More businesses are adopting sustainable business practices and moving towards becoming more ESG friendly model. Unlike the past, when ESG was confined to the investment community, environmental, social, and governance factors have become mainstream over the last few years and now impact many everyday business decisions.
C Suite executives now realize the importance of ESG and are eager to transform their enterprise into a more sustainable business. With this increased focus on ESG comes the desire to measure the ESG performance of a business. Modern businesses rely on various metrics that allow them to measure their performance. In this article, we will discuss the best ESG metrics for tracking your business’s performance.
Role of Metrics in measuring ESG performance
It is impossible to measure the success of an ESG strategy without using some types of ESG focused metrics that allow a business to measure how well they are at executing the ESG strategy in question. ESG metrics not only allow you to track the success of your strategy but can also throw up another data set that can tell you a lot about your business and its practices.
Nowadays, even investors, banks, and financial investors want to know how your business approaches sustainability and may inquire about the ESG metrics your business uses. Having well-defined ESG metrics will also put you in an excellent position to face investors, banks, and other financial institutions.
Best ESG metrics for tracking your performance
Here is a list of metrics to track for each subcategory of ESG:
Green House Gas emissions must be at the top of your list when it comes to tracking the environmental impact of your business. Greenhouse gases refer to gases that trap heat in the environment, and these gases are primarily responsible for global warming. GHG includes carbon dioxide (CO2), methane (CH4), nitrous oxide(N2O), and ozone(O3). GHG emissions are usually measured in carbon dioxide equivalents (CO2e).
Carbon footprint refers to the total greenhouse gas emissions generated from all stages of a product or services cycle. This will also include the CO2e generated via ancillary activities such as traveling for business purposes.
Overall water, energy use
Overall, water and energy used in a year are also critical metrics. They are measured in per unit electricity usage (kWh or J) and liters or gallons of water consumed by a business. It is also a good idea to estimate how much electricity or water was wasted or not used for productive purposes.
Resilience measures how well a business can cope with turbulent and disruptive events such as earthquakes, flooding, or other phenomena caused by climate change. Resilience can also be used to measure a business’s ability to cope with changes in its working environment, such as regulatory changes or market changes that may or may not be induced by climate change.
As the very name suggests, community impact measures the total impact that a business has on the community where it is engaged. It is often the primary metric used to measure a business’s social impact and considers the effect that a company has on local communities where it operates.
Stakeholder engagement measures how well a business engages with various stakeholders such as employees, contractors, suppliers, etc. Many stakeholders may be peripheral or not directly connected with the business.
Health & Wellbeing
Health & Wellbeing measures how healthy is the environment and building where your business is based. An ESG compliant business usually has healthy premises that promote all stakeholders’ overall health and well-being.
How diverse is your workforce? How many races are represented on the board of directors or at the employee level? These are some of the questions you need to answer to know how your business deals with diversity. Diversity is a crucial ESG metric that has long been used to ensure a fair working environment for businesses of all sizes. Having a diverse workforce has many other benefits, such as an open working culture, and it also allows companies to build well-staffed teams.
Employee benefits measure how well your employees are compensated and usually include health insurance, work from home flexibility, paid leaves, parental leaves, pension contributions, etc.
Is the executive compensation paid by your business fair and equitable after considering all the stakeholders? Or how large is the gap between CEO compensation and the compensation paid to an average employee at your organization? Answers to these questions will tell you how fair and equitable your business is.
There is a high chance that a wage gap exists between male and female employees of your business. This is an important metric to track from an ESG viewpoint and must not be taken lightly.