ESG-searching for sustainable materiality with the power of data
ESG or Environmental, Social and Governance practices have always been at the forefront of investment decisions either negatively or positively. However with the rise of readily available data, the ESG scores have moved from qualitative assessments to quantitative assessments equalling in its value the standard company measurement tools such as Balance Sheets, Profit & Loss statements and Cash Flow statements. Such available data sets include:
- Satellite Imagery: Use of Solar/Wind Panels/Turbines, Waste deposited near factory unit, Deforestation over time
- News & Social Media: Involvement with local communities and NGOs, Violation of GHG emissions norms, New CSR initiative launched, Strike by workers, Litigation filed — child labor, arms, Hired women in leadership
- Geo-visits: Daily home to office distance commuted by employees, Supply Chain, Products imported or exported, Online delivery — Domestic market, #distributors, #outlets, #salespersons, Products sold
- Weather: Pollution in the company vicinity
- ESG industry scores: Sustainability Vendor PlanEmissions from purchased goods and services — Metric Tons of CO2, Renewable Energy Certificates and other green power purchases during the period, Total electricity consumed during the period, Waste disposed by controlled burning at high temperatures.Water withdrawn from municipal sources.
All of the above data examples unlock a wide range of possibilities for quantitative pricing of environmental externalities, a practice which has so far been very challenging.
This leads to a provable material impact of a company’s Environmental, Social or Governance practices on its actual financial performance. Consequently, it will allow for drawing a clear line between companies who truly follow sustainable business practices and those who have been disregarding such practices so far.
ESG should thus not be regarded as an additional “Fourth Statement” but rather as a proven guideline for companies how to succeed in today’s world with their product.
