In business, ESG issues have been on the docket for quite some time. Not only do stakeholders pay attention to the effect a company has on the environment, third parties and even the government is also keeping track.
ESG covers a range of issues, including the overall environmental impact a company or its services imparts in addition to diversity, human rights, and other social issues. Governance plays a role as well. Every company will have an ESG rating which is considered their ESG score.
Investors and other companies use this to help determine partnership, investment, and even takeover decisions.
That being said, you may be wondering about an individual ESG score. People have credit scores that tell lenders and other parties if they can pay their debts. It is similar to a credit score when it comes to an individual ESG score, but instead of rating creditworthiness, it rates a person’s ESG risk.
This article will cover the basics of an individual ESG score, how yours is calculated, and what it will be used for going forward. We will also teach you how to calculate your individual ESG score so that you can work towards improving your rating.
Do I Have an ESG Score?
You may know all about your credit score, but an individual ESG score is still rather new. Many mainstream financial institutions are creating a new platform that is centered on ESG scores.
In addition to creating this platform, their lending guidelines are also getting an update that includes new rules that will tie your individual ESG score to your ability to secure lending.
Being that it’s still new, there is not too much that is completely known about how it will be used and what regulations will improve or correct your score. In many cases, people are generally unaware that they even have an ESG score unless they happen to come across it in the process of doing something totally unrelated.
For example, consumers who have accounts with Merrill Lynch will be able to view their score, whatever that may be. While this may sound like tales out of China, it is a system that is, in fact, being implement in the US and soon many other nations.
Lenders will use this system to choose who they extend services or credit to. The main reason is that companies, including lenders, are being graded according to the ESG standards themselves.
Their business and prosperity depend directly on their hiring practices, gender diversity, social and environmental impact, and other ESG factors. As they are required to prove their case, they will also need to show that their clients meet the standards they are being graded.
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What is the Purpose of an ESG Score for Individuals?
A few different things will determine your personal ESG score, many of which can be discovered via your regular credit report and other public records. Your purchase history and also your sales history will have a dramatic effect on your ESG rating as a person.
The charities that you support will also increase or even decrease your ESG score. The platform will track your personal impact in the environment around you through various means, which will also be used to calculate your individual ESG score.
The purpose behind each person being assigned an individual ESG score is to help reward actions that will help move the world towards sustainability. While there are not currently any downsides to having an ESG score, regardless of how high or how low, there will come a time where too low of a score can result in denials for loans or services similar to the way credit scores currently function.
For now, ESG scores for individuals are used as a tracking tool for companies to monitor behavior. For those who have already started using ESG scores as part of their business model, some people with good scores may notice lucrative offers, easier loan terms, and even targeted packages designed to reward green or sustainable behaviors.
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What is My ESG Score?
Now that you know a little more about the basics and principles behind an individual ESG score, you may be wondering where to find your rating.
There are a few different places you can check to find your score. If you hold an account at a major financial firm such as Merrill Lynch, your personal ESG score will be listed on your account with your other personal details. You can also check any of the main ESG monitoring companies’ websites.
Usually, you will need to create an account or contact them directly to get information regarding your personal score.
If you are not an investor or don’t have a big financial account, it can be difficult to get your score from traditional places.
However, you can calculate your score to get a better idea of how companies view you in sustainability.
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Quick Tutorial On How to Calculate My Personal ESG Score
For companies, any score between 50 and 70 is considered to be average. It is neither good nor bad but rather neutral within that particular industry.
A score over 70 is a good thing which means the company makes better ESG supportive decisions and has an ESG stable way of doing business.
For individuals, the scoring is a bit different but follows the same general set of rules. If you are wondering how do I find my personal ESG score, our easy-to-understand tutorial will help.
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What You Need To Determine Your Individual ESG Score
Finding and calculating your personal ESG score will mainly depend on your metrics’ materiality. In addition to your unique factors, you will also need to identify your personal ESG goals to determine a score.
You can perform audits of your actions to help spot risks and then implement measures to correct aspects of your increasing score, or rather lowering your personal ESG score.
ESG ratings are based on the measure of behaviors, investments, habits, and other actions gathered from a range of public sources.
Your score may be adjusted depending on a range of factors, including the company’s policies from which your score is delivered.
As such, there will be some variation between scores depending on where yours is the source in comparison with your own manual calculations.
Some things you may need to calculate your personal score are:
- A list of your investments.
- A general calculation of how many miles you travel via car and public transport.
- The amount of energy you use each month (electricity, gas, etc.).
- Your cryptocurrency profile.
- Your food consumption numbers.
- Your organic and environmental effort profile.
- And other metrics.
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Step 1 On How to Calculate ESG Score
You will start by amassing the data. Depending on how comprehensive you want your evaluation to be, the more data you will need. Calculate the amount of energy you use personally and as a family. You will also need to calculate the amount of waste you produce personally.
Look at your purchases and tabulate the percentage of your eco-friendly purchases and those that are not.
You will also need to look at your investments and separate them into ESG friendly ones and those that are not. Social ethics also play a role in your overall score.
Consider how your actions, both online and in-person, help support your community and those around you. Also, you will need to calculate how your actions harm those around you.
The point of these calculations is to understand how much you affect the environment and people around you, both positively and negatively.
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Step 2 On How to Calculate ESG Score
You can then answer several questions that further relate to your life, habits, and consumption that will help create a complete picture of your interaction with the world around you.
These survey questions can be downloaded online from any ESG reporting agency, or you can take an online assessment that will help guide you through the appropriate questions.
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Step 3 On How to Calculate ESG Score
Once the calculations and questions are completed, the answers will need to be segmented. This will separate your replies and consumption into sections that can then be measured and assigned an ESG value.
The criteria used to segment the information will vary slightly from one reporting agency to the next. Still, they will cover personal carbon emissions, waste production, energy usage, environmental impact, social impact, ethics insights, and sustainability efforts, among other things.
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Step 4 On How to Calculate ESG Score
After segmenting each section, a value will then be assigned to each. Some areas have a heavier weight than others. For example, if you invest in green programs and also avoid eating meat, it will have a heavier weight than your use of electricity in your home daily.
Every ESG rating agency has its own predefined scoring systems that assign weights and measures to each segment. As a result, the final, personal ESG score may vary slightly from agency to agency and agencies to your own calculations.
Controversies, actual reporting, truth in reporting, and exact tabulations will also play a role in your final score.
Commercial companies also have more access to public data than you may have on your own, which will further affect the actual score you are awarded.
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A Closer Look At The Metrics
ESG scores take a lot of information into account when it comes to commercial and industrial entities. On a personal level, just as much information is used to create a picture of who you are and how your personal actions influence the world around you.
Buying a gun, alcohol, or even clothing will all affect your overall ESG score. Not only will your purchases matter, but who you purchase from and how they do business.
Your political affiliations also factor into your personal ESG score. Aside from the politics in governance, the party you support and even the person you vote for will make your score go up or down based on that person’s actions, policies, and voting habits.
The type of car you drive, how often, and even how many people are in the car when you drive will also come into play when deciding your score.
Unlike credit scores with a clear method of tabulation, cause, and effect, ESG scores depend on a wide variety of factors that most people have yet to consider. Depending on where you live, even calculating a personal ESG score can mean giving up your rights to basic privacy.