“ESG” stands for Environmental, Social, and Governance. It relates to the key factors stakeholders look for when evaluating non-financial, yet important, factors like sustainability and ethical impact, prior to investing, lending, and purchasing decisions. No longer a niche idea, a company’s ESG profile is quickly becoming a key component of a business strategy. Investment decisions are often made based on a company’s ESG profile because the ESG framework uses specific criteria to grade investments as opposed to what a company thinks is sustainable or socially responsible. A simple and public way of enhancing your company’s ESG profile is through electric vehicle (EV) charging. Read on to learn more about what is ESG and why EV charging is the perfect way to enhance your company’s ESG.
ESG stands for Environmental, Social, and Governance. Here are what the three ESG topics mean:
An ESG report is a report published by a company or organization about its ESG impacts. Audit and consulting firm, Deloitte, finds that ESG-mandated assets are on track to make up half of all professionally managed global assets by 2024. According to the US SIF (Forum for Sustainable and Responsible Investments) 2020 Trends Report, sustainable investing in the United States grew from $12 trillion at the start of 2018 to $17 trillion at the start of 2020, a 42 percent increase. That represents 33 percent of total US assets under professional management. US SIF’s report also finds a steady increase of ESG investing, since they started tracking it in 1995.
In Europe, the European Council requires all companies to publish an ESG report through their Corporate Sustainability Reporting Directive (CSRD). Here in the United States, there is currently no disclosure requirements or a common disclosure framework. As it stands now, how ESG is defined and measured in the U.S. is not universal with major differences between reporting. It opens the opportunity for a company to overstate what its actual ESG accomplishments are. For this reason, the U.S. Securities and Exchange Commission (SEC) has proposed rules and form amendments that are aimed at providing consistent standards for ESG disclosures.
ESG frameworks provide guidance on how information is prepared and structured as well as which ESG topics are covered. The ESG standards provide specific and targeted requirements for what should be reported for each ESG topic, including metrics. Frameworks and standards are meant to be used together.
Some of the most popular ESG frameworks and standards are the World Economic Forum (WEF), the Global Reporting Initiative Standards (GRI Standards), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Carbon Disclosure Project (CDP), the Task Force on Climate Related Disclosures (TCFD), the Sustainable Development Goals (SDGs or UN SDGs), Dow Jones Sustainability Index (DJSI), International Finance Corporation (IFC) Performance Standards, UN Principles for Responsible Investment (PRI), and the Streamlined Energy and Carbon Reporting (SECR).
The Global Reporting Initiative (GRI) is an independent, international organization that helps businesses with resources and has the world’s most widely used standards for sustainability reporting.
The GRI Standards provide easy-to-use standards to be used for an ESG reporting framework. 73% of the world’s largest companies have adopted the GRI reporting framework. Through GRI’s ESG reporting framework, companies have been able to provide verifiable data on sustainability.
The IFRS Foundation Trustees created the International Sustainability Standards Board (ISSB) to help companies with their sustainability-related financial disclosure. The ISSB developed the SASB Standards. The SASB Standards identify the ESG issues most relevant to the financial performance of 77 industries.
As mentioned above, there is no common ESG disclosure reporting framework or reporting standard. There is no one authority on ESG standards or scores.
In the U.S there are several different companies that offer ESG ratings for investors. They all use different ESG reporting standards, criteria, and ways of calculating ESG ratings. For example, MSCI ESG Research, one of the largest ESG ratings providers, looks at how a company performs on 35 key ESG issues or ESG factors. Institutional Shareholder Services (ISS) has a more industry-specific ESG issues rating approach. Usually the average of each individual score of each – Environmental, Social, and Governance – is calculated and then weighted against industry peers.
ESG data is collected in different ways. Some ESG rating companies will analyze corporate disclosures and review publicly available information, such as media reports. Some ESG rating companies may also conduct management interviews to better understand the company’s performance.
Some companies are also leveraging internal ESG scores. These often come in the form of ESG scorecards. This type of in-house scoring system helps companies to gauge their own ESG performance and improve if necessary.
If a company publishes ESG information without using a proper reporting framework it is often referred to as greenwashing. Greenwashing is when a company makes false or misleading claims about its product, services, or business operations. Greenwashing may be intentional or unintentional due to misinformation or lack of accurate information.
What ESG scores mean depends on the type of ESG rating system. For example, a rating of AAA from MSCI means it is performing well in managing ESG risks. An ESG risk rating from Sustainalytics ranges from 0 to 40+, with 0 representing the lowest level of risk. This means a company with an ESG risk rating of 0 is equivalent to an AAA from MSCI and excels at ESG risk management and is a leader in their industry.
A low ESG score doesn’t necessarily mean the company is bad or one that shouldn’t be invested in or patronized. Sometimes industries cannot manage certain ESG risks easily or haven’t been able to perform as well as larger companies with more resources.
While ESG reporting is currently not mandatory in the United States, many companies still choose to disclose their ESG ratings. The reason is the majority of investors use ESG data as a critical factor in their investing decisions.
According to research from the Morgan Stanley Institute for Sustainable Investing, 70 percent of investors believe that sustainable investing implies a financial trade-off. ESG ratings provide valuable insight into the long-term stability of a company.
At the same time, while investors are the main stakeholders who use ESG data, the public is increasingly interested in patronizing companies that align with their values and are committed to corporate responsibility and corporate sustainability. Displaying a high ESG score can encourage customers to shop with your company rather than a competitor with a low ESG score.
ESG disclosure is usually published with a company’s quarterly or annual report.
One critical part of the Environmental pillar of ESG is having a low carbon footprint. Reducing your carbon emissions in your operations can elevate your company’s ESG profile. There are many ways to scale commercial EV charging. You may consider investing in workplace charging stations, which can be made available to the public as well as your employees. Or you may plan to transition your company fleet to electric vehicles and install the EV infrastructure needed to sustain the new fleet. You can also install EV charging stations solely for your customers and reduce carbon emissions that way.
Whichever EV charging infrastructure you choose, there will be added economic benefits outside of your ESG rating. You’ll attract more customers, build customer loyalty, stand out from competitors, put your business on the map, attract and retain employees, increase your property value, and collect carbon credits among many other benefits.
WattLogic is committed to helping businesses of all sizes maximize the potential of every watt and has been doing so for more than a decade. WattLogic can help you get the commercial EV charging solution you need for your business. WattLogic’s turnkey packages include everything you need to electrify your company without having to figure out and conduct dozens of other steps. Take WattLogic’s quick and simple digital survey and get a no-obligation EV charging quote in no time!