Part 1: Environment, Social and Governance (ESG) – Part 1
Are there any standards to measure these?
The Environmental criteria can be measured based on a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals.
The Social criteria can be measured based on a company’s business relationships such as relationships with suppliers, shared values with suppliers, donations to the local community, encouraging employees’ volunteer work, good employee health, and safety rights.
The Governance criteria can be measured based on a company’s accuracy and transparency in accounting methods, stockholders voting priorities on important issues, avoiding conflicts of interest on the choice of board members, not using political contributions to obtain favorable treatment, and not engaging in illegal practices.
Are there products or companies that help you manage your ESG risks?
One way a company can track its ESG value is through ESG rating software. This allows companies to view a numeric score or grade of their ESG history and compare it against competitors. This also allows companies to get a viewpoint of what investors are looking at during their evaluation.
Products with widely reference ESG rating systems software are MSCI and MoriningStar Sustainalytics.
MSCI
MSCI ESG Ratings model identifies the ESG risks, (what they call Key Issues), that are most material to a GICS sub-industry or sector. With over 13 years of live track history, they have been able to examine and refine their model to identify the E, S, and G Key Issues that are most material to the industry.
MoriningStar Sustainalytics
Sustainalytics’ ESG Risk Ratings measure a company’s exposure to industry-specific material ESG risks and how well a company is managing those risks. This multi-dimensional way of measuring ESG risk combines the concepts of management and exposure to arrive at an absolute assessment of ESG risk. They identify five categories of ESG risk severity that could impact a company’s enterprise value.
Popular Companies that offer solutions to help with a company’s ESG risk are Ideagen Pentana Risk, ESG Risk Guard, and Control Risks.