ESG scores. While most have heard of Environmental, Social, and Governance (ESG), they may not fully understand how it is broken down and used to score a business’s performance. Stakeholders and institutional investors, including asset managers and financial institutions, increasingly demand companies to operate with transparency, sustainability, and ethics. This is why ESG scores reports have emerged as a critical component to fully gauge a company’s commitment to ESG values.
Let’s face it, without ESG scores, some businesses might be accused of greenwashing practices, a false commitment to sustainability that lacks any real action. Using a global corporate sustainability assessment can help you avoid that, so we cover all the basics below.
Understanding ESG scores reports
If you want to quickly brush up on what ESG information is and why it matters before diving into scoring ESG factors, you can do so here. Otherwise, let’s dive right into things.
What are ESG scores, and why do they matter?
ESG scores describe how a company measures its performance across the three pillars of ESG: environmental impact, social responsibility, and corporate governance.
Environmental Impact
This pillar focuses on things like greenhouse gas (GHG) emissions, renewable energy adoption, and waste management.
Social Responsibility
This pillar looks at a company’s relationship with its stakeholders and operationally adjacent communities and has traditionally included diversity, equity, and inclusion (DEI) efforts.
Corporate Governance
This pillar evaluates a company’s leadership structure, transparency, governance scores, and regulatory compliance within ESG reporting.
So why does this all matter?
As stakeholders and investors increase the pressure on businesses to become more conscious of their impact on people and the planet, it will become clear that only those invested in ESG strategies will remain competitive.
How are ESG scores calculated?
To understand how ESG scores are calculated, let’s break down the process into bite-sized bits and assess how each pillar contributes to a company’s final ESG score.
ESG scores are calculated by specialized ESG rating agencies, providing unbiased third-party transparency to the process. ESG rating agencies like Sustainalytics, S&P Global, and Moody ESG Solutions Group evaluate a company’s ESG performance using company-specific disclosures and publicly available data with proprietary methods specific to each agency.
Since ESG is relatively new in the business landscape, there aren’t really any standardized rating systems. Still, each rating agency has its own specific process, which typically includes both quantitative and qualitative data to make assessments.
Qualitative Data:
This data includes carbon and GHG emissions, diversity statistics, and governance structure for the leadership teams.
Quantitative Data:
This data includes company policies for things like energy use, resource use, and financial performance, as well as stakeholder engagement efforts to ensure a business is competing with others in their sector in terms of employee retention and company culture.
While ESG data is becoming more available by the day due to new technologies and innovations, scoring systems can vary widely by the rating agency, so it’s important to consider a third-party agency trusted by those in your industry.
How Global ESG scores impact business performance
From investors to customers, the push for ESG-driven business is underway. For those who haven’t begun strategizing, it’s time to start. If not, you risk getting left behind.
Investor and market influence
Investors have realized that a company’s ESG performance goes hand-in-hand with its financial success, so they have started to prioritize ESG initiatives in recent years. A good ESG score means you are committed to your company’s sustainability performance and business ethics, both of which have been shown to impact a business’s bottom line in the mid-to-long term.
According to data from Key ESG, 89% of investors, including asset managers, are now considering ESG risks before making the leap.
While numerous factors play into ESG becoming a key component of investing, the most simple of them is that ESG investing is seen as something that comes with less risk when compared to non-ESG investing.
Brand reputation and customer loyalty
Today, consumers are more informed than ever when it comes to social and environmental issues. In fact, approximately 83% of consumers now believe corporations bear the responsibility of constructing their practices with ESG in mind.
Contrary to what some might think, this consumer outlook on climate change has little to do with politics and more to do with the extensive amount of publicly reported data that we’ve gathered over the last decade with new strategies and technologies.
What does this all mean? The businesses that consistently report high ESG scores are likely to build brand awareness and grow customer retention, all while avoiding reputational risks.
Risk management and resilience
Neglecting ESG efforts can spell trouble for businesses in today’s corporate landscape, so it’s important to manage ESG risks with a sense of urgency. While not always the case, some US businesses are held to specific environmental, social, and governance standards that could land them in hot water if they don’t comply.
Consequences could include fines or other operating penalties that are sure to hurt the bottom line. Even when they don’t, environmental, social, and governance risks are something that should be taken seriously and used to grow profits.
Further, US businesses operating in the EU can be held to the Corporate Sustainability Reporting Directive (CSRD), requiring them to generate sustainability reports annually. Those that don’t comply risk losing the ability to operate in the EU.
Why businesses should monitor their ESG scores
Transparency, regulatory compliance, and stakeholder engagement are key reasons businesses must track and enhance their ESG scores. Strong ESG performance ensures competitiveness, as investors and stakeholders assess a company’s long-term viability and ethical commitments.
The importance of transparency
Without transparency, businesses risk credibility loss, particularly in ESG reporting. Greenwashing—false claims of sustainability—can damage trust and deter investors.
To achieve a strong overall ESG score, companies must provide accurate company disclosures on sustainability initiatives, corporate sustainability practices, and governance frameworks. High data quality is essential, as incomplete ESG data can misrepresent performance and weaken investor confidence. Comparing ESG performance within the same industry ensures fair assessment and highlights areas for improvement.
Transparent reporting also demonstrates efforts in energy efficiency and environmental impact reduction. Clearly outlining measurable progress enhances reputation and attracts investment.
Even if ESG scores are not perfect, consistent monitoring, accurate data collection, and strategic improvements help build trust, drive investment, and ensure compliance with evolving regulations.
How Sweep can help
At Sweep, we help businesses take control of their ESG journey with actionable strategies for the good of the company. From analyzing current material ESG issues to understanding and reporting your company’s final ESG score, our innovative, revolutionary platform makes working with ESG data a breeze.
- Simplify the process of ESG data collection and reporting to ensure full transparency and compliance with evolving regulations.
- Leverage Sweep’s tools to track carbon emissions across your operations and implement effective strategies to reduce environmental impact.
- Strengthen your governance framework with Sweep’s data-driven insights, ensuring accountability, compliance, and ethical decision-making.
- Use Sweep’s platform to clearly communicate your ESG goals and progress to investors, customers, and external stakeholders in your annual ESG reports, fostering trust and engagement.
- Identify areas for improvement in your supply chain and resource management using ESG data points, driving cost savings and sustainability across your business operations.
With Sweep, businesses can ensure they maintain strong risk ratings while focusing on their sustainability goals.
