How to measure ESG

From environmental concerns such as climate change to tackling gender and diversity inequalities, many of today's businesses are looking beyond traditional financial performance measures to the bigger picture of how they impact society and the environment.

The move to ensure your company has a positive impact on society and the environment is being driven by customers, investors, government legislation, and employees who are increasingly placing a higher value on company ethics, values, and impact.

One approach that organisations use to understand their impact is ESG – short for Environmental, Social, Governance.

These measures show how a business operates such as undertaking business ethically, ensuring diversity across all workforce levels, or reducing greenhouse gas emissions (GHG) through more efficient energy use.

Why implement ESG?

Organisational stakeholders from investors to customers place a lot of value on ESG performance.

According to the CBI, two-thirds of investors consider ESG performance when deciding whether to invest in a business.

Research by PwC found that over three-quarters of customers would buy from companies that support ESG issues.

It may also help businesses reduce costs and improve profits, with research by McKinsey finding that customers are willing to pay more for greener products and help your business attract and retain employees with research by Anthesis finding that 53% of workers consider an organisation's sustainability efforts when choosing an organisation to work for.

How to measure ESG?

ESG touches many parts of business operations such as supply chains, hiring practices, and facilities management so it's important to have a planned approach to understand, plan, and implement ESG activities.

There are two main stages to successfully implementing an ESG strategy: measuring and then deploying.

This guide focuses on measuring and setting goals.

The first stage is to find out what your organisation does, where it falls short, and set some targets in the areas where you want to improve.

1. Decide what to measure and what to focus on

Decide what the priority areas are for your organisation.

These may be priorities based on customer or investor interests or due to regulatory developments that may affect your business.

If you aren't sure, consider surveying employees and customers to find out what they think about your business concerning ESG areas and what they may be concerned about as a starting point.

Different areas of ESG can involve different types of measurement, for example:

  • environmental – waste management, transportation and business miles, energy usage and carbon emissions
  • socialemployee wellbeing, diversity and inclusivity practices, and local community engagement
  • governance – transparency about pay and gender gaps, accurate financial reporting and transparent decision making.

Think about what you should measure and how you'll measure it, such as reviewing documents or benchmarking against similar businesses.

The first stage is to find out what your organisation does, where it falls short, and set some targets in the areas you want to improve.

2. Gather information

A good place to start is to gather together information and data related to the area you want to measure.

For example, you can use the carbon footprint calculator How to measure your carbon footprint to gauge your organisation's carbon emissions or map pay bands to workforce demographics.

You could also review existing policies and processes, such as how much waste is recycled, and identify any relevant metrics and key performance indicators (KPIs) that are already used.

The aim is to create a baseline for your business and learn what it does now as the basis for improvement in the future.

3. Interview stakeholders

Identify key stakeholders involved with aspects of the ESG strategy you want to develop.

These may be employees such as HR or facilities managers, or other stakeholders such as suppliers or local community representatives.

Interviews can be used to get more insights into the data you collected in the previous step and you can create surveys using free services such as Google Forms, conduct 1-2-1 interviews, or run focus groups.

Some businesses use services that benchmark the organisation against similar-sized companies or sectors which can be helpful in understanding if your business is underperforming in areas such as diversity at leadership level, for example.

4. Review the data

Once you've conducted interviews and gathered data, spend time analysing it to set a baseline for each area of ESG that you are focusing on.

There are three areas existing data can help with:

  • setting a baseline – use the data to create a snapshot of how your business is today, such as its existing carbon footprint
  • spotting gaps – data can be used to spot any knowledge gaps, such as details about community projects that need following up
  • identifying pockets of activity – some teams may be running ESG programmes that are worth rolling out organisation-wide.

Once you've reviewed the data, create a dashboard, chart, or matrix listing the KPIs you'll use to assess how effective any changes are.

5. Create goals and objectives

With a good understanding of how your business measures up against the ESG areas you are tackling, you can use the KPIs to set goals.

Keep any goals SMART – specific, measurable, achievable, realistic and timely, set realistic goals that will have an impact, and set a deadline to achieve them.

You can also cluster goals into two types: maintain and improve.

  • Maintain – these are areas of your business that are doing well, such as meeting GDPR requirements or having a diverse and inclusive workforce. You won't need to invest as much resource into keeping these KPIs positive. They can be great examples to share with customers, investors and employees about areas where your business is performing well.
  • Improve – these are areas of your business where your KPIs are lower than you'd like. These could be GHG emissions or a lack of engagement in the local community. These are areas where you may wish to invest more resources, measure more frequently and set more ambitious goals for change.

Once you have assessed, measured, and set goals for your ESG strategy you can develop a programme of ESG activities to deploy across your business.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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Featuring a glossary of sustainable terms curated in partnership with the Nottingham Business School, Nottingham Trent University, our green decoder is helping smaller businesses decipher the terminology surrounding decarbonisation.

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