ESG stands for environmental, social and governance. It is a term used in relation to companies. If a company has a good ESG score it means that the company is considered to have addressed the issues of the environment, the workforce, the wider community and fair and transparent governance well. Conversely, if a company has a low ESG score there is still much that the company needs to do to deal with these issues. Essentially, the ESG rubric is a means of judging a company by a different criteria to merely its financial reports.
The need for companies to look at themselves through the lenses of being environmentally friendly, of having fair policies for staff, of helping the local community and of being honest and progressive in governance is driven by both grass roots activism as well as from the biggest institutions such as the United Nations and the European Union.
However, companies have needed quantifiable ways of assessing their efforts in terms of ESG. It is all very well telling companies that they must be more environmentally friendly but it is more to the point to tell companies how they can be kinder to the environment.
Value Portal have devised a questionnaire that helps companies assess their efforts in terms of ESG and allows them to see what they can do to improve. The questionnaire is called the ESG_VC Measurement Framework. ‘VC’ in this instance refers to ‘venture capitalist’. However, the questionnaire is valid for other types of enterprise. Once the questionnaire is completed it is possible to give a company a star rating from one to four for each of the three categories of ESG.
Below is an abridged version of the framework that has removed some of the technical questions like how many tons of CO2 does your company produce.
Environmental
Helping to Reduce Carbon Emissions and Carbon Footprints
The first section of the survey focuses on how a company can reduce their carbon footprint. The questions also look at quantifiable ways of measuring carbon emissions and how to develop a strategy to reach net zero. Questions include:
- Do you measure your company’s carbon footprint?
- Do you have a company policy in place to reach net zero carbon which includes monitoring?
- Does your company include carbon reporting in their annual external audit?
- Do you use any offsetting schemes to reduce carbon emissions?
- Have you looked at what percentage of your office energy comes from renewable sources?
Tackling Air Pollution
Air pollution, especially in urban centres, has been shown in numerous scientific studies to reduce life expectancy. It also causes chronic problems for children, such as asthma, growing up with high levels of pollution in the air. The focus of this section is on reducing air pollution caused by burning fossil fuels for transport, heating etc.
- Do your employees take part in sustainable travel initiatives?
- Does your company have any restrictions on aeroplane travel for business purposes?
- Are you using electric vehicles for distribution or do you have any policies in place to use logistical companies that have a net zero policy?
Recycling
This is sometimes referred to as the ‘circular economy’. It refers to the idea that materials in the office and factory need, ideally, to be recycled or reused rather than just thrown away after. This could be empty printer cartridges, discarded envelopes from the post, packaging materials, off-cuts in the factory. The idea is to save company waste from merely ending up in a landfill site that causes methane emissions that cause climate warning and health problems for nearby people.
- Have you thought about how to reduce hard to recycle waste?
- How much of your waste packaging is either recycled or reused?
Environmentally Friendly Procurement
This section of questions in the questionnaire is designed to encourage companies to analyse their supply chains and their suppliers, and to prioritise local suppliers, suppliers that are committed to reducing carbon emissions and to companies that treat their workforce with respect.
- What percentage of your suppliers are located near you?
- Do you use suppliers that implement carbon savings and offsetting programs?
- Do you have any policies in place to make your manufacturing operations more energy efficient?
- Do you check on the working conditions of the employees that your suppliers use?
Social
Parental Leave Policy
The ‘social’ part of ESG is concerned with how people are treated in the workplace, and how a company’s actions or inactions impact on workers and the wider community. This section looks at maternity and paternity leave. The questions need not be listed. They seek to make sure both the primary carer and the secondary carer are given enough time off to nurture their new born child. They also raise the issue of returning to work initiatives.
Diversity in the Workplace
The thrust of this section of the ESG_VC Measurement Framework is about getting a company to analyse how many board members, senior management and the total workforce identify as women, LGBTQ+ and coming from minority ethnic backgrounds. In short about making the workplace more diverse. This is, of course, country dependent as to which ethnicities are regarded as underrepresented. This is best tackled by a company survey where everyone is allowed to self-identify in terms of race, sexuality and gender.
Being Respectful
While some staff (predominately white, heterosexual males) might find staff training about respecting people with a different gender, sexual orientation or ethnic background both patronising and a waste of time, it is essential that a company sets a clear message about respect in the workplace. The questions in this section of the framework also look at recruitment programs to promote diversity.
- Does your company mandate equality, diversity and inclusion workshops for all staff?
- Is the office an inclusive environment? (e.g., does it have disabled access, breastfeeding areas etc.)
- How does your company recruit staff from diverse backgrounds?
Staff Physical and Mental Health
This part of the framework is designed to encourage companies to do more in terms of making sure the staff have adequate healthcare provision, as well as access to mental health experts. There is also the basic issue of pay – is it adequate to provide a decent standard of living for the workers? The ‘living wage’ refers to the UK and EU standards of pay necessary to provide a decent quality of life in those respective economic areas.
- What is the company policy regarding supplying support to staff around mental health and wellbeing?
- Are there company schemes to support staff in further education? Is study leave or flexible working allowed?
- Are all staff paid the living wage?
- What is the company policy about health care provision and to whom does it apply?
Community Projects
This is a smaller section of the framework: it only takes up two questions which ask about donations to community projects, and about giving employees paid time off to help with local community projects.
Governance
Board Composition and Activity
One important part of the ‘governance’ section of ESG is to look to the top of a corporate structure to put in place safeguards that promote sustainability, diversity and other key aspects of the ESG ethos.
- What percentage of your company’s board are independent?
- How often are there board meetings?
- Is sustainability regularly discussed in board meetings?
Fair and Equal Pay
There are two questions in this section that both refer to the gender pay gap. They are focused on companies investigating if they have a gender pay gap and how they intend to rectify the inequality if the gap is significant.
Data Protection and Cyber Security
The ESG_VC Framework also seeks to promote responsible policies regarding data privacy, responsible use of AI and other technology and protections against malicious cyber attacks.
- Does your company comply with data regulation such as GDPR?
- Are their regulations regarding Artificial Intelligence (AI), machine learning and coding?
- Does your company have regular training programmes on cybersecurity?
- What cyber security controls are in place?
Corporate Policy to Reflect ESG Values
The last section of the framework is about making sure that all ESG initiatives are ‘baked in’ to corporate decision making via stated corporate policy.
- Does your company have an ESG policy?
- Does your company conduct an annual diversity and inclusion survey?
- Does your company have a remote working policy?
- Is there a corporate code of ethics/good business?
- Is there an anti-bribery and/or anti-corruption policy?
- What are the policies regarding whistle-blowers?
- Does your company have an anti-harassment policy?
- Is your company working towards an industry-specific sustainability certification or accreditation?
