The acronym "ESG" stands for Environmental, Social, and Governance, and describes a comprehensive framework for evaluating and managing companies' sustainable and ethical practices.
Environmental
This criterion focuses on ecological aspects of sustainability and includes the following:
- Waste and environmental management: Does a company take adequate measures to manage waste and adverse impacts on the environment?
- Resource management: Does a company ensure the responsible use of resources such as water, energy and raw materials?
- Greenhouse gas (GHG) emissions: To what extent does a company mitigate emissions of its own operations and along the value chain?
- Energy efficiency: What measures does a company take to optimize energy efficiency, also in its supply chain?
- Deforestation: What measures does a company take to prevent deforestation in its own operations and above all in the supply chain?
Example: Implementation of sustainable sourcing practices and ensuring low-carbon supply chains.
Social
This criterion encompasses impacts on the workforce and society and includes the following:
- Diversity, equity, and inclusion (DEI): How does a company promote diversity and prevent discrimination in the workplace and across its supply chain?
- Working conditions: Does a company promote fair conditions for all staff in terms of working hours, work-life balance etc.?
- Data privacy: How does a company protect the data of its employees and customers and safeguard data security across its supply chain?
- Customer satisfaction: To what extent is a company committed to ensuring the satisfaction of its customers?
- Relationship with local communities: Does a company take into account the needs of communities in which it operates, including those in its supply chain?
Example: Implementation of fair labor practices and ensuring social responsibility throughout the supply chain.
Governance
This criterion focuses on aspects of corporate leadership, decision-making and control, including:
- Tax strategy: How does a company structure its tax policy to ensure transparency and adherence to tax regulations in its global operations?
- Executive compensation: What framework governs the compensation of executive board members, considering equity, sustainability, and fairness across the organization?
- Donations and lobbying: Does a company make political donations? Does it conduct lobbying activities in alignment with ethical standards?
- Corruption and bribery: To what extent does a company combat corruption and bribery in its own operations and the supply chain?
- Diversity and composition of leadership teams: How diverse are a company's executive team and board of directors? Does a company extend diversity considerations to its supply chain?
Example: Implementation of a code of conduct that stipulates rules for responsible and ethical behaviour. Similar frameworks can be extended to the supply chain.
ESG principles aim to promote transparency, ethical conduct, and effective corporate governance, not only in companies' own operations but also throughout their supply chains.