Environmental, social, and governance (ESG) efforts have marched their way into the business world and its way of reporting success and performance. Everyone wants to make money, but financial gains are not the only way of measuring success.
The efforts to improve the environment, its workplace, health of employees, and leadership are all on the rise to becoming top performance indicators of success.
If we aren’t sure about the future of ESG metrics, ESG key performance indicators, or its impact on investors, we may be swayed to the positive side.
It’s estimated that by 2030, the ESG investment industry will reach $1 trillion.
That’s a ton of money, I know. This is why using an ESG approach and measuring important KPIs can benefit your business.
But before we get into that, let’s discuss more of what ESG is all about.
Table of Contents
- What is ESG?
- Social Criteria
- The Top KPIs for ESG Reporting
- Consumer Responsiveness
- Diversity in the Workplace
- Employee Health and Safety
- Energy and Water Use
- Product Safety
- Reduction in Carbon Emissions
- Reduction in Waste and Pollution
- Why Does Measuring ESG Performance Matter?
- The Benefits ESG Offers For Companies
What is ESG?
ESG refers to the principles measured through a company’s impact on the environment, social criteria, and governance.
These principles are valuable to both companies and investors and often benefit a company’s sustainability and profitability while contributing positively to the environment.
It is almost like a win-win situation for both the earth and the business world (when ESG strategy is taken seriously, of course).
Companies who prioritize ESG metrics and reporting are not just analyzing their profits, but are looking deeper into their performance, health, and long-term success.
There is no doubt that the world is changing, along with its climate and environment. But are businesses evolving with it?
One branch of ESG reporting is the impact a company has on the environment and how it practices conserving the natural world.
Deloitte Global surveyed 350 executives on environmental sustainability. They found that 91% of the executives said that their business felt the impact of climate change and 84% of them are personally concerned about the impact of climate change on their business.
That’s why businesses everywhere use the ESG metrics to improve their future and investment opportunities.
Your company either works to help keep the environment protected or uses energy relentlessly without looking into its impact on it.
The latter is not the best position to be in, since many consumers, activists, and investors recognize the need for change in business practices.
Along with environmental metrics, ESG reporting includes social criteria such as employee management of wellness and company culture, employee gender and race/ethnic group representation, health, and safety.
Essentially, this is how a company manages its relationships with consumers, employees, investors, and the general public.
A report found that 86% percent of U.S. investors say a workplace culture that fosters employee empowerment is important for building trust, which is also true for building trust with the rest of the community.
Companies that focus on the social criteria of ESG reporting will find that their reputation will improve in both the workplace and community.
The last branch of the ESG model focuses on the leadership, ethics, and control that a company has while maintaining the interest of shareholders and consumers.
The diversity among the leadership board, adherence to ethics and laws, and ownership structure are all components for companies to measure.
The governance principle is crucial because all processes and decisions start with leaders and eventually make their way down to the rest of the company.
A strong leadership board can produce ethics and a better workplace for everyone, leaving no room for fines, penalties, or inadequate decision-making processes.
The Top KPIs for ESG Reporting
There are many ways to track your company’s performance in ESG efforts.
Some of the more important key performance indicators are a combination of all three branches and looking closely at how a company works in the best interest of the environment, its employees, and its leadership processes.
Measuring the responsiveness, ratings, and reviews are a great way to maintain your ESG efforts, especially in the social criteria branch. Maintaining relationships with the community is a crucial part of building an audience and loyal customer base.
Also, if measuring the responsiveness leads to loads of positive reviews, then investors may line up to be a part of it! Businesses that build sustainable practices and products can attract the eyes of buyers who are looking for just that.
Here’s how to track consumer responsiveness:
- Ask for feedback from consumers
- Create a page for consumers to leave reviews and ratings
- Answer all complaints quickly and address concerns
Measuring the feedback and opinions of consumers can give your company insight into what can be better.
Diversity in the Workplace
Diversity in a company is proven to enhance performance and production.
While it can be that people who think alike work better, people who are different in their ways of thinking and solving problems can provide just as much efficiency.
Having a culturally diverse employee pool, with zero discrimination of gender, race, or ethnicity, can produce more integration and cohesiveness in the workplace.
Gartner made a study that showed how teams that were gender-diverse and inclusive outperformed teams that were not as diverse by as much as 50%.
The same study predicts that by 2022, companies will exceed their financial objectives by 75% if their teams have diversity and inclusion in their decision-making processes.
Investors look for diverse businesses in every department, especially in leadership roles, where diversity plays a huge role in big decisions.
Employee Health and Safety
Ensuring that all employees are working in a healthy and safe environment is great for keeping the social criteria of ESG efforts up-to-date and efficient.
Managing the safety of workers can reduce work-related incidents and boost employee productivity. Also, investors will like to see businesses making sure their employees are safe, which can ensure product safety and good financial situations.
To provide safety for your employees, use these tactics:
- Train all new hires and employees well
- Create a space for employees to add their input and experience on the job
- Ensure your facilities, products, machinery, and equipment are up-to-date
- Add incentives, perks, or benefits for employees
- Cultivate a culture that promotes health and wellness
Energy and Water Use
On average, businesses use between 15,000 to 25,000 kWh of energy a year. Larger businesses use far more energy than smaller ones, so the amount of energy used depends on the size of yours.
Both energy and water use are the highest contributors to climate change, and businesses will need to limit this to keep up.
One of the benefits of measuring water and energy use is allowing everyone to call attention to how much is being used. This can decrease the overall costs each month (and year) and the amount of energy and water being used. It takes a small step toward sustaining an environment that humans already drain.
Here are some ways to track and reduce water and energy use:
- Use energy-saving light bulbs
- Turn off all lights when not needed or after business hours
- Encourage employees to use natural sunlight
- Monitor the temperature settings throughout the day
Having employees take these small steps can make a huge difference in the efforts for making the environment (and your company) more sustainable and healthy.
Along with ensuring the safety of your employees, the products and services you provide will also need to be measured. Safe products will equal satisfied consumers and investors.
To improve your ESG strategy, you will want to measure how safe and durable your products are. Consumer reviews are a great way to see how they are holding up and how long they are lasting.
Other ways to manage and measure product safety:
- Track the number of product recalls
- Identify and monitor any risks associated with products
- Keep track of fines or penalties associated with products
Product safety is just as important as other measures since it is the very thing that your company will make money off of. So, it’s important to make sure the products are safe and in great condition.
Reduction in Carbon Emissions
Reducing your company’s carbon footprint could mean big impacts on the environment, and in a good way.
Reducing global greenhouse gasses is one of the best ways to do this. It can also be measured so that businesses will know if they are doing their part in preventing any more climate change.
Through vehicle use, electricity and power, burning fossil fuels, and using heat, more carbon emissions are being released into the air, contributing to a slow but present change in the environment.
One of the biggest ways businesses can start working towards a more sustainable future is by limiting their carbon emissions.
Here are some ways to do that:
- Measure your carbon footprint with TerraPass
- Switch from coal energy to natural gasses
- Recycle and reuse company materials
- Limit electricity usage when you can
- Educate yourself and your employees
- Use renewable energy sources and appliances
This is an important step and one that every company should consider taking. Since the main reason for climate change is due to harmful carbon emissions, it would be relevant to limit the release of more!
See Related: Best Carbon Credit Stocks
Reduction in Waste and Pollution
All kinds of waste are littering the environment including animal waste, food waste, hazardous waste, human waste, fossil fuel waste, oil and gas production waste, and much more.
Just in 2002, 2.9 billion people living in urban areas produced more than 3 million tons of solid waste a day. By 2025, that amount is supposed to double!
Humans are very wasteful and there are no signs of letting up anytime soon.
Measuring your company’s waste management is a crucial factor in maintaining the best ESG practices. While targeting your workplace’s waste products can be a great start, you can also look into reducing consumer waste.
Now, you obviously can’t tell consumers not to waste products, but knowing that more and more of them are paying attention to more sustainable lifestyles is worth noting.
More consumers will buy from businesses that are offering sustainable products in sustainable ways.
Here are some ways to start limiting waste from both your company and your consumers:
- Offer renewal and repair for products that are worn or broken
- Live by the mantra “reduce, reuse, recycle” (I know it’s cliché, but it works!)
- Provide incentives to consumers to prevent products from being thrown away
- Be honest with your consumers and employees about your efforts to reduce waste
Reducing waste is a huge advantage for businesses and the environment. It also can be done in simple steps and even used in marketing campaigns.
Why Does Measuring ESG Performance Matter?
Consumers and investors alike are calling for more healthy and sustainable ways for businesses to run.
While the world is changing, businesses will need to step up and change the way they are running if they want to keep profitability in their sights.
Now is the best time to start looking into how companies are impacted by climate change and what they can do to prepare and prevent further financial losses and damage. With
The Benefits ESG Offers For Companies
Making use of ESG efforts can provide long-lasting benefits for both the company and the environment.
If there are any doubts to the efficiency of using an ESG strategy for measuring company performance, looking into these positive returns may help kick out the doubt:
- Reduction in costs: Paying attention to the environmental metric can limit water and energy use, saving a company more money.
- Increases employee productivity: Fostering a healthy work environment via the social criteria metric, can increase employee motivation and productivity.
- Increase in clients: Sustainable products and practices can attract more B2B and B2C clients who are wanting to work with environmental-friendly companies.
- Strong reputation: Businesses that work effortlessly to provide sustainable products and practices earn a good reputation that attracts more consumers and investors.
The benefits of spending time and effort on ESG metrics and reporting are numerous and there for the taking.
Not only can they be incorporated into a company’s lifestyle easily, but they can be measured to make sure that a company’s efforts are where they should be and that goals are being met.
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