What’s the ‘E’ in ESG and how can you track it?

26 October 2022 


ESG (environment, social, governance) are factors for organisations to consider, measure and report on to track performance and provide internal and external shareholders with better visibility. In this article we’ll be diving deeper into the ‘E’ of ‘ESG’ to understand what environmental factors you should be reporting on, how it impacts your business and how you can make the most of understanding, tracking and reporting on it in order to guide your business into a greener future.

Understanding your environment

The environmental part of ESG looks at how your business takes care of the environment around it. It does this by looking at measurable factors across things like the natural resources you use and the overall environmental impact your business activities have across your entire supply chain (and the efforts made to reduce these impacts).

Understanding which environmental factors are relevant and important to your business can be difficult – many overlap with social and governance factors and ESG rates environmental factors differently depending on the sector you are operating within and even your location.

ESG frameworks will, generally, put environmental factors into four key areas that you can monitor:

Climate Risk

  • Carbon emissions, greenhouse gasses and fossil fuel usage
  • Overall carbon footprint
  • Research, development and implementation of renewable energy solutions and innovative green technologies

Natural Resources

  • Raw/renewable materials
  • Water wastage
  • Deforestation
  • Protecting or aiding natural ecosystems

Environmental Opportunities

  • Green practises and technologies
  • Green building practises
  • Energy efficiency

Pollution & Waste

  • Toxic emissions and water pollution
  • Packaging material and waste
  • Solid waste
  • Electronic waste

Why monitor your environmental impact?

Regardless of whether you are a green pioneer or are part of a company that is starting their ESG journey for compliance, it’s crucial to understand the positive impacts reporting on environmental factors can have on your business. Here are five key reasons why reporting on the environmental part of ESG is so important:

1. Your business could become more investable
Investors have become increasingly interested in ESG in recent years with major financial players like JP Morgan and Wells Fargo now incorporating ESG criteria into their investing process. With a backdrop of increasing global temperatures, rising sea levels and climate change awareness, there has been a societal shift towards a bigger push for businesses to be more environmentally-friendly. This means that environmentally-conscious companies are often seen as a better and safer investment option for investors with one eye on the future. Being able to show you are acting with the best interests of the wider environment in mind will go a long way to securing investment, as well as appealing to your customers and other external and internal stakeholders.

There is also increasing evidence that companies that align to an ESG strategy are a safer option and seen as less of a risk to investors; a 2019 white paper by the Morgan Stanley Institute for Sustainable Investing found there was a lower risk associated with sustainability aligned investments. With investors increasingly recognising a positive relationship between all aspects of ESG and business performance, managing your environmental factors has never been more important.

2. Consumers value businesses that do good
Modern consumers care about the environment and this is undoubtedly having a knock-on effect on purchasing decisions worldwide. The Global Sustainability Study 2021 by Kucher and Partners found that 63% of consumers have made a modest to significant shift towards being more sustainable in the past five years with 85% having made some effort to become greener. With more millennials choosing sustainable options (when available) there is a clear business benefit to being greener and more environmentally-friendly in your products and your business processes. ith consumer awareness on environmental issues only likely to increase in the coming years there will, no doubt, be a growth in demand. Your business may need to invest and transform its business models and practises to meet consumer demand and one of the best ways to do this is to align to an ESG framework and have a strategy in place for monitoring, reviewing and improving the environmental factors across your business.

3. Keep your stakeholders interested
Of course it’s not just investors who care about the attractiveness of your organisation – stakeholders (such as business owners, board members, directors, employees and shareholders) are all set to benefit from a company that’s performing well. While attracting investors can help business growth and profits, there’s also a clear benefit in having a strong ESG strategy to reduce costs, improve business efficiency, lead business decision making and drive innovation and profits into the future.

4. Keep your employees engaged
For many people, particularly the younger generation, the green credentials and sustainability focus of an organisation are key factors in choosing to work somewhere. 40% of millennials say they have chosen a job because of a company’s green credentials, with 70% saying they would stay with a company with a robust sustainability plan. A strong ESG strategy that monitors and acts on its environmental factors can help inspire employees and make them feel they are really making a positive difference in what they do.

5. Comply with the rule makers
The rules and regulations for your business and its ESG related activities will vary greatly depending on your sector and your location. When it comes to ESG reporting, there isn’t one regulatory body that controls everything, but it’s clear that, as we head into the future, rules and regulations around environmental factors, like carbon emissions and waste management, are only going to become more stringent as regulatory bodies and political law-makers respond to evidence and societal pressure for more transparency.

Unlocking your ‘E’

Having a strong ESG strategy in place is paramount for modern businesses wanting to offer transparency to stakeholders and shareholders while improving business operations, improving efficiency, mitigating risk, reducing waste and appealing to consumers and investors.

By paying attention to your environmental factors, as part of a wider ESG strategy, your business will be better placed to grow into the future and keep one step ahead of the competition and changing rules and regulations.

There is a huge benefit to understanding and implementing a strong ESG strategy but if you are focusing in the wrong areas, collecting data that isn’t important to your business and/or interpreting that data incorrectly then there is a risk that you could be wasting time and money. That’s where we can help.

We have an expert team of advisors who can help you understand the metrics you should be reporting on and which frameworks are best suited to your organisation. Our advisory team can work with you, using our leading technology platform, Sustainion, to help you understand and implement a strong and efficient ESG strategy (one that isn’t just ticking boxes but is working for you and your business needs).

Whether you’re just starting out or are further along in your ESG journey, our expertise coupled with the scalability of our technology platform will ensure we have the right solution for you. Get in touch today to book your demo.

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