What is ESG, and how does it impact companies?

ESG stands for Environmental, Social and Governance. They represent the criteria of sustainability and the ethical impact of investing in a company. As such, ESG reporting promotes transparency with customers while encouraging long-term growth. 

As of July 2022, over 90% of the companies in the S&P 500 have created annual ESG reports. In essence, ESG reporting proves an indispensable tool for investors to communicate with companies to understand if their values align. 

Below are examples of each criterion as defined by Market Business News. 

Environmental criteria examine how mindful a business is of its environmental impacts and looks at: 

• waste and pollution. 
• resource depletion. 
• greenhouse gas emission. 
• deforestation. 
• climate change. 

Social criteria look at how a company treats people and examines: 

• employee relations & diversity. 
• working conditions, including child labour and slavery. 
• local communities; seeks explicitly to fund projects or institutions that will serve poor and underserved communities globally. 
• health and safety. 
• conflict. 

Governance criteria look at a corporation’s internal policies and how it is governed. It examines: 

• tax strategy. 
• executive remuneration. 
• donations and political lobbying. 
• corruption and bribery. 
• board diversity and structure. 

How to conduct ESG Reporting 

ESG reporting is important, as it communicates data relevant to the added value or potential harm a company may be responsible for in environmental, societal and corporate governance realms. ESG reports contain a summary of relevant quantitative and qualitative information, with an analytic report to provide insight into the work business has done regarding the three factors. 

Develop your ESG strategy 

The first step is to create an ESG strategy. This should consider all aspects of the three categories and establish both short and long-term goals for the company. All teams and divisions within the company, as well as shareholders, should be up to date on these goals and the changes that will be implemented to meet them.  

Select your reporting framework 

To complete the report, it is best practice to identify one or more ESG reporting frameworks to adhere to. The ESG requires a lot of information regarding the company’s operations, but much of that data will likely be collected internally already. Governments overall have not developed standards on reporting the impact a company may have, so some organizations have worked with government, enterprises and investors to develop different frameworks of reporting, so the information shared, and the changes committed, are valid and positively impactful.  

Some of the most common ESG reporting frameworks include the Sustainability Accountability Standards Board (SASB), Global Reporting Initiative (GRI), Science-Based Target initiative (SBTi) and others. We cover these three in greater detail in our carbon accounting guide.  

Transparency throughout the process is essential. Transparency upholds the validity of the data in your report and ensures that your ESG reporting and the measures your company undertakes are trusted by shareholders and the public. Ensure that the metrics you focus on are SMART (Specific, Measurable, Achievable, Realistic and Time-bound) so you can clearly indicate where you have met or exceeded your goals, or where your company will need to put in more work.  

Share your report  

Now that you have done the work of completing the work in completing an ESG report, including collecting all the pertinent data and using one of the accepted formats, you can now share it. Report on your environmental, social, and governance goals and how they align with the other goals of your business. Be transparent in describing what you are doing that will make a difference, and what difference you expect it to make.  

How sustainability impacts investor relations

Concerns over global warming’s impact on the environment are shared by millions of Canadians. For many, making changes in their everyday lives is not just a personal commitment to the environment, but a way to preserve global ecology. Canadians are looking for ways to support initiatives that reduce emissions and achieve a more sustainable future. Similarly, Canadian investors are looking to support sustainability in their investments as well.  

According to a 2022 report by Fidelity International, two-thirds of surveyed North American analysts saw a growing emphasis to implement and communicate ESG policies among the companies they worked with. An impressive 90% of European analysts saw these trends too. As these numbers continuously increase, it seems sustainable investing is here to stay.  

Regarding the types of sustainable businesses these investors are looking for, there is a growing demand that companies not just look for environmentally conscious investment opportunities, but also consider the social and governmental policies of the companies they invest in. Investors are prioritizing new technologies that can reduce emissions towards carbon-neutral targets, but also those with more robust commitments to the environment and sustainability goals. The same considerations of market-rate returns with minimal risk still apply; but they are now desired in conjunction with companies that meet their environmental, social and governmental obligations, as well.