESG criteria, environmental, social, and governance, but how well do you know them? What about their application?
Well, if you want your enterprise to run sustainably, this should be the starting point. Join me in this exploratory post that digs deeper into sustainability reporting to demonstrate its background, the underlying principles, and ESG factors. This globe can be a better place for all, but you need to do your part.
Background to ESG Sustainability Reporting
Before looking at ESG factors and their application, we need to start by understanding what ESG sustainability reporting is. Some managers, especially those running small & medium enterprises, suggest that ESG sustainability reporting is for larger firms, but this is not correct. ESG reporting is for all! Know more about what is ESG reporting here.
ESG sustainability reporting can be traced back to more than 30 years ago when the UN held the first-ever meeting on Environment and Development in Rio de Janeiro in 1992. During this meeting, member states agreed that for environmental problems, be they poverty, hunger, or loss of biodiversity, among others, to be addressed, it was paramount to factor in the role of development.
However, it was the World Summit on Sustainable Development of 2002 that was more specific on what stakeholders needed to do – sustainability reporting.
ESG Sustainability reporting is the disclosure of information on the significant social, economic and environmental impacts of a company. It is a process that targets to help companies set their goals, evaluate performance, and manage change towards a sustainable global economy. We must also indicate that when a company focuses on sustainability, it is not just about the report. See – you will not just be cutting down one missions or improving efficiency to simply report it.
Rather, it will be like a call you can rely on to make your company, employees, the community, region, country, and the globe better. We will tell you how this is possible by selecting the right ESG factors (discover our ESG software)..
What are ESG Factors?
Although ESG sustainability reporting is not mandatory, a lot of stakeholders are demanding it as a prerequisite for making their decisions about the respective company.
This is why multiple institutions, including Global Reporting Initiative (GRI),Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD), are working on how to incorporate different ESG factors into their applications.
What are ESG factors? We must say ESG factors are interlinked, and at times it might be challenging to categorize them under environmental, social, or governance issues. Again, it is crucial to appreciate that although they are measurable, assigning monetary value can be difficult. So, let us break them down:
Environmental Factors
These factors mainly touch on the natural world and conservation. As a company, the focus should be reducing the impact on these factors or supporting initiatives that enhance them. Here are some good examples:
· Climate Change
Climate change is one of the most serious threats facing the globe. The problem is caused by the rise in global temperatures because of harmful emissions released into the atmosphere. Therefore, you can target this factor by cutting down on the emissions from your facility. You might also want to support groups that are working towards addressing the challenge. All about HKEX ESG reporting guide.
· Biodiversity
This is the variety of living things that live on the planet plus their levels of organization. Concerns about biodiversity loss have persisted for years, with more plants and animals being added to the IUCN's Red List of Endangered Species. By 2020, some of the species that were listed as endangered included snow leopards, mountain gorillas, tigers, and leatherback sea turtles.
· Waste management
Wastes released into the environment can have serious impacts not just on the animals but also on the humans who are at the top of the food chain. Most industrial wastes are toxic and can accelerate the rate of biodiversity loss. So, you might want to address the problem by reducing waste at the source or treating it before releasing it into the natural environment.
· Water scarcity
Globally, only about 3% of the planet's water is fresh and 2/3 of it is frozen in glaciers. As a result, about 1.1billion people suffer from lack of access to water. By 2025, it is estimated that about 1.8 billion people will be living in states with severe water scarcity. So, what can you do about this? Consider cutting down water use in your facility or supporting projects that facilitate water access for vulnerable communities.
· Deforestation
It is estimated that every day, the globe losses about 80,000 acres of tropical rainforest. Part of this happens as people clear land for agriculture and cities, while others cut trees for construction wood. The effect is loss of habitat for wildlife and compromising the earth's ability to take up excess carbon dioxide from the atmosphere.
Social Factors
This group of factors focuses on people and relationships. The target is to understand issues that affect people and how to impact them positively. Because you are focusing on people, it means that you can start right at the company level and then extend to the community. Here are some of the factors to consider:
· Customer Satisfaction
How satisfied are your clients with your service and/ or product? You should make an effort to stay in touch with clients to know what they need and strive to provide it in the best way possible. You might also want to look at what competitors are doing. All about climate risk reporting here.
· Employee Engagement
When implementing policies in your organization, including sustainability reporting, your employees come in handy. For example, they will be there to turn off the lights and computers when not in use to help keep the power bills low. Therefore, you should target ensuring your employees are motivated and engaged to increase satisfaction and engagement.
· Human Rights
How many times have you read of human rights violations in Asia, Africa, Europe, and America? The good news is that there is something that you can do. Even if you follow the best practices with regard to human rights, consider working with organizations that support human rights. If you will be offering financial support, ensure to make follow-ups to ensure the cash is used well.
Other social factors that you need to know include community relations, labor standards, gender and diversity, and data protection.
Governance Factors
When it comes to governance, consider them as standards for running an organization. Again, the goal of your sustainability reporting should be to make a positive impact. Here are some of the factors that you need to know:
· Whistleblowing Schemes
If an employee notes something that is not right, such as theft of funds, he/she should be able to raise the alarm without getting victimized. These schemes can help to protect whistle-blowers, especially when reporting against their seniors.
· Bribery and Corruption
One of the malpractices that can easily crumble an organization is corruption. This factor is very important because addressing it helps provide people with equal opportunities whether during employment or promotions. In addition to enforcing the notion of zero corruption, you canal so support institutions that fight it, such as the judiciary.
· Board Composition
Today, the idea of offering every person, young and old, males and females, equal opportunities, has gained a lot of traction. So, how well is it reflected in your organization? Your ESG sustainability reporting might focus on promoting equity at all levels of the company operations, including the board room.
Other governance factors that you might want to focus on include political contributions, audit committee structure, executivecompensation, and lobbying.
Select ESG Factors that Will Deliver the Highest Impact
Now that you know the main ESG factors to consider when planning and executing sustainability reporting, it is time to select your preference.
The best way to go about it is by looking at the areas where you have the highest impact. For example, does your facility use fossil fuel, such as diesel, to operate. In such a case, you might want to think of something such as regular maintenance, changing to new machinery, or shifting to renewable energy sources.
When planning and implementing ESG sustainability reporting, selecting the factors is only one thing. Further, you should ensure to follow the main principles of ESG reporting. These will ensure that your information is accurate and reliable, implying that all stakeholders, from investors to clients, can act on it. The main principles of sustainability reporting are:
· Accuracy.
· Timeliness.
· Clarity.
· Materiality.
· Flexibility.
· Reliability.
ESG sustainability reporting is the key to making the globe a better place for all, but this is only possible when implemented well. This post highlighted the main ESG factors and principles that managers and leaders should follow in their organizations. Remember that no matter the size of your organization, there is something you can do to make the world a better place!
