ESG policy

ESG policy is an investor commitment to integrate ESG factors into investment decisions to manage risk and create sustainable, long term return. Some investors coined the term responsible investment policy or sustainable investment policy. It includes company goals, governance and strategy to manage issues of ESG in the investment lifecycle. ESG policy helps to align expectations and ensure trust with wider stakeholders including investors, regulators, and company employees.

Sustainability audit

Sustainability auditing is an assessment of all the activities carried out in a company and to compare them with the best practices within the firm. The sustainability auditor determines whether there is any gap in company’s sustainability plan and the actual work completed in the company (Sibilia and Mager, 2011). It is a managerial tool, aims to assess economic, social and sustainability to prepare the company for the risks and complexities concerned with change. This gives the complete view about the company at an instance, and its benefits include pollution reduction, choosing ecofriendly manufacturing methods, and improvement in employee productivity. In ESG audit program, the audit committee plays an important role in communicating ESG disclosures moreover; it has the responsibility for financial risk and evaluating the risk management of a company.

ESG Checklist

• Recognize, confer and implement ESG strategy of the company.
• The environmental and governance comes under Quantitative aspect. Reporting of this should be clear over time to measure the company’s progress.
• Qualitative aspectassesses the social, employee well-being and involvement. Determining categories in this qualitative area helps to measure the progress of the organization.
• The programs should be conducted within the company to make sure that the company has its own workforce at every level of diversity based on the investors, clients and partners.
• Consider green bonds are added line to access the ESG capital.
• Ascertain that the company’s ESG program has addressed the United Nations 17 SDGs, for a company to attain investment qualifications.
• Choose a third party to measure the company’s progress creditability.

ESG Scoring

ESG score is a numerical value, used to help the investors to identify how the market reacts to the organization performance with respect to ESG factors. The ESG score is evaluated based on its criteria which will be employed in correspondence with the financial score to augment the accuracy in considering the company’s performance and its associated risk. This ESG score is used to match with the financial scores, in order to enhance the exactness of assessing an organization performance and risks.

An organisation may have strong regulations of carbon emission, waste management etc but if these information is not incorporated in public domain there will be no impact on ESG score. Since ESG score takes into consideration only the reported corporate activity to ensure accuracy in ESG scoring system, the gap reported aspects and the reality should be addressed. When ESG scores are compared between companies it should be made sure that comparison is based on identical rating provider within the same industry.

ESG scoring may differ in every aspect by its provider (agency) which depends on how they evaluate every single parameter in delivering their results. For example, Thomson Reuters measures for more than 6000 companies predicting scores between 0 and 1, with 0 being worst and 1 as its best. Bloomberg and Corporate Knights rating is based on a 100-point scale with data from 102 countries involving 11,700 companies. In order to understand the ESG scoring system the methodology used in the framework should be ascertained (doi/10.1108/JCMS-10-2017-0002/full/html). In order to understand the ESG scoring system the methodology used in the framework should be established. The company ESG score between 50 -70 range is considered as average/neutral and the score above 70 means the company makes better decisions on ESG issues.  ESG score calculation mainly depends on metrics and materiality. The components i.e. environmental, social, governance contributes discretely to the overall performance and the merits or demerits in one of the component can affect the other components owing to the connotation among themselves.

An organisation may have strong regulations of carbon emission, waste management etc but if these information is not incorporated in public domain there will be no impact on ESG score. Since ESG score takes into consideration only the reported corporate activity to ensure accuracy in ESG scoring system, the gap reported aspects and the reality should be addressed. When ESG scores are compared between companies it should be made sure that comparison is based on identical rating provider within the same industry

In a recent study conducted on the significance of ESG scores in Asian firms affirmed that the scoring greatly influences the sustainability performance. This indicates that environmentally and socially responsible firms with stringent governance policies will lead to better economic sustainable performance (doi:10.3390/su12093910www). Even though the disclosure of ESG score in the Asian countries was much lower than the European countries, most of the Asian firmsinsist in making ESG performance analysis transparent for their firm to invite foreign nationals for investment.

Reference

Bajic, S.; Yurtoglu, B. Which aspects of CSR predict firm market value? J. Cap. Mark. Stud. 2018, 2, 50–69. doi/10.1108/JCMS-10-2017-0002/full/html

Maha Faisal Alsayegh. Rashidah Abdul Rahman and SaeidHomayoun, Corporate Economic, Environmental, and Social Sustainability Performance Transformation through ESG Disclosure, Sustainability 2020, 12, 3910; doi:10.3390/su12093910

Sibilia, J., &Mager, D. (2011). Street Smart Sustainability: The Entrepreneur’s Guide to Profitably Greening Your Organization’s DNA (Large Print 16pt). ReadHowYouWant. com.