What does the "E" in ESG actually mean?

written by

Emma Annies

Start of the three-part series "What does ESG actually mean?" The series starts with the letter "E" for "Environmental.

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What does the "E" in ESG actually mean?

What does the "E" in ESG actually mean?

What actually is ESG? More and more companies are looking at the impact of environmental, social and governance factors on their business and the environment(Environmental- Social- Governance). These factors influence everything from a company's operations to its long-term strategy and sometimes even who sits on its board. ESG frameworks summarize sustainability criteria into measurable units to help understand a company's environmental risks.

Today, preventing environmental damage is a major policy issue as more and more legislators push for environmental protection. Companies that carefully manage their sustainability can reduce regulatory pressure on business and reduce the risk of adverse government action. Companies that prepare forenvironmental issues and mitigate risks have an advantage when rules and regulations change.

The "E" in ESG can be particularly difficult to capture because "environment" encompasses almost every aspect of the natural world. Basically, it is a measure of a company's impact on the natural or physical environment, for example, in terms of a company's use of natural resources, environmental risks, or waste generation. In this context, environmental issues are global and closely interrelated. Therefore, it is important to understand how a company uses natural resources, what itscarbon footprint is, and how it deals with waste. Companies that neglect the environmental impact of their operations expose themselves to regulatory sanctions, criminal prosecution, and the risk of reputational damage, which can negatively impact the bottom line and, in turn, the value of the company. Often, these factors interact and amplify their effects.

Climate change is probably the greatest challenge facing humanity and is therefore one of the most important elements in the assessment of ESG factors. This is due to the severe impact that climate change will have on every aspect of life, but also the regulatory and societal changes that will be required to combat it. Planning for and responding to these changes will mean that companies can either succeed or struggle with the necessary policy changes by the world's governments. In addition to the various impacts of climate change, there are a number of other factors to understand regarding environmental issues within the enterprise. For example, the transition to a circular economy, where waste is avoided and resources are reused, is of particular importance to companies that produce goods. Therefore, the way a company uses natural resources and handles waste is a particularly key factor in sustainability transformation.

The 17 Sustainable Development Goals ("SDGs") of the United Nations also aim to achieve sustainable development, particularly in the area of the environment, by 2030. The following goals of the SDGs focus on a sustainable environment:

These are the eight SDGs that feed into the Environmental of ESG.

The use of sustainable energy, reduction of fossil fuel consumption, and reduction ofcarbon footprint are all components of the assessment of environmental factorswithin the ESG spectrum.

 

A company that is able to use resources efficiently, deal with regulatory changes, and take advantage of opportunities is less likely to jeopardize shareholder value than companies that risk sanctions, reputational damage, and lost profits because they are short-sighted about environmental impacts or treat their environment in harmful ways.

 

At cubemos , we have divided the E in ESG into six different action areas:

  • Greenhouse gas emissions & climate
  • Energy Mix & Intensity
  • Pollution & Hazardous Substances
  • Water & Marine Resources
  • Biodiversity & Ecosystems
  • Circular economy, waste & materials

Greenhouse gas emissions & climate

Greenhouse gas emissions(GHG) have a significant impact on climate change and are a key issue for a company's sustainability management. This action item addresses policies for mitigation and adaptation to climate change, as well as the goals your company has set to reduce GHG emissions. In addition, data points on GHG emissions (Scope 1, 2, and 3) and GHG emission intensity are collected.

Core contents of the "Greenhouse gas emissions & climate" field of action:

  • Reduction of greenhouse gas emissions
  • Amount of greenhouse gas emissions
  • Intensity of greenhouse gas emissions

Examples of relevant key figures for the "Greenhouse gas emissions & climate" field of action:

  • Total energy consumption from renewable sources
  • Greenhouse gas intensity per net sales

Energy Mix & Intensity

A high level of energy efficiency and a switch to renewable energies are crucial for combating climate change and reducing a company's overall environmental footprint. The goal of this action item is to obtain an overview of their company's energy consumption. This includes data on absolute energy consumption, a breakdown of the total energy mix and the energy intensity ratio.

Core contents of the field of action "Energy mix & intensity":

  • Energy consumption
  • Energy reduction
  • Energy intensity

Examples of relevant key figures for the "Energy mix & intensity" field of action:

  • Total energy consumption from renewable sources
  • Energy intensity
  • Amount of reduction in energy consumption

Pollution & Hazardous Substances

Pollution of air, soil and water and the release of hazardous substances pose a major threat to global health and the environment. In this section, your company should describe its pollution prevention policies and explain the corresponding reduction targets and action plans. An analysis of the potential financial impact of pollution-related risks and opportunities should also be provided. Quantitative data includes a list of all pollutants and the total quantitative amount of these emissions and hazardous substances.

Core contents of the field of action "Environmental pollution & hazardous substances:

  • Air pollution
  • Earth pollution
  • Hazardous substances

Examples of relevant key figures for the field of action "Environmental pollution & hazardous substances":

  • Potential financial impact of pollution
  • Total amount of pollution from oil
  • Total amount of pollution with inorganic pollutants

Water & Marine Resources

Access to water is critical to the quality of life on our planet. The amount of water withdrawn and consumed by companies and its discharges can have far-reaching impacts. Disclosure of water-related strategies, action plans and reduction targets is therefore essential and should be a key part of sustainability management. In addition, your company should disclose relevant metrics such as total water withdrawal, consumption and discharge, water intensity, and marine-related resource use data.

Core content of the "Water & Marine Resources" field of action:

  • Impact on marine resources
  • Water consumption
  • Water intensity

Examples of relevant key figures for the "Water & Marine Resources" field of action:

  • Total water consumption
  • Total water consumption in areas with significant risk
  • Total stored water

Biodiversity & Ecosystems

Protecting biodiversity is essential for ecosystem survival, providing clean water and air, and ensuring food security and human health. This disclosure helps to understand your company's strategies, action plans, and goals it uses to monitor potential impacts on biodiversity. It includes information on pressure factors, a description of impact assessments conducted, and strategies for restoring and remediating these biodiversity impacts.

Core content of the "Biodiversity & Ecosystems" field of action:

  • Biodiversity restoration
  • Biodiversity friendly production
  • Pressure on biodiversity
  • Impact on biodiversity

Examples of relevant key figures for the "Biodiversity & Ecosystems" field of action:

  • Potential financial implications of biodiversity and ecosystem impacts.
  • Number of sites negatively impacting biodiversity of sensitive areas.

Circular economy, waste & materials

The shift from a linear economy to a circular economy can be a great opportunity to decouple economic activities from resource extraction. The action field "Circular Economy, Waste & Materials" examines whether your company identifies its resource, material and product flows and can demonstrate relevant strategies, targets and measures to establish a circular business model and ensure the optimization of resource use. Regarding material sourcing, a due diligence system should be in place within their supply chain to ensure a low impact on resources needed for products and services. Other data includes the total amount of hazardous and non-hazardous waste generated by your company.

Core contents of the field of action "Circular economy, waste & materials":

  • Material procurement and optimization of resource utilization
  • Material waste, packaging and circular economy
  • Waste Management

Examples of relevant key figures for the field of action "Circular economy, waste & materials":

  • Total amount of renewable materials used
  • Input materials
  • Materials
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