ESG, short for Environmental, Social, and corporate Governance, is an umbrella term referring to data relating to material risks in business. It is about how the business in question has an impact on the world around it – in other words: nature, people, and how the company runs. It all boils down to businesses acting consciously and responsibly, carefully assessing and working on each business activity and the subsequent knock-on effects.
The public often favors ESG businesses as they are a more socially conscious choice, as corporations should be trying to control any damage their work could potentially do. This means the masses are more likely to opt to use these businesses’ products and services, as well as invest in the company. In this article, we are going to explore the important data when it comes to ESG. For further reading, check out “what is esg sentiment analysis”.
In What Ways is Data Used When it Comes to ESG?
The data gathered in relation to ESG can vary massively from business to business, and there are all three different sections to be considered. So, what kinds of data are relevant for each section?
For the environment, the data involved could be regarding the energy usage of a company or the number of sustainable materials utilized. Waste management, supply chains, resource conservation, energy efficiency, sourcing, deforestation, and pollution are also key areas to examine. Anything that the business does that impacts the environment should be tracked and measured to ensure transparency and facilitate a commitment to sustainability.
Social factors include data on customer or employee satisfaction, the business’s impact on the local community, diversity within the hiring process and the company’s management structure, adherence to labor laws and regulations, working conditions, health and safety regulations, and initiatives to combat discrimination. Overall, the social aspect is all about evaluating how a company treats people, including its workforce, the local community, and society in general.
Governance touches on how a company manages itself and abides by government rules and regulations. Therefore, this factor focuses on a company’s management and board of directors. For example, you could collect data on the company’s transparency in decision-making, corruption, tax strategy, political lobbying, executives’ salaries, and bonuses, and board diversity.
The Importance of ESG
The ESG framework is essential for consumers and investors to evaluate the ethical value of a company. But why is a company’s environmental, social, and governmental ethical impact so important? Here are a few reasons why:
Consumers Want to Make Ethical Purchases
One of the most important mantras in the world of business is ‘the customer is king. This means that the customer’s desires should always be met if you want to run your business successfully.
Nowadays, it’s becoming clearer and clearer that consumers want to support ethical and sustainable businesses. In fact, one survey found that 60% of respondents were making more ethical purchasing decisions since the start of the pandemic, and it isn’t just younger consumers who are driving this change. Nearly 90% of Gen X consumers now say that they’re willing to spend more money on sustainable products, so businesses that make ethics and sustainability part of their brand are able to capitalize on this growing trend.
In addition to buying from more ethical companies, consumers are now more willing than ever to completely boycott brands that are shown to be unethical or unsustainable. A total of 90% of survey respondents in the US stated that they could be prompted to boycott a business for irresponsible actions, such as polluting the environment or producing excessive amounts of waste. Therefore, a business that can show its ethical impact through the ESG framework is more likely to avoid harmful boycotts.
Attract Top Talent
It’s not just consumers that are becoming more ethical. During the hiring process, you’ll find that more prospective employees are now asking about a company’s values and impact on the community. Young people in particular are keen to work for organizations that align with their values, which means that ESG companies have a better chance of appealing to emerging talent in each industry.
Make a Positive Difference
Financial factors will have a huge influence on a business’s decision to adhere to ESG criteria, but money isn’t the only thing that matters. Due to the growing threat of climate change, we’re all becoming more aware of our impact on the environment and how to minimize this. Executives that want to preserve the environment and ensure equality and fairness for all people will naturally gravitate towards more ethical business practices.
Why is Data So Important?
If a business is committed to adhering to ESG criteria, then data analysis will be a vital part of its ESG strategy. Here’s why data is such an important part of meeting ESG goals:
If a business has committed to making a change, then there need to be metrics and goals in place for them to do so. Ideally, they will be making an effort to improve ongoingly, as there are always opportunities to get better. So, performance needs to be tracked – and data is the best way of doing this accurately. By keeping track of set metrics within each of the categories, ESG businesses can show the enhancements they’ve made over time and highlight they’re striving to be the best they can be.
Areas to Improve
If the ESG data takes a dip and problems arise, then this can point out areas to improve to the business. It can bring to attention aspects that need rectifying. For example, if there is a huge sudden spike in employees handing in their notice or putting in complaints, then a business needs to ask the question of why and investigate the issues. This could help the business to run generally, as well in terms of ESG benefits.
Proof of Action
For the public to believe a business is really making the effort to make a change, the proof is necessary. Transparency is key when it comes to ESG – it’s all well and good for a business claiming to be a certain way, but if there is no evidence to back it up it means very little. That’s why the data is so important. The better the stats, the better the reputation boost of the business – and reputation is so important, no matter the industry.
Collect Customer Data
As part of the social aspect of ESG, businesses need to collect data on their impact on the community and customer satisfaction. In particular, collecting data on customers is an extremely important part of running a successful business. If you don’t know who your target audience is and what they want, then you won’t be able to market and sell your products effectively. For this reason, ESG goals are essential for both financial purposes and becoming more ethical.
Strengthen Company Values
Collecting ESG data is a key part of a business’s ethical aims. By tracking environmental, social, and governance factors, a business can better understand whether the organization is on track to meet certain goals. Over time, this commitment to improving all ESG areas will strengthen the company’s identity and values. Not only is this important for appealing to the growing number of ethical consumers, but it can also help with attracting investors and new talent. A company with a strong identity and values can appear more decisive, focused, and unified, which is very appealing to consumers, investors, and employees alike.
As our understanding of the severity of the climate crisis grows, governments will begin to implement more and more regulations to protect the environment. Companies that continue to pollute the environment could find themselves facing heavy fines, but businesses that collect ESG data to show how they’re minimizing their impact on the environment can avoid these penalties. It’s likely that governments will demand more transparency from businesses in the future to combat climate change, so businesses that are already collecting ESG data will be ahead of the curve and ready to adapt.
Adhering to ethical goals within the ESG framework is essential for businesses that want to capture the growing market of ethical consumers, avoid government penalties, and attract top talent in the hiring process. However, if a business wants to meet these ESG goals effectively, then it needs to ramp up its data analysis efforts. Without data analysis, businesses can’t track their progress, set goals, build strong values, and prove their ethical impact to consumers, investors, and authorities. This is why ESG and data analysis should always go hand in hand in any business.