{"id":15313,"date":"2022-08-23T02:02:41","date_gmt":"2022-08-23T02:02:41","guid":{"rendered":"https:\/\/www.greenchoicenow.com\/v\/?p=15313"},"modified":"2022-08-23T05:07:59","modified_gmt":"2022-08-23T05:07:59","slug":"esg","status":"publish","type":"post","link":"https:\/\/www.greenchoicenow.com\/v\/esg","title":{"rendered":"What’s an ESG Score? A Guide to Company ESG Reporting, Ratings, & Issues"},"content":{"rendered":"\n
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What is an ESG score?<\/strong><\/h2>\n\n\n\n

Environmental, Social, Governance (ESG) is a framework for evaluating a company’s interactions with the planet, society, and its employees.<\/p>\n\n\n\n

ESG scores are meant to distill corporate ESG reports and measure how well a company manages near and long-term environmental, social, and governance risks to the company.<\/p>\n\n\n\n

  1. Environmental factors<\/strong> may include a company’s carbon footprint or its policies on renewable energy. <\/li>
  2. Social factors<\/strong> may include a company’s treatment of employees or its involvement in charitable giving.<\/li>
  3. Governance factors<\/strong> may include a company’s board structure or its executive compensation practices. <\/li><\/ol>\n\n\n\n
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    Who uses ESG scores?<\/strong><\/h2>\n\n\n\n

    ESG ratings are most commonly used by investors and banks, to help them evaluate corporate investment and lending decisions. ESG ratings are also used by companies to understand and measure their ESG risks, to track their performance, and to improve their risk management.<\/p>\n\n\n\n

    ESG factors can be used to evaluate a company’s sustainability and its potential environmental and ethical risks and opportunities, however, ESG ratings do not<\/em> necessarily measure a company\u2019s current sustainability practices or impacts.<\/p>\n\n\n\n

    Asset managers use ESG criteria in the investment analysis and portfolio selection of $16.6 trillion in assets<\/strong>\u2013that\u2019s 32% of the total U.S. assets under professional management (source<\/a>).<\/p>\n\n\n\n

    Sustainable mutual funds and ESG-focused ETFs rose 53% in 2021 to represent $2.7 trillion in assets (source<\/a>), and ESG Funds totalled $649 billion, up nearly 20% from $542 billion in 2020 (source<\/a>).<\/p>\n\n\n\n

    Many public corporations, and a growing number of private companies, use ESG frameworks to evaluate, measure, benchmark, and report their business practices and plans.<\/p>\n\n\n\n

    \u201c92% of S&P 500 companies and 70% of Russell 1000 companies published sustainability reports in 2020\u201d (source<\/a>). And 79% of venture and private equity-backed companies and 67% of privately owned companies have ESG initiatives in place (source<\/a>).<\/p>\n\n\n\n

    Unfortunately, the ESG space is rife with greenwashing, by fund managers and reporting companies alike.<\/strong> More on ESG greenwashing, efforts to prevent it, and new technology enabling investors and companies to evaluate corporate sustainability and risk factors based on actual company practices.<\/em><\/p>\n\n\n\n

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    Why is ESG becoming so popular?<\/strong><\/h2>\n\n\n\n

    Two convering inflection points are driving ESG adoption. A generational shift to conscious consumption and capital combined with inequivocal science linking linking humans to climate change and global zero emissions targets together are driving a demand surge for corporate sustainability and transparency and a framework for evaluating investments through a new lens that considers companies\u2019 environmental, social, and governance performance.<\/p>\n\n\n\n

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    Conscious Consumption & Impact Capital<\/strong><\/h3>\n\n\n\n

    The conscious consumer movement is characterized by the generational shift to prioritize purpose. Millennials and Gen Z are trying to make healthy choices and positive impact through their purchases, voting with their dollars for ethical and sustainable businesses that share their values. This is driving a need for companies to understand their products health and sustainability impacts and communicate them transparently.<\/p>\n\n\n\n

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    Corporate Sustainability & ESG Reporting<\/strong><\/h3>\n\n\n\n

    The corporate sustainability and ESG movement is characterized by measuring, understanding, reporting, and investing in sustainable and ethical business practices that support public health, foster social equity, and protect the planet. Its a response to inequivacable science linking humans to a (preventable) climate crisis in our lifetime, increasing demand from conscious consumers, and pressure from regulators.<\/p>\n\n\n\n

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    Facts exemplifying the generational shift to conscious capital and corporate sustainability:<\/strong><\/h3>\n\n\n\n
    1. $30+ trillion<\/a> (the largest generational transfer of wealth in history) is passing into the hands of Millenials\u2013rapidly accelerating a shift to conscious consumption and impact investing.<\/li>
    2. 65% of the world economy<\/a> will become \u201ccarbon-neutral\u201d with businesses tracking their environmental footprints.<\/li>
    3. US SEC has proposed a rule<\/a> mandating companies to disclose climate related risks and GHG emissions from scope 1 & 2, and scope 3 when material. <\/li>
    4. COP26 has catalyzed \u201cnet zero by 2050\u201d pledges from private financial institutions representing $130 trillion in assets<\/a>, which will accelerate tracking and reporting in the consumer goods industry.<\/li><\/ol>\n\n\n\n
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      What are the common misconceptions about ESG scores?<\/strong><\/h2>\n\n\n\n

      The first big misconception<\/strong> about ESG investing is that it is synonymous with \u201csustainability investing\u201d; it is not. In fact, there are many companies with high ESG scores that are neither sustainable nor ethical.<\/p>\n\n\n\n

      The second big misconception <\/strong>is that ESG ratings measure a company\u2019s impact on the planet when in reality they indicate a company\u2019s exposure to risks associated with environmental, social, and governance issues.<\/p>\n\n\n\n

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      What do ESG scores measure? <\/strong><\/h2>\n\n\n\n

      ESG ratings measure a company\u2019s theoretical risk exposure to environmental, social, and governance issues. ESG ratings do NOT measure a company\u2019s sustainability.<\/p>\n\n\n\n

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      Environmental ESG Metrics<\/strong><\/h3>\n\n\n\n

      Environmental ESG metrics include:<\/strong><\/p>\n\n\n\n