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ESG Metrics

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A company’s ESG (environmental, social, and business governance) efforts require regular impact assessments to track improvements and benchmark performance against other companies in the same industry. By using objective metrics, you can assess a company’s commitment to sustainability and social impact. These metrics are increasingly important to investors, customers and other stakeholders concerned about the long-term health, risk profile and stability of the companies they support.

There are now multiple continuously changing ESG frameworks that incorporate different performance indicators. Each independent ESG score provider has its own weighting algorithm. Management and other stakeholders can customize these ESG ratings based on their relevance to their specific industry and financial objectives.

The most popular metric categories focus on greenhouse gas (GHG) emissions and natural resource use (both in the ‘E’ category). diversity and inclusion (considered by ‘S’ and ‘G’ depending on the stakeholder); supply chain management, and the existence of ethics and anti-corruption policies (signed ‘G’);

  1. GHG emissions: Carbon and other greenhouse gas emissions are important drivers of climate change. Investor and client increasingly prefer companies that are committed to reducing their carbon footprint. By tracking GHG emissions and setting targets related to them, companies can identify areas for improvement and reduce their environmental impact.
  2. Consumption of natural resources: Indicators in this group include the use of energy, water and nature (space, biodiversity and impact on ecosystems). By understanding where these resources come from and how much is being used, businesses can reduce their consumption and anticipate opportunities to move to cleaner technologies.
  3. Diversity and inclusion: indicators for diversity and inclusion are important for assessing a company’s working environment, which directly affects hiring/retention and other labor costs. Much of this information is usually at hand, such as the male/female ratio of employees, minority and gender ratios in executive/manager positions, age ratios, board composition, percentage of employees with disabilities, and other demographic data. I have.
  4. Supply chain ESG: A company’s environmental footprint and social impact go beyond the goods and services it produces. By monitoring ESG metrics in their supply chain, companies need to track how their supply chain operates, where materials come from and who participates in production. Companies that require ethical, environmentally friendly, and socially responsible practices from their suppliers protect themselves from potential legal, reputational, and other risks.
  5. Ethics and Anti-Corruption Policy: Most companies have these policies in place. The issue is compliance. Regular internal assessments can reduce risk management costs and legal risks.

Developing specific parameters to accurately assess a company’s ESG performance remains challenging. Companies are not uniform entities, and even companies within a given industry can vary widely in management structure, style, and strategic goals. Customizing ESG ratings is essential to providing accurate and actionable information that benefits both companies and society. This requires identifying focused, repeatable metrics within the broad categories outlined above.

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