ESG ranking is a concept that has received increasing attention in recent years. Not only consumers increasingly value companies' impact on the environment and society. Investors, too, increasingly pursue ethics and sustainability in addition to returns. ESG ranking is an important tool in this regard.
In this article, we explain how ESG ranking works and illustrate the importance of a good score. We also show how your company can improve its ESG ranking.
What is ESG ranking?
ESG ranking is a tool for assessing the sustainability and ethical impact of a company or business. To do so, the rating system takes into account three pillars: Environment, Social and Governance. The ESG ranking provides investors and stakeholders with insight into the company's sustainability performance.
Environment
The company as steward of a natural environment. To compare how companies treat the environment, the ESG ranking includes aspects such as:
- Energy consumption
- Waste management
- Pollution
- Dealing with natural resources
- Addressing climate change
Social
Every company forms relationships with employees, suppliers, customers and (local) communities. To measure their impact, the ESG ranking looks at, among other things:
- Labor Standards
- Health and safety of workers
- Human rights
- Relations with local communities
Governance
The last pillar refers to a company's governance practices. For example, the ESG ranking provides information on, among other things:
- Corporate structure
- Remuneration policy
- Shareholder rights
- Transparency and reporting
Assessing ESG criteria
Assessing ESG criteria is done by different agencies and organizations worldwide. For a fair comparison of companies' ESG rankings, it is good to also consider who is doing the assessment. This is because agencies and analysts may work with their own methodology and focal points. As a result, the same company may obtain different ESG scores from different ESG rating agencies.
As an investor, are you making decisions based on ESG rankings? If so, be sure to consult several sources to understand the sustainability of companies. Some key players that make sustainability rankings based on ESG criteria are:
- MSCI ESG Research: leading international agency conducting ESG ratings.
- Sustainalytics: international company that carries out detailed ESG assessments and risk analyses.
- RobecaSAM: this Robeco subsidiary publishes the Dow Jones Sustainability Indices (DJSI) annually.
- ISS ESG: internationally active company offering ESG solutions such as corporate ratings, screenings and similar services.
- Vereniging van Beleggers voor Duurzame Ontwikkeling (VBDO): this Dutch association promotes sustainable development among investors and companies. VBDO regularly publishes reports on the sustainability performance of Dutch companies.
- Many Dutch banks and financial institutions assess the sustainability of investments based on their own methodologies and ESG criteria.
The importance of ESG ranking
ESG rankings have become an indispensable, crucial compass. As a company, ranking strongly in sustainability rankings is very important for several reasons.
First, the scores serve as a valuable tool for investors to make informed investment decisions. Therefore, a strong ESG ranking contributes to the acquisition of capital through investors. But that is not the only benefit.
ESG acts as a powerful risk management tool. It helps companies reduce potential legal and operational problems. Also, a strong score improves a company's reputation and brand value.
In this way, ESG investment has a significant impact on the financial market. Investors not only recognize that sustainability is the ethical choice, but also experience its financial benefits.
The increasing demand for ESG-compliant investments encourages companies to improve and report their sustainable performance. Thus, a shift to a more sustainable and responsible corporate culture is taking place.
Improve ESG rankings
Is your company looking for ways to improve its ESG rankings? If so, take a hard look at its entire operations. Promote workplace health and safety. Are labor standards adequately enforced within your company? In what ways does your company support initiatives from the local community? Is there room for improvement here?
Also explore ways in which your organization can contribute to combating climate change. Think about reducing energy consumption and minimizing waste. Milgro provides insight through life performance data into your ecological and economic performance, for example with a waste scan.
Transparency and reporting
In addition to implementing sustainable practices, transparency and reporting is also essential for good ESG assessment. In public reports, you document progress and improvements regarding ESG criteria.
This transparency builds trust with investors and stakeholders. Clear reporting is proof of commitment and continuous improvements in sustainability.
Focus on ESG: ethical and savvy
Consumers, investors and stakeholders are demanding sustainability and ethical responsibility from companies. The importance of a strong ESG ranking for your company is only increasing. It forms the basis for financial investments and brand loyalty.
Therefore, improve your company's ESG ranking with concrete actions and transparent communication. This will increase your positive impact on society and financial markets. An ethical choice and business sense.
Focus on ESG: ethical and business savvy
Get started immediately with your ESG criteria? Then start with a CSR strategy and use it to integrate your social responsibility into your daily work and policies. This will enable you to more easily achieve sustainable objectives and make demonstrable improvements.
