What does ESG mean?

ESG stands for the three pillars of environment, social and governance. These three categories form the basis for assessing a company's sustainability performance.

What does ESG mean? The three pillars at a glance

Environment: This pillar describes the impact of a company on the environment, for example through:

• Energy efficiency
• Resource consumption
• Water management
• Ecological effects

Social: The "Social" pillar assesses a company's impact on society. This includes:

• Job security
• Diversity and inclusion
• Working conditions
• Human rights
• Involvement in the community‍

‍Corporategovernance: Corporate governance concerns the way in which a company is managed and controlled. For example through:

• Management Board structure
• Ethics and integrity
• Compliance
• Relationship with shareholders

Why is ESG important for companies?

ESG strategies are very important for a company for various reasons. On the one hand, awareness of environmental and social issues is growing in society. 89 percent of Germans want companies to operate in a more sustainable and environmentally friendly manner. As a result, consumers as well as job applicants and employees prefer companies that operate sustainably. Companies that invest in ESG activities and improve their ESG performance therefore often have a competitive advantage. competitive advantage.

In addition, there are regulatory requirements such as the Corporate Sustainability Reporting Directive (CSRD) or the EU taxonomy, which oblige companies to make their ESG commitment transparent and comprehensible.

Thirdly, investors' preferences and values are also geared towards sustainability. 65% of investors expect ESG to become standard practice in the coming years (Natixis Investment Managers, 2019, p. 30).

The same applies to lending. Despite rising costs and financing hurdles, the topic of ESG is also becoming more of a focus for banks. The worse the ESG rating, the more expensive the loan will be or could even be rejected. This is because banks also have to include borrowers in their reports. If they have a poor rating, this in turn has a negative impact on the bank. A study by Ernst & Young (2023) shows that 58% of credit managers expect the lending volume to increase in the medium term and 59% in the long term due to the relevance of ESG criteria. Companies that do not take ESG criteria into account will be affected by very high capital costs and will no longer be able to afford their business in the future.

Finally, good ESG performance can also improve risk management and promote long-term financial stability . Companies that successfully implement ESG criteria are generally better positioned to respond to changing market conditions.

ESG criteria: What is evaluated?

There are a large number of ESG criteria that can be integrated into the three pillars of environmental, social and corporate governance. However, these can vary depending on the industry and region. EFRAG currently has over 60 Sustainable Matters, which are divided into E, S and G. However, there are general guidelines and standards, such as the 17 Sustainable Development Goals of the United Nations, which serve as reference points .

The exact number of criteria is difficult to quantify as they can evolve and adapt over time. Companies need to identify the criteria that are relevant to them and include them in their ESG reporting. With Planted, we offer companies an ESG assessment that makes it easy to gain an initial overview of your company's ESG activities.

How does the ESG rating work?

The ESG rating is a process in which companies are assessed on the basis of their ESG performance. This is often done by specialized agencies or service providers that perform ESG ratings and assessments. The agencies analyze a company's ESG reporting and activities and award points or scores based on their performance and industry benchmarks in the ESG categories. Widely used standards such as the Global Reporting Initiative (GRI) or the Climate Disclosure Standards Board (CDSB) serve as frameworks.

The results of these assessments can then be used by investors, customers and other stakeholders to assess a company's sustainability performance and make investment decisions.

Is ESG sustainability?

ESG and sustainability are two concepts that are closely linked. ESG describes a framework that assesses a company's sustainability performance. Sustainability is a broader concept that, in addition to ESG criteria, also includes other aspects such as long-term impact, environmental responsibility and social commitment.

ESG: Efficiently implemented with ESG reporting software

ESG reporting software is a technological solution that supports companies in collecting, analyzing and improving ESG criteria up to the ESG report. By using software, companies are able to make their ESG reporting more efficient and accurate by automatically collecting, aggregating and visualizing data from various sources.

The advantages of using software solutions for ESG include

• Centralized platform for data collection, analysis and improvement
• Quality control measure
• Ensuring compliance with ESG guidelines
• Measuring ESG performance over time
• Improved communication with stakeholders

With Planted's holistic ESG management software, we support your company with AI-supported identification of ESG-relevant activities as well as optimizations in your company. Would you like to get to know our platform without obligation? Book a free demo here.