Environmental, Social and Governance (ESG)

Today more than ever companies and public sector organizations must manage their activities in a socially responsible manner. Many have therefore made a range of commitments around areas such as decarbonization, reducing waste, using sustainable products and operating ethically. These commitments are covered by the umbrella term of environmental, social and governance (ESG), and are evaluated using data and reporting.

What are Environmental, Social and Governance (ESG) standards?

These are standards that enable organizations to demonstrate their progress against sustainable development and ethical rules across their operations.

Essentially, ESG criteria provide stakeholders with an extra-financial analysis of an organization, not based solely on its economic performance. To understand if companies or institutions are operating responsibly, they should be evaluated against the three ESG pillars.

Environmental

As part of the shift to combat global warming organizations across every sector must act to reduce their carbon footprint. Many have set deadlines for when they will hit particular milestones, such as becoming Net Zero in their operations. As part of this they need to change operations in areas such as waste management, reducing greenhouse gas emissions, lower electricity consumption/switching to renewable power and the prevention of damage to the environment.

Social

Social concerns, such as workforce diversity, respect for labor rights, discrimination and community engagement occupy a central place in modern societies. They are therefore evaluated through the S criterion, which takes into account aspects such as health and safety, diversity and inclusion, gender pay gaps, and supply chain management.

Governance

Ensuring that the company is managed ethically and transparently. In particular governance covers the independence of the board of directors, the treatment of minority shareholders, the fight against corruption, the number of women on boards, and transparency around executive compensation.

By introducing environmental, social and governance criteria, financial performance is no longer the only indicator used by shareholders and investors for evaluating a company. To be successful and attract investment companies must now also have a positive impact on society and the environment.

Which sectors are covered by ESG criteria?

There are increasing regulatory demands for companies to follow ESG standards. For example, the EU’s Non-Financial Reporting Directive (NFRD) mandates that all companies above a certain size or that are listed on regulated stock markets must produce an independently-audited ESG report that meets specific criteria. In the US, the SEC mandates that listed companies disclose information on ESG-related risks.

However, pressure for companies to comply with ESG standards is not just coming from regulators. Customers increasingly want to buy from organizations that produce goods and operate in a sustainable way while employees want to work for purpose-driven companies. Equally, investors take into account ESG progress when providing funding, meaning it can lower the cost of capital. There are a range of ESG rating schemes that companies can join to certify their efforts and ensure they are seen as sustainable and transparent.

How does data contribute to the implementation of ESG criteria?

To determine progress against environmental, social and governance criteria, organizations must rely on reliable indicators and measurements – in other words, good quality data.

Data enables organizations to answer various questions, such as:

• What are our annual CO2 emissions?
• What is the company’s energy consumption?
• Are payments to external suppliers clear and transparent, avoiding accusations of corruption or bribery?
• What is the salary difference between men and women in the organization?
• Do all the company’s supply chain partners respect labor laws?

The data allows stakeholders to take stock of organizations, and provides proof of the effectiveness of any actions taken to deliver on environmental and social commitments.

ESG criteria and open data portal: use cases

An open data portal is essential for organizations looking to communicate transparently on ESG performance. Not only does this provide a central hub for ESG, but it allows organizations to communicate their approach and progress against targets to all stakeholders.

Several Opendatasoft customers have created open data portals to communicate on their ESG programs:

• EDF has made available a dataset on the group’s extra-financial commitments since 2018, divided into 4 categories: carbon and climate neutrality, preservation of the planet’s resources, well-being and solidarity, and responsible development.
• Kering’s Sustainability Performance team has invested in an impact measurement methodology called Environmental Profit & Loss (EP&L) to measure and quantify the environmental impacts of its activities. Thanks to Opendatasoft, the group shares its results in various forms on its open data portal, such as through a data catalog, interactive maps, graphs, and even via mobile application (myEP&L).