Investors show a continued interest in the adoption of ESG principles, increasing the demand for sustainable business practices. ESG ratings and a sufficiently detailed reporting on ESG issues meet this demand. Moreover, by participating in ESG ratings, companies can not only increase investments, but also improve shareholder relations. However, there is still a gap between what investors need and what business leaders understand due to lack of education.
What can companies do to adapt to the requirements of the ESG rating providers?
First of all, there are a lot of rating providers, but only few of them have emerged as market leaders. The first step is to recognize which provider is most suitable for your business industry, because each of them has a different method for calculating and sharing ESG scores.
The second step is focused on the topics covered by rating providers. Not all topics are equally important and this also depends on sector level materiality. Companies should determine which of them weight most heavily to the providers.
When the company determines the important topics, focus should now turn to ESG initiatives and how to align them to a good materiality assessment. Improving performance and reporting in material areas can improve ESG scores.
Lastly, sufficient and good reporting can be critical to improving ESG scores. Providers need high-quality data to be able to accurately rate a company. Emphasis should be given on a widely adopted ESG framework for reporting. Don’t forget to make these data available and easily accessed, thus avoiding any likelihood of being accused for lack of transparency.
ESG ratings are more and more getting into the spotlight for investors. Expectations of good ESG performance are becoming the norm and this is the reason why scores should be integrated into a comprehensive ESG strategy.
CSE is a leading ESG Consulting firm with sector-based integrated consulting services on Sustainability (ESG) from ESG Reporting and Ratings, Certification & External Assurance, to Impact Assessment and Strategic Planning. For more than 14 years, CSE helps FORTUNE 500 and other organizations around the globe improve their ESG Ratings and maximize their social, economic and environmental impact.
To guide you securely into building or optimizing your Sustainability (ESG) strategy, CSE can provide coaching and practical tools.
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