ESG, which stands for Environmental, Social, and Governance, encompasses the vital factors that stakeholders consider when evaluating non-financial aspects such as sustainability and ethical impact. These evaluations impact investment, lending, and purchasing decisions. Now a mainstream idea, a company’s ESG profile plays a pivotal role in its overall business strategy.
Investment decisions increasingly hinge upon a company’s ESG profile because the ESG framework employs specific criteria to assess investments, rather than relying solely on the company’s subjective views of sustainability and social responsibility.
One effective and public means of elevating your company’s ESG profile is through the implementation of electric vehicle (EV) charging installations. Continue reading to dive deeper into the concept of ESG and discover why EV charging serves as an ideal avenue for enhancing your company’s ESG endeavors.
What is ESG?
ESG stands for Environmental, Social, and Governance. Here are what the three ESG topics mean:
- Environmental – The environmental criteria of ESG analyzes how well a company acts a steward of the environment. It focuses on issues like waste and pollution, greenhouse gas pollution, green energy initiatives, water usage, and climate change.
- Social – The social criteria of ESG inspects how a company treats people. It concentrates on employee relations, employee diversity, fair labor conditions, customer satisfaction, and support of underserved communities.
- Governance – The governance criteria looks at how a company is governed. It focuses on the diversity of board members, executive pay, donations, corruption, lobbying, lawsuits, and tax strategy.
ESG Reporting
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 are 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 vs. ESG standards
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 from:
- World Economic Forum (WEF)
- Global Reporting Initiative Standards (GRI Standards)
- Sustainability Accounting Standards Board (SASB)
- International Integrated Reporting Council (IIRC)
- Carbon Disclosure Project (CDP)
- Task Force on Climate Related Disclosures (TCFD)
- Sustainable Development Goals (SDGs or UN SDGs)
- Dow Jones Sustainability Index (DJSI)
- International Finance Corporation (IFC) Performance Standards
- UN Principles for Responsible Investment (PRI)
- 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.
ESG Scores
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.
ESG Scores Meaning
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.
Why Should a Company Publish an ESG Report?
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.
How EV Charging Can Help Elevate Your Company’s Environmental Social Governance (ESG) Standing
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 benefits of installing EV charging stations 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.
Achieving Your ESG Goals with WattLogic
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!
