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ESG Criteria: Three things to keep in mind

17 October 2022

ESG Criteria, or Environmental, Social and Governance Criteria, is increasingly becoming a major concern for businesses. A healthier planet is better for everybody, in the same way that everybody suffers if the planet is harmed. This attitude is increasingly being reflected in investors’ attitudes, which are becoming more focused around the planet.

The environmental social governance criteria cover a wide variety of factors that businesses should be keeping top of mind. This ensures that investors and the public can put businesses under proper scrutiny to see if their actions match their words. Ensuring that firms meet the requirements on the ESG criteria list is therefore beneficial to a company’s image as well as to the health of the planet.

What is ESG Criteria?

ESG criteria are concerned with these variables:

  • Environmental - focuses on the impact on the environment. Common factors include carbon footprints and deforestation.
  • Social - focuses on the impact on people. Common factors include human rights and diversity.
  • Governance - focuses on the way a business is run. Common factors include corruption and lawsuits.

ESG Criteria: Three things to keep in mind

  • Each sector is equally important
    • This may seem obvious, but it is still something that should be always kept in mind. There is little use in having a very good score in one sector and falling short in another. It is this weighting system that ensures that businesses are judged fairly on their true ESG performance, rather than relying on one factor to mask their poor performance in other areas.
  • Adherence to the ESG rating criteria extends far beyond the basics
    • ESG environmental criteria may include obvious factors such as a firm’s carbon footprint, but this goes beyond the obvious components such as a company’s direct emissions. Also factored into the calculation of an environmental footprint are indirect considerations such as the use of energy to heat an office, as well as the electricity consumption from lights and printing.
    • Meanwhile, ESG social criteria extends beyond the considerations of basic human rights. A company also needs to be mindful of its internal culture. Companies that foster a culture of abuse, harassment or fear through their policies and practices will damage their social score.
    • Finally, ESG governance criteria deals with a company’s leadership. Although gender pay parity is a clear indicator of poor performance regarding this metric, the factors used to judge a firm’s governance performance does not end there. As well as this, a company can find its rating harmed by the make-up of its board. Also, bear in mind that under-representation of either gender will harm your score.
  • ESG as a competitive advantage
    • ESG is no longer a “nice-to-have”— it’s a necessity. As it becomes increasingly prominent in investing, it is crucial that firms are able to meet investors’ needs and provide them with a tailored ESG solution.
    • With the right partners, hedge funds can make ESG their superpower by relying on experts and technological solutions that allow them to execute an effective strategy. Not only can ESG investing provide better returns, it is also immensely beneficial for the planet and society as a whole.

What can Apex Group do for you?

At Apex Group, we understand that the ESG needs of your business are incredibly complex, no matter what industry you work in. ESG reporting is crucial, and the last thing you want is to accidentally miss something out. That’s why it’s best to outsource your ESG needs to a third-party provider, who can provide for all your requirements in one place. 

That’s why Apex Group has created its very own ESG Health Check. By covering between 30 and 40 of the most important factors that affect ESG standards, you can be sure that we have not missed anything out. Our Health Check thus allows you to get an accurate picture of the true nature of your ESG rating. Not only will you see how you are performing against industry standards, but we can also identify areas for your business to improve upon.

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