ESG policy and reporting have been very popular for some time, whether at the corporate, NPO or public company level.
Why is this happening? How is it done? What’s the point? Can Solutions Will be an actor in the ESG approach? These are the questions we will address.
WHAT IS THE ESG?
ESG is an acronym for “Environment, Social and Governance.” It integrates different elements that are essentially included in a Sustainable Development Plan: carbon footprint, corporate social responsibility, good governance, etc…
ESG globally answers a question formulated by different social and economic stakeholders (including large investors): What is the extra financial impact of a company’s activities on nature and society?
ESG is a series of criteria and elements that are made public to answer this question through different elements covering:
- environmental areas – such as waste management, energy consumption and carbon footprint, deforestation, biodiversity preservation, risk prevention related to natural and industrial disasters (oil spills, soil contamination…) – etc.
- social areas – such as social dialogue in the company’s management policy, gender parity, prevention of work-related accidents, staff training and, more recently, EDI criteria (Equity, Diversity, Inclusion);
- governance areas – transparency, independence of the board of directors, diversity, the structure of the board of directors, tax practices, executive compensation, etc.)
An ESG report is therefore an annual extra-financial report that takes stock of a company’s ESG areas, the annual or multi-annual objectives that are set to achieve these objectives and the tools that enable the company’s performance to be assessed in this respect.
ESG TOOLS AND THE CREDIBILITY OF A COMPANY WITH REGARD TO SUSTAINABLE DEVELOPMENT
Not all ESG-related criteria can be quantified in the same way.
For example, in the area of GHG emissions, there are three perimeters – called Scope 1, 2 and 3 – which have been defined with the development of Life Cycle Assessments (LCA). Taking into account only Scope 1 and 2 (direct and indirect GHG emissions) and not Scope 3 – other emissions linked to procurement or transport, for example – can lead to a distortion of reality.
Similarly, some ESG criteria are qualitative or even linked to a value system that is difficult to quantify, such as Corporate Social Responsibility (CSR) or EDI criteria.
The main tools available to establish the basis of an ESG report are life cycle analysis, audit and materiality analysis.
Therefore, a company’s credibility in this area is linked to international protocols, standards, certifications and other recognitions that use external auditors or registrars who are recognized as neutral, rigorous and credible. For some time now, there have also been rating agencies on ESG performance, such as Impak Finance, Moody, Sylvera and others.
Some examples of stakeholders linked to the ESG policy
- At the international level, the Task Force for Climate-related Financial Disclosures (TCFD), the Carbon Disclosure Project (CDP) or the UN Sustainable Development Goals (SDGs) are recognized protocols and companies that apply them stand out in doing so.
- The Sustainability Accounting Standards Board (SASB) is a tool for investors to compare the carbon footprint of companies’ activities. It assesses how a company’s “sustainability” elements increase or decrease its value. How does the impact of a company’s activities on the environment affect its profitability?
- Le Global Reporting Initiative (GRI) évalue la performance environnementale des entreprises de 80 indicateurs de base. Il permet la comparaison sectorielle de différentes entreprises au niveau international
- B Corp certification is a designation, based on a rigorous assessment, that confirms the company meets the highest standards under three pillars: Social and Environmental Performance, Public Transparency, and Legal Responsibility. Solutions Will is otherwise B Corp certified since 2019.
- The Carbon Call Initiative is a “trusted” GHG emissions accounting approach geared towards carbon pricing and the Net Zero Carbon of 2050. It seeks to address carbon accounting issues related to data quality, inconsistent results across different reports and measurement tools, and platform silos.
- Being part of the SBTi initiative
There are several other tool standards and general or specialized certifications in the global mapping of a company’s “sustainable” commitment. To this, we must also add distinctions, and peer recognition awards through sectoral or multi-sectoral competitions. This is the case with the Mercuriades awards from the FCCQ, the Envirolys awards from the CETEQ, or the Gala awards from the Vallée-du-Richelieu Chamber of Commerce, etc.
All or part of these “certifications-distinctions” allow the company to acquire credibility in its willingness to act in the face of the challenges imposed by climate change.
HOW TO CREDIBLY COMMUNICATE THE ESG POLICY TO STAKEHOLDERS?
At the risk of repeating ourselves, it is important to understand that ESG reports produced by companies cannot be used only as a marketing tool. In September 2022, the consulting firm Millani noted that “investors are expressing a desire to understand more deeply the impacts of these ESG topics“.
How are they managed, what performance indicators are tracked and how are they evolving? What is a company’s ability to adapt to risks and mitigate future negative impacts?
Millani’s report also notes that “Companies that stand out in the strategic value of ESG issues incorporate ESG performance measures into board and executive compensation”. This means, among other things, that it is not enough to produce an ESG Report that includes data and targets, but that reporting using recognized methods shows precisely whether the targets set have been met. The company must therefore communicate its results in a robust and credible manner. For this, there are three reference poles:
- The first is the commitment of management, particularly the CEO, the consensus of the board of directors and senior management on ESG objectives, and the transparency of the methods used to collect the data.
- The second is rigorous external evaluations and the proper selection of the attestations and certifications we just referred to.
- Finally, the last one concerns action, evaluation and feedback on the processes put in place to achieve the company’s ESG objectives.
This is how we believe an ESG report will meet the expectations of all stakeholders.
ESG POLICY AND DECARBONIZATION OF OPERATIONS
The decarbonization of activities is one of the key elements to address the environmental domain in its ESG report.
By respecting the decarbonization hierarchy (measurement, avoidance, reduction, and offsetting), organizations and companies can integrate a virtuous and concrete decarbonization plan into their ESG report. As a carbon expert, we at Solutions Will offer to carry out a carbon assessment of your corporate emissions (including a report on your carbon reduction opportunities) to feed your ESG policy.
Finally, if you want to become carbon neutral or achieve net zero, our VERRA-verified carbon credits are a recognized way to demonstrate the carbon offset of your organization’s residual emissions. If you want to achieve net zero, carbon credits are essential.
Article written by Jean-François Léonard, VP of Public and Government Affairs at Solutions Will.