What Does An ESG Score Really Mean?

Are you considering integrating ESG (Environmental, Social, and Governance) reporting into your business? You likely already know that demonstrating a commitment to sustainable practices gives customers the assurance they need when contemplating what businesses they will patronize. But there is much more to ESG compliance than just consumer appeal.

Measuring and monitoring your company's performance in terms of ESG standards can also provide quantifiable data regarding your organization's financial health and give insight into its true potential for long-term value creation. In this blog post, we take a closer look at ESG scores and explore why this metric should be part of any business strategy with an eye on creating social responsibility initiatives.

What is ESG?

ESG stands for Environmental, Social, and Governance. It is a tool used to evaluate a business's sustainability and societal impact. Companies are analyzed based on their environmental footprint, treatment of stakeholders, and adherence to ethical and legal practices.

ESG provides insights into a company's operations, highlighting areas to improve and showcasing responsible business practices. Companies with high ESG scores have been found to outperform their peers regarding profitability and long-term growth. Therefore, ESG has become a popular metric for investors and consumers alike, as environmental and social responsibility has become increasingly crucial in today's society.

How is an ESG score worked out?

ESG scores are calculated using a variety of metrics that are monitored and scored to determine a business's overall score. ESG scores typically include factors related to environmental impacts, social and governance, such as:

Environmental factors

• Energy usage
• Greenhouse gas emissions
• Waste management

Social factors

• Employee treatment
• Diversity and inclusion
• Community involvement
• Executive compensation
• Board diversity
• Shareholder rights

Governance factors

What data is used to calculate a business's ESG score?

Different ESG rating agencies use different metrics and calculations to determine a business's ESG score. However, most agencies use a combination of quantitative data, such as financial records and environmental impact reports, and qualitative data, such as surveys of employees and stakeholders.

What does an ESG score mean for businesses?

Your ESG score shows investors and customers that you're dedicating appropriate resources to it. You can use your company's reports to highlight strengths and, equally, be transparent about where your business has areas for growth and improvement.

Remember, your business's first ESG score offers a benchmark, so don't overthink the outcome, to begin with. From this platform, you can improve your business's trajectory by sticking with one rating agency.

Case studies have shown that businesses with high ESG scores are more likely to have better risk management practices, perform better financially, and have higher employee retention rates. As sustainability and ethics become increasingly important to consumers, investors, and other stakeholders, businesses with high ESG scores will likely see long-term growth and success.

How businesses can improve their ESG scores

Improving a business's ESG score is essential in creating a responsible and sustainable brand. ESG ratings measure the effectiveness of a company's performance on issues considered the most important for long-term financial value creation.

Here are some steps businesses can take to improve their ESG scores:

Environmental management

Businesses should focus on recording and tracking their environmental KPIs that are relevant to their business practices, such as:

• Carbon emissions
• Energy consumption
• Waste production and recycling efforts
• Water usage management

These data points must be correctly tracked if you want an accurate reflection of your environmental impact in your ESG report.

Additionally, taking measures such as upgrading equipment with more efficient models or using renewable sourcing whenever possible can help reduce the greenhouse gas (GHG) emissions associated with running your business operations and ultimately lead to better ratings.

Social responsibility

Businesses should look at initiatives like gender diversity within senior roles or equal pay for equal work opportunities when assessing their social responsibility practices. They should also focus on health and safety standards and regulations for employees.

Another area to focus on is understanding customer perspectives through regular customer satisfaction surveys to gauge how customers perceive your business and make necessary changes accordingly.

Corporate governance

Good corporate governance practices involve creating proper reporting systems so owners and stakeholders have access to up-to-date information regarding:

• Finances and decisions taken by the company
• Setting clear rules of conduct for employees
• Providing transparency into executive compensation packages
• Monitoring risks closely
• Disclosing potential conflicts of interest among executives
• Ensuring compliance with all applicable laws and regulations

All these activities affect a business's governance score significantly if done correctly.

How Aprio can help

ESG initiatives can seem daunting without the right people and processes in place, but that doesn't mean you have to miss out on opportunities or fall victim to costly fines. Using a service such as the ESG consultants from Aprio will ensure your business is performing its best when it comes to ESG.

Their trusted ESG team of experts provides comprehensive resources for creating and implementing an effective strategy tailored specifically for your business needs—so you don't face any surprises down the line. You can get your business ahead today with Aprio's expert ESG services.

Here are just some of the ways that Aprio can help your business achieve outstanding ESG performance:

Collect emissions data

Aprio's ESG team assists in compiling a GHG emissions inventory for scopes 1, 2, and 3, utilizing data from all relevant facilities and locations. They will also produce a GHG baseline following GHG Protocol standards.

Calculate and measure

Aprio's ESG advisors can assist you in measuring GHGs resulting from your operations, customizing calculations for unique categories, and verifying and validating the data.

Manage and report

Aprio can securely store all your data and create an audit trail. Get a detailed report of your GHG emissions, including a URL for public disclosure.

Final thoughts

In conclusion, it's clear that an ESG score is a vital factor for businesses of all sizes. Understanding what ESG means, how it's calculated, and what data it takes into account are all steps to becoming aware of a business's ESG rating.

Careful management of companies' environmental, social, and governance activities can ensure that they operate sustainably while still achieving high-performance outcomes. Improving an ESG score requires dedication and focus. But luckily, there are services like those offered by Aprio, who have the right expertise to offer you top-tier support every step of the way.

With their team of experts helping to collect emissions data and calculate, analyze, and measure ESG data, businesses can get their sustainability strategy off the ground faster than ever.