The ESG rating system is flawed
How ESG and smart data tracking can uplift your organisation
There are many reasons why companies should embrace the ESG movement. The ‘Environmental’, ‘Social' and ‘Governance’ pillars involve creating value for all stakeholders.
Ethical and sustainable investing practices aren’t new, however, what is considered ESG can differ depending on who you talk to or what blog post you read.
Most consumers and investors would agree about the importance of ESG.
You want your program to deliver profit and be valuable to your organisation. To do this you want to make sure that you are aware of any barriers that may act as a setback to you. We have identified a number of obstacles that could de-rail your ESG framework.
There are currently a small number of ESG ratings platforms that report on ESG asset owners. One of the most frustrating things about ESG is that there are no standard metrics across the board.. This can cause confusion to both business and consumers.
In fact, the United States Securities and Investment Commission provided information that some of the data on these platforms may be used to compile third-party ESG scores, and, that ratings may be subjective. In a recent article published by the University of Sweden the authors discussed how ESG frameworks are subject to regional and industry effects. This is something you will need to factor in to any program.
The world has become much more globally connected since the internet became a non-negotiable. Every country has their own demographic, social, cultural and economic profile.
These cultural factors can vary substantially across different countries. This can have a huge impact on the performance of your ESG program. The study from the University of Sweden hypothesised that the differences between countries can impact industry performance of an ESG program.
How does this affect you? If your business has multiple cross cultural partners, it is vital that you bring them on the ESG journey with you.
By making sure all business groups are aligned across one mission to create a deep understanding between you both.
You certainly don’t have to be a Rhodes scholar to understand that industries and sectors face different pressures.
In an ESG context, some industries are “dirtier” than others. A great example of this is if you were to invest or start a partnership with a mining company. You will need to review your ESG framework to make sure you mitigate or offset the pollution in a way that aligns with your companies ESG framework.
To access this, you will need to review your ESG framework. To make sure there are no issues you have four options:
- to pass on the investment;
- make sure you consult with stakeholders on the potential sale;
- factor in potential for shareholder resolution object to the sale; and
- look for ways to offset the pollution from the project in a way that aligns with your companies ESG framework.
In a good and holistic ESG framework, part of your due diligence should be about assessing how potential partners, assets, business partner and new technologies align with your goals.
How can emerging technologies help you?
There are emerging technologies that could help you with harnessing your data to empower you to make faster and easier decisions.
Venture Beat states that nearly four-fifth of business struggle to unify the real time and historical data they need to instantly engage prospects and customers. This means businesses are losing potentially valuable opportunities because of this.
In order to save your organisation from fines, reputation damage and litigation expenses due diligence is more important than ever. With the rise of shareholder activism, it is vital that you have a level of transparency across all facets of the business. This is why it’s not enough to set goals. To be successful you need to track them so you can provide valuable insights to investors, partners and other stakeholders about what you are doing. Furthermore by tracking this data, you are able to show the impact your ESG framework is having on your business and the ROI you are getting from the ESG program.
We hope this blog post have enlightened you about some of the hidden secrets in ESG. This certainly doesn't mean you SHOULDN'T have an ESG program but make you do your due diligence.