What are ESG criteria and how do I integrate them into my business?

This information is of particular interest, not only so a company's shareholders are able to see that it is having a positive impact, but also so investors are able to verify its transparency and take all this into account when choosing their projects. According to a study by the CFA Institute, 85% of investment agents take ESG factors into account when deciding where to allocate their capital.

What are ESG factors?

The acronym stands for Environmental, Social y Governance, and covers a wide range of factors that go beyond the financial and technical analysis of the company.

Here they are in greater detail:

Environmental

The first letter refers to the environmental impact that a company may generate throughout its production process, from the supply chain to internal operations, the carbon footprint from services or the shipping of products.

Its actions are based on fighting climate change by making better use of resources, eliminating or minimizing waste and air and water pollution as much as possible, as well as avoiding deforestation or endangering biodiversity.

For all these reasons, environmental criteria take into account aspects such as the reduction of consumption and the use of renewable energy resources, with the aim of reaching the target of becoming carbon neutral which the European Union to achieve by 2050.

It is also common practice to commit to using zero waste products and this involves sustainable packaging with biodegradable or reusable materials.

Another of the main elements of the environmental criteria is environmental transparency, a practice that enables companies to report publicly and truthfully on their achievements and the challenges that still remain to be met.

Companies now have the opportunity to face this type of challenge with proactive management, which goes beyond the minimum requirements demanded by the current standard, taking real, powerful measures that truly contribute to the green transition, and help to take care of the environment.

Social

Nowadays many people understand that companies do not operate and undertake their activity in isolation from the rest of the world but that their actions and decisions can have a significant impact on the local community.

The criteria with regard to this encompass all those gestures aimed at protecting social welfare and improving in those areas where there is still so much to be done, such as inequality, human rights, public health and workplace risk prevention. Therefore, some examples of this criterion are the observation of compliance with labour and human rights, data protection and privacy, customer satisfaction, and the promotion of gender equality and a diverse environment.

"Social" criteria are aimed at those who are part of the business organisation, including the staff, boards of directors, customers, users and suppliers. With aspects such as positive corporate policies or due diligence with collaborating companies, a business can create and nurture good business practice inside and outside the office.

Corporate governance

"G" stands for Corporate Governance within the company and refers to the management and decision-making processes, communication with shareholders and day-to-day logistics. This criterion focusses especially on those mechanisms relating to transparency and leadership that should be at the core of every business, as well as ownership, the board of directors, accounting and business ethics, all of which are aspects that are more related to the architecture of the organisation.

It also refers to all those measures that contribute to the surveillance of illegal activities such as corruption, fraud or tax evasion.

How to integrate ESG criteria into a business?

ESG isn't just for large companies: Any business, no matter how small, can subscribe to the exciting challenge of building a better world through its activity.

These are the fundamental steps to get to work and incorporate these criteria in a company:

1.       Assessment of the current status of the business:

In order to identify a company's ESG needs, it is first necessary to analyse which areas need to be improved. This is why it is necessary to make a comprehensive evaluation using tools and services such as Global Reporting.

2.       Definition of the objectives to be achieved:

Once any areas for improvement have been identified, the targets to reach can then be established and these will be in line with the main current frameworks, such as the Sustainable Development Goals or the Principles for Responsible Investment established by the United Nations. This will be what makes up the ESG strategy and this will need to be approved by management and boards of directors, where these exist.

3.       Implementation of the action plan:

Once this strategy has been developed, it is time to share it and put it to work with the entire workforce, through a comprehensive action plan that explains in detail the steps to follow to implement these ESG criteria in sustainability policies.

4.       Study, Review, and Repeat:

Once an action plan has been implemented, it will always take some time before the results can be studies and a review made of those practices that can still be improved.

ESG and responsible investing

As we have already seen, a company with firm ESG criteria will be synonymous with a transparent and reliable organization; therefore, these practices are something that investors usually seek to study in detail and thus know the organization better, beyond other traditional values such as net income or solvency.

This is what is known as responsible investment, an increasingly growing trend taken into account by those companies that care about the future, and that are looking to make a contribution to society, promoting care of the environment and well-being in general.

The latest ESG Investment Observatory describes ESG investment "as an increasingly common practice within the investment community, whose essential objective is to have a positive impact on society and the environment", and encourages people to adopt these criteria. It explains that "to be credible, it is essential to build on the facts and actions taken and then communicate this to the different stakeholders."