What is ESG? The standards every company should follow

February 15, 2023

Have you heard of ESG, or ESG events? ESG, which stands for Environmental, Social, and Governance, is a set of criteria or principles to evaluate and demonstrate the sustainability performance of an organization. This new growing emphasis on ESG is taking the Asian business world by storm, possibly causing dramatic changes to the business landscape in the years to come. In this article, learn all you need to know about ESG - its trends, benefits for complying with ESG standards, how to measure your company’s ESG performance, and whether you should get ESG certified.

Check out our Fireside Chat With Event Professional on 16 February for the latest trends on ESG!

As introduced above, ESG metrics measure the organization’s performance on Environmental, Social and Governance aspects, showing their long-term sustainability. Alongside with the company’s financial report, Investors refer to a company’s ESG report to assess the feasibility of investment.

Environmental criteria consider an organization’s contribution to environmental protection and management to their environmental risks

Social criteria address an organization’s management of social relationships with employees, suppliers, customers and communities

Governance deals with an organization’s leadership, executive pay, audits, internal controls and shareholder rights

ESG events, on the other hand, are not events complying to ESG standards, but are events about sustainable businesses and ESG. Joined by leading professionals from COP26, Microsoft, Coca-cola and IKEA, examples include Sustainability Reporting & Communications Europe, Responsible Business Europe, Circularity and ESG Climate & Risk Summit. The abundance of ESG events precisely show the substantial interests of companies on incorporating sustainability into their businesses.

Coined in 2005, ESG is no new term. However, not until recently it has received increasing attention worldwide, especially in Asia. In Hong Kong, ESG-related financial professionals were added to the Talent List of Hong Kong in 2021. Shortly after, a new master-level programme specifically on ESG was opened, showing the immense and pressing need for ESG-related professionals in the market. In Singapore, ESG Impact Hub was launched by the Monetary Authority of Singapore (MAS) in 2022 to facilitate ESG collaboration, showing ESG is being strongly advocated by the Singapore government. This growing emphasis on ESG brings in new risks as well as opportunities, hence businesses should be well-prepared to stay ahead of the game.

Increased regulations are moving ESG disclosure into the risk and compliance field. The Securities and Exchange Commission (SEC) launched the Climate and ESG Task Force to ‘develop initiatives to proactively identify ESG-related misconduct’, and SEC announced new ESG disclosure requirements in March 2021. Similarly in Europe, the Corporate Sustainability Reporting Directive (CSRD) announces an obligation for companies to disclose their ESG impacts regularly from fiscal year 2023 onwards. A few legal campaigns in Europe have been drafting plans for ESG-related compliances, such as Germany, who imposed due diligence and reporting obligations for potential human rights and environmental risks across company’s supply chains.

These legislations in the West may cause a ripple effect across global businesses. In the Asian Pacific region, although ‘hard laws’ are not foreseen in the short-term, emission-related regulations, such as carbon tax would likely be the focus. With tightened and increased ESG-related regulations expected, demonstrating ESG credentials is no longer a nice thing to have, but an essential to relieve potential regulatory and legal pressures. When new regulations are introduced, you will be able to adapt at ease while others are left in a spin.

The public are more concerned about sustainability than ever before. For clients, 45% reported that they stopped purchasing certain products due to ethical and environmental concerns. For investors, 77% of institutional investors plan to stop buying non-ESG products by 2022, as revealed by a PwC survey of over 1000 investment professionals. Investors from the US and European countries are also looking for more ESG disclosures to help them evaluate the company’s long-term sustainability, which helps them to make well-informed investment decisions. Given the evidence for heightened ESG expectations from customers and investors, incorporating ESG into your business strategy demonstrates a mature and differentiated approach puts you ahead of the crowd.

Do you still think ESG reporting is none of your business, only relevant to large corporations? In fact, sustainable events are forecasted to be one of the trends in 2023 - ‘we’re seeing a massive support for a sustainable shift in the event industry’, as stated by Mark Bannister, the Technical and Operations Director of COP26. The Event Industry Forecast 2022 also reported 97% of event planners believe that social responsibility will be an integral part of their future events. Learn more about 2023 event trends through our white paper.

The forecasted regulations and awaiting business opportunities all suggest companies should act now to re-evaluate and step up their ESG performance - but how? In the sections below, we will provide some measures on evaluating your company’s ESG performance, and a step-by-step guide on what your company can do to meet ESG standards.

An ESG reporting framework measures quantitative and/or qualitative data to track ESG progress and evaluate performance, meaning that it uses both numbers and descriptive text for ESG qualities, strategies, process and actions. Standardized frameworks for ESG allows investors to easily evaluate and compare viability and long-term performance across different companies, helping them to make informed investment decisions. The below presents some commonly-used ESG metrics and their characteristics, including UN Sustainable Development Goals, GRI, SASB, SDP and TCFD.

UN SDGs: Being the most well-known framework, the UN Sustainable Development Goals is one that most of us have probably heard of. It consists of 17 sustainable goals to achieve by 2030, such as climate action, no poverty, quality education, reduced inequalities etc. Organizations often use the framework to show how their work contributes to the greater good.

GRI: The first and most widely used reporting framework, the Global Reporting Initiative (GRI) is used by 73% of the largest 250 companies, according to 2020 KPMG Survey of Sustainability Reporting. GRI contains 3 categories: (1) universal standards for governance and business activities of all companies; (2) sector standards for specific industries; and (3) topic standards for specific material topics.

SASB: Contrary to GRI as a sector-overarching framework, the Sustainability Accounting Standards Board (SASB) is industry-specific and focuses on financial impacts of sustainability, which caters to the considerations of investors. It includes 77 sets of standards tailored to different industries. Due to a different focus, SASB is often used complementary to GRI, with 39% of companies using the two metrics together.

CDP: Unlike the frameworks mentioned above, the Carbon Disclosure Project (CDP) specifically identifies an organization’s climate impact and coping strategies. It is presented in the form of a questionnaire, with question prompts for disclosure on three main aspects: climate change, water resources and forests.

TCFD: The Task Force on Climate-related Financial Disclosures (TCFD) focuses on financial impacts of climate-related risks and opportunities. It provides a set of prompts and recommendations that guides companies to analyze cases and disclose their long-term strategies and risk management planning.

Framework

Mostly for…

Area

Industry

Description

UN SDG

government, companies

ESG

Overarching

consists of 17 sustainable goals to achieve by 2030

GRI

companies, investment

ESG

Overarching, Sector-specific

contains 3 categories: universal standards, sector standards, topic standards

SASB

companies, investments

ESG

Sector-specific

includes 77 sets of standards tailored to different industries

CDP

government, companies, investments

Environmental

questionnaire on 3 main aspects: climate change, water resources and forests

TCFD

companies

Environmental

suggestions for long-term strategies and risk management planning

There are a tremendous number of specific measures under each of the three aspects of ESG that may be tedious to go through. The following is a list of some general topics that many industries would disclose in their report, adapted from the World Economic Forum (WEF) framework.

TCFD recommendations: climate-related risks and opportunities in the short to long term, and your process, strategies and targets to manage them

GHG emissions: amount of scope 1, 2 and 3 emissions

Land use: area and number of sites owned in/near protected areas

Energy efficiency: total energy consumption, percentage grid electricity and percentage of renewable energy used

Waste management: total amount of waste diverted from disposal

Water management: total water consumption in areas with water stress

Deforestation: hectres of land deforestated due to company’s service, and possible incidences of deforestation across supply chains

Policies: description of company policies for human rights

Diversity & inclusion: percentage of employee by age group, gender and ethnicity

Pay equality: salary of men to women, major to minor ethnicity groups

Wage level: ratio of standard entry level wage compared to local minimum wage

Risks of child labour: possible incidents of child labour and solutions

Well-being and safety: number and rate of work-related death and injuries, major type of work-related injuries, number of working hours, work conditions, incidents of harassment and inhumane treatment

Skillset training: Average hours of training per employee, and average expenditure on training per employee

Customer satisfaction: customer satisfaction score, their feedback, and retention rate

Community relation and engagement: actions you have taken to bring positive impact to the community

Purpose: company’s stated purpose, ideally creating value for all stakeholders including shareholders

Board composition: the composition of the highest governing board and audit committee, their position and commitments, competencies towards economic, social and environmental topics, independence, representation of different stakeholders

Stakeholder engagement: a list of topics material to key stakeholders and how they are engaged

Anti-corruption: total percentage of different company stakeholders receiving anti-corruption policies and procedures, total number and nature of incidents of corruption confirmed, strategies to combat corruption (e.g. whistleblower schemes)

Reporting mechanisms: description of the mechanisms for seeking advice and reporting unethical or unlawful practices

Environmental

Social

Governance

TCFD recommendations
GHG emissions
Land use
Energy efficiency
Waste management
Water management
deforestation
Policies
Diversity and inclusion
Pay equality
Wage level
Risk of child labour
Well-being and safety
Skillset training
Customer satisfaction
Community relation and engagement
Purpose
Board composition
Stakeholder engagement
Anti-corruption
Reporting mecahnisms

Start by collecting data and reviewing your company’s ESG performance. If potential risks are identified, draft strategies to overcome those data. If your colleagues have no prior experience of ESG analyzing, it may be difficult to estimate the performance. There are THREE ways to help you acquire standardized data:

Hire people with a relevant degree, and set up a panel for sustainability development at your company;

Hire a third-party to assess your company’s ESG performance and give you advice;

Study an ESG course or degree yourself to acquire professional knowledge.

Before writing the report, identify the material issues of your company, your intention and your audience, which may affect the standards and frameworks to include. You may use the frameworks, such as GRI and SASB introduced above to measure your ESG performance and section your report. Here are some principles and recommendations to follow:

Be reliable, verifiable, and objective: include quantitative data

Be specific: include details and examples, such as case studies, employed strategies for potential climate risks, examples of how you engage different stakeholders etc.

Be clear: use graphs, tables and bullet points, color-coding for clarity, within-document click-throughs for easy navigation

Be comparable among companies: refer to existing ESG reports in your industry and use standardized metrics

Be consistent: keep a template and stick with similar format and measures; information and your vision should not vary greatly over time

As a starting point, you may look through the details of the metrics introduced above and ESG reports from other companies, where you can get a gist of the content and format. Some of them include the

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