What is ESG?
ESG compliance drives a company to operate with conscious regard towards the environment, social issues and the ideal way to govern their organization. It is also used as a set of standards for a company’s behavior that socially conscious investors can use to screen potential investments. The use of ESG Indices provides clients with assessments of investments based on ESG performance.
ESG compliance measures a company’s position against best practices for Environment Social & Governance with the results tallied to produce an ESG score. There are many ways to measure a company’s ESG rating with different standards provided by several agencies.
Financial ESG
ESG describes a category of investing also referred to as “sustainable investing.” This is a catch-all phrase for investments that aim to have a good long-term impact on society, the environment, and company performance.
What are the requirements for ESG?
Exact requirements vary according to the agency providing the standard, the relevant industry, and even the size of the company looking to comply. Examples of common requirements include:
| ENVIRONMENT | SOCIAL | GOVERNANCE |
| Corporate Climate Policies | Labor Standards | Processes and Policies |
| Energy Use | Workplace Safety | Internal Controls |
| Waste / Hazardous Waste | Human Rights | Anti Bribery and Corruption |
| Pollution | Community Relations | Executive Compensation |
| Natural Resource Conservation | Gender and Diversity | Whistleblower Schemes |
| Treatment of Animals | Data Protection and Privacy | Transparency |
| Preservation of Natural Habitats | Business Continuity Management Planning | |
| Greenhouse Gas Emissions |
Businesses that place a high priority on sustainability as well as individuals seeking for socially conscious investment opportunities should pay attention to ESG issues. Organizations must develop an ESG program, raise awareness with an ESG rating, and meet KPIs important to investors with an eye toward the future.
ESG Frameworks
The Global Reporting Initiative (GRI) – The GRI standards are guidelines that assist with understanding, developing and communicating sustainability metrics. The framework can be downloaded from their website for free. GRI is an international and independent body and relies on voluntary disclosure, in the form of a report.
The Sustainability Accounting Standards Board (SASB) – The SASB is a non-profit organization who have developed a global standard to enable you to identify, manage, communicate and report financial ESG sustainability to investors, in language that investors understand. Their “Materiality Map” identifies the financially material issues and explains the standards, via 77 industry-specific metrics. Because SASB is very specific, it works well alongside another framework, like GRI.
International Integrated Reporting Council (IIRC) – The IIRC is a reporting standard, often used together with SASB. Its reporting framework can be used to report on ESG and was designed to drive sustainable development.
The Workforce Disclosure Initiative (WDI) – This is created to help companies better communicate labor practices to stakeholders in an efficient way. WDI is starting to accept applications whereby companies can submit their ESG reports.
The Task Force on Climate-Related Financial Disclosures (TCFD) – A group of non-profit organizations got together to form a task force that sets out to help organizations integrate information related to climate change in their financial reporting. It’s used across 32 countries by 374 companies.
There really are a number of ESG frameworks to choose from and your choice will depend on your organization, the framework provider, and the disclosure requirements for your location.
The Future of ESG Reporting
In September 2020, five leading framework and standard-setting organizations—CDP, CDSB, GRI, IIRC and SASB—announced a shared vision for a comprehensive corporate reporting system that includes both financial accounting and sustainability disclosure, connected via integrated reporting.
Why should you become ESG compliant?
Besides actively contributing to preserving the environment for future generations, ESG compliance testifies to a company’s values and is emerging as a factor for long-term financial growth. Starting an ESG program can help businesses in the following five ways:
- Advantage in the marketplace.
- Reduced costs.
- Lenders and investors will find it more appealing.
- Supply Chain Opportunities
- Talent Attraction and Retention.
How to Achieve Compliance?
Adherence to an ESG reporting framework needs to be approached strategically in order to gain the most value for your company. As with any compliance, preparation and a full ESG risk assessment of your environment, including processes and systems, is a comprehensive foundation and necessary precursor to remediating any issues and improving your ESG stance.
The Centraleyes ESG assessment is built to assess universal ESG areas applicable across industries. It allows companies to identify the issues relevant to them, determine their position for each, and generate an ESG report showing the company’s ESG posture. The Centraleyes platform uses cutting edge automation to empower clients with remediation steps and allows them to easily and visibly analyze posture, make future plans and business decisions based on the outcomes.
Centraleyes is an automated ESG compliance solution with pre-loaded frameworks to guide you through a comprehensive risk assessment and towards full ESG posture. Onboard in minutes and use our platform to assess, remediate and report, all powered by Centraleyes automation.
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