3 Things That Impact Your Environmental Score

In 2022 companies can not afford to operate without a corporate sustainability strategy. It is not some fashion trend or topic du jour as regulatory restrictions are fast coming down the pike. And you are well aware of this. So you want to develop a comprehensive strategy for your company. But you know just enough about corporate sustainability to be dangerous. So how do you start?

Well, that depends on the industry in which you operate. Not all factors are relevant or material to your overall strategy. Before you begin, it is helpful to understand the ESG framework and how rating agencies use data to form their assessments (if you need a quick primer on what is ESG, read this quick article). After all, the data they report and their evaluation can have far-reaching consequences beyond your corporate wall. So understanding them will help you take a targeted approach in developing and executing your plan precisely, giving you the highest return on investment. But no matter your industry, I have listed three environmental factors that should be a part of any good ESG strategy.

As an aside, what is conspicuously missing from the list below is carbon footprint. That is because it is an outsized factor, and frankly, a little nuanced, which is why I will address it in a separate post. For now, you should pay attention to the following.

Renewable Energy Management

Most rating agencies organize data collected for assessing Environmental scores (E score) into four groups. They are inputs, outputs, outcomes, and processes. Energy consumption and management fall under inputs. Whether you use renewable energy to run your operations or keep the lights on, for example, is uniformly gathered and considered by the rating agencies. Of course, the availability of renewable energy depends on the area in which you operate. Fortunately, the U.S government has programs such as the Green Power Partnership and other resources to help you get started.

Product and Supply Chain

Another input product and supply chain should be a critical component of your strategy. Rating agencies scrutinize your practice of responsibly sourcing raw materials or using parts with the lowest environmental impact. The effect is felt in many places. For example, you may have a lower direct carbon footprint, but your supplier’s high emission will negatively impact your assessment.

Reporting (CDP)

They say you cannot fix what you cannot measure. A strong ESG strategy goes a step further — reporting. Many rating agencies consider management aspects like whether a company has environmental reporting. It falls under processes in their data collection efforts, as described earlier, and helps the agencies assess a company’s risk management practice. Among the numerous reporting standards, the Carbon Disclosure Project (CDP) is the most common for reporting carbon footprint and water, two increasingly important topics in the fight against climate change. The CDP provides questionnaires for company disclosure across climate change, forests, and water security that cover emissions, carbon pricing, and governance.

Crafting a complete ESG strategy can be a daunting task. Every environmental issue may not be relevant to your business, but the few considerations worth noting that are material to the majority of industries are: renewable energy use, supply chain, and reporting.