How can Companies Measure ESG Impact?

In the first session of the three-part Atelier “Measuring ESG Impact”, corporate members participated in an interactive exercise to understand the methodology and ESG criteria behind the scores of rating agencies.
Register for the next sessions Meeting the requirements of the EU Taxonomy & Corporate Sustainability Reporting Directive pt.1 and pt.2.

Stakeholders are increasingly urging companies to become more transparent in disclosing the environmental, social, and governance (ESG) impact they have on people and the planet. The European Commission is also moving in this direction, with new measures aimed at setting comparable, transparent, and harmonized ESG disclosures, such as the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), the Sustainable Finance Disclosure Regulation (SFRD), the initiative on Sustainable Corporate Governance and Due Diligence, and the Country-By-Country Reporting (CBCR) directive.

In the first session of the three-part Atelier “Measuring ESG Impact”, CSR Europe guided its corporate members through the new regulatory environment and how rating agencies assess companies’ ESG performance.

To help participants understand the ESG rating process, CSR Europe involved the participants in a rating exercise led by data analysts. Each group of participants focused on a specific ESG theme to test in practice the methodology and ESG criteria that rating agencies use to build a score. The objective was to help corporate members to:

Acquire a better understanding of how the data analysis process works.

Experience the challenges that rating agencies face when trying to extract ESG data.

Learn how to make arbitrations.

Asset managers demonstrated the ESG methodology used, how they identify ESG themes via ESG databases, and how they support the integration of ESG factors into investment products. Thanks to regulations like the SDFR and the EU Taxonomy, which pushed for the integration of ESG factors in corporate reporting practices and business models, investors have been facilitated in their assessment of companies’ sustainability performance. While ratings contribute to shaping investors’ first impression of a company, they increasingly demand more raw data from companies to conduct their assessment, including for instance principal adverse impact indicators - negative, material, or likely to be material effects on sustainability factors that are caused, compounded by, or directly linked to investment decisions and advice performed by the legal entity.

The Atelier concluded with the following:

ESG rating facilitates investors in their assessment of a company’s ESG performance.

Engagement between all actors involved - companies, investors, and data providers- is key.

The evolving ESG landscape is accompanied by more obligations for investors, companies, and other stakeholders and tends towards harmonization and comparability.