In recent years, environmental, social, and governance (ESG) factors have become increasingly significant in assessing a company's sustainability and responsible business practices.
An ESG score is a measurement used to evaluate a business's performance across those three pillars. They’re typically provided by independent rating agencies and can range from numerical values to letter grades. These scores reflect a company's performance and adherence to sustainable practices—such as reducing carbon emissions, promoting workplace diversity, ensuring ethical supply chains, and maintaining transparent governance structures.
ESG scores have gained immense importance for several stakeholders. Investors, both institutional and individual, consider ESG factors to assess a company's long-term viability, risk exposure, and potential returns. The scores provide valuable insights into a company's ability to adapt to social changes, and maintain effective governance practices, which ultimately influence investment decisions. According to Deloitte, ‘leadership of companies in charge of more than one-third of professionally managed assets around the world worth over $20 trillion use ESG data to make investment decisions’.
Beyond investors, ESG scores are vital to other stakeholders as well. The Conference Board says, ‘In the most recent poll of CDP Supply Chain programme members, almost 3 out of 4 companies said they expect to deselect suppliers based on inadequate environmental performance. Companies—public or private—that want to secure access to top business partners will need to take ESG issues seriously’.
Consumers are increasingly conscious of supporting socially responsible businesses and prefer companies that align with their values (often referred to as B Corps). ESG scores enable consumers to make informed choices by evaluating a company's impact on the environment, labour practices, and community engagement.
Maintaining a strong ESG score brings numerous benefits to businesses. Firstly, it enhances a company's reputation, allowing it to build trust with stakeholders and attract investors who prioritise sustainable investments. A high ESG score can also lead to improved access to capital and lower borrowing costs, as responsible businesses are often considered less risky by financial institutions.
ESG scores encourage businesses to adopt sustainable practices, leading to cost savings through reduced resource consumption, increased operational efficiency, and minimal regulatory risks. Such practices can result in long-term resilience and competitiveness by identifying opportunities for innovation, driving market differentiation, and attracting socially conscious consumers.
Additionally, a strong ESG score can boost employee morale and engagement. A company that demonstrates a commitment to sustainable practices and social responsibility is likely to attract and retain talented individuals who share these values. It can foster a positive work environment, leading to increased productivity and employee loyalty.
How are ESG scores relevant to charities?
Charitable organisations can leverage ESG scores to their advantage in several ways. Firstly, charities can partner with businesses that have high ESG scores, creating mutually beneficial collaborations. By aligning themselves with socially responsible companies, charities can tap into additional funding sources, gain access to volunteering opportunities, and benefit from the companies' expertise in specific areas of sustainability or social impact.
Charities can use ESG scores to assess the sustainability practices of potential corporate donors or sponsors. This evaluation allows charities to ensure that their partners are committed to responsible business practices and align with their own mission and values. Collaborating with companies that have strong ESG scores helps charities build trust with their own stakeholders and enhances their credibility.
Charities can also leverage ESG scores as a tool for advocacy and awareness. By highlighting the importance of ESG factors in business practices, charities can encourage companies to adopt sustainable practices, engage in community development initiatives, and contribute to positive social change.
A business with a commitment to establishing an impressive ESG score will likely be one that makes a proactive effort to give back to communities and/or support local charities. If approaching a business as a cold lead, those who recognise the importance of their ESG score and prioritise this will likely be more open to having a relationship with local charities and funding projects that positively impact the local area, etc.
When you consider that many large businesses predominantly employ people from the areas surrounding their bases, it’s not unreasonable for them to consider investing into the communities in which their staff and stakeholders reside. From a long-term perspective, they’d be investing in their future workforces, as well as improving the immediate environment, local facilities and available resources for their current staff. It seems not just ethical but also logical and good business practice to give back to the communities from which they actively take, i.e. in terms of their people and revenue into their business.
To discover a company’s ESG score, you can search here: https://www.sustainalytics.com/esg-ratings; however, it’s worth noting that you won’t find many companies listed—even amongst household name brands. It could be a while until smaller companies catch up. That said, some companies may use the lack of scored businesses the motivator to seek such measurement. It’s surely an easy, effective and under-utilised way to differentiate themselves against their competitors.