ESG: A framework for building business credibility

July 28, 2023

Environmental, social, and governance (ESG) considerations have gained significance in the business world in recent years. For greater transparency and accountability, companies need effective frameworks to measure and report on their ESG performance.

There is no one-size-fits-all for ESG reporting. Performance indicators vary significantly due to factors like business/industry type, size, and complexity, as well as applicable legal requirements.

Define ESG Metrics

To start quantifying the ESG framework, establish a set of relevant metrics that align with your ESG goals. Cover environmental factors (e.g., carbon emissions, water usage, waste management), social factors (e.g., employee diversity, labour practices, community engagement), and governance factors (e.g., board composition, executive compensation, risk management).

Set Targets and Benchmarks

Once ESG metrics are identified, set ambitious but achievable targets and benchmarks. Targets should be specific, measurable, and time-bound, enabling effective progress monitoring and evaluation. Targets and benchmarks serve as reference points to track performance, identify gaps, and drive continuous improvement. This approach is incorporated in all the International Organisation for Standardisation (ISO) management systems, including ISO 9001, 14001, 45001, 22000, 13485, and many other lesser-known standards.

“Quantifying objectives and targets and their contribution to business performance is a fundamental determinant of a company’s compliance to these internationally accepted benchmarks,” says Oliver Naidoo, MD of JC Auditors (JCA) and a member of the ISO technical committee (TC 241). “Having conducted more than 5,000 audits across various sectors over the last 15 years, there is clear evidence that successful businesses are those that place a premium on defined goals that lever the business operations,” he adds.

Collect and Analyse Data

To quantify the ESG framework, establish robust data collection mechanisms. Automate data collection processes wherever possible to minimise errors and ensure consistency. Analyse the data using appropriate tools and techniques to derive meaningful insights, identify trends, and measure performance against established metrics, targets, and benchmarks. This approach is consistent with a fundamental principle of ISO 9001, which promotes the use of data in making factual decisions. This data-centric approach is key to demonstrating your ESG performance.

Independent Verification

Independent verification or assurance enhances the credibility of ESG reporting. Engage reputable external auditors to review and validate ESG data, methodologies, and processes. Independent verification provides confidence to stakeholders and investors, ensuring the accuracy and reliability of reported information.

JCA recently launched an ESG verification service, which allows a business to demonstrate its ESG credentials using an independent certification body. This type of independent ESG verification helps to mitigate the risks of ESG greenwashing. This is when a company portrays itself as environmentally and socially responsible or committed to strong governance practices, while in reality it does not implement substantive actions or meaningful changes to address ESG issues.

Quantifying the ESG framework is a vital step in measuring and reporting an organisation’s sustainability performance. It enhances transparency, accountability, and stakeholder trust by defining relevant metrics, setting targets and benchmarks, and collecting and analysing data, as well as developing a scoring methodology and effectively communicating findings. Implementing an ESG framework based on these principles enables organisations to drive positive change, align with global sustainability goals, and contribute to a more sustainable future.