What is ESG?

Global and industry ESG reporting standards are rapidly changing — and the regulations, frameworks, and standards don’t all align on the information they request from a company, whether it’s about the supply chain, ESG goals, or performance. This has led many companies to disclose only what they’re required to, or to use ESG frameworks that make the most sense for their stakeholders.



ESG rating agencies and rankers use different criteria and methods to determine ESG scores. Many companies haven’t been collecting ESG data or do not have structures or a team in place to put a complete ESG report together. Working across departments to compile, analyze, and report financial and non-financial data for ESG disclosures isn't always easy — this is where ESG frameworks and ESG reporting software and platforms come into play.



ESG scores can be looked at as ESG risk indicators. They are generated based upon a company's performance across their numerous environmental, social, and governance metrics. Put simply, ESG scores are a numerical value to help simplify the ESG risk and performance rating of a company for comparative purposes.



These ESG scores are complicated though because score providers, ratings agencies, and rankers evaluate different criteria to determine scores. Some request information from companies via surveys or questionnaires, others review public disclosures, and some do a combination. ESG scores are important because they provide a baseline for evaluating a company’s ESG risk, but without broad and standardized reporting frameworks (and regulations to enforce accurate and complete reporting), ESG scores are only as accurate as the data that companies have chosen to disclose—or what can be found online.

Nevertheless, investors are using these scores to help evaluate where to direct their money in the absence of standardized disclosures.

Most ESG rating agencies and rankers determine companies’ ESG scores through proprietary evaluation processes that provide limited transparency. ESG metrics aligned to frameworks and standards generally inform these scores, but raters and rankers also may include media trends, controversy analysis, and other public information. ESG metrics serve as a baseline for ESG reporting consistency and provide guidance for companies starting their ESG journey.



Many companies use ESG reporting frameworks to generate consistent reports that address the standardized ESG metrics for their industry. The purpose of ESG metrics is to create consistent, comparable reporting and drive companies to reduce their impact on the environment, improve their social influence, and provide more clarity on their internal governance.

ESG data includes more than just each company’s individual impact. It also includes partners, community impact, and companies in their supply chain. The types of ESG data that a business can disclose can be vast.

• On the environmental side, it can range from greenhouse gas emissions to water and raw material usage or even waste management.
• Social ESG data can include statistics on company diversity, human rights, animal rights, and even information related to labor practices in the company's supply chain.
• ESG disclosures around governance provide transparency into company leadership and operations. Investors are often looking for details on company values, employee relations, and corruption concerns as well as employee and executive compensation.

Due to the many benefits of ESG reporting, investors and providers of capital are increasingly using these reports as a factor in their decision-making process. ESG reports provide transparency for investors and allow them to make more informed business decisions. They also help businesses analyze and evaluate their impact on our world and make strides toward setting and achieving their ESG goals — all while realizing business value in the process.



ESG reports do more than encourage companies to disclose their impact on our world — they help hold companies accountable for their impact. Although ESG reports may not be mandatory for all companies, the corporate landscape is moving toward an expectation for companies to be transparent on their ESG impact.