By Louis White
What is ESG?
Environmental, Social and Governance (ESG) factors are becoming more important in everyday business decisions, and not just from an internal viewpoint either.
So what are ESG factors?
ESG factors are a string of measure of non-financial performance indicators, which include corporate, ethical and sustainable governance issues, which normally target managing a company’s carbon footprint and ensuring adequate systems and protocols are in place to ensure accountability.
In essence, they are used to evaluate corporate behaviour and to determine the future financial performance of companies. In the past, human values have determined a great deal of the criteria specified for current and future financial performance but the available software is becoming more sophisticated in assessing company metrics.
This will eliminate some of the bias us humans carry with on a day-to-day level.
ESG factors are shaping company investment policy around the globe and we have recently witnessed it here on our own shores.
ESG determining investment decisions
An example is the Adani Carmichael coal mine in Queensland’s Galilee Basin, which is now being self-funded by the company. This is as a result of Australia’s big four banks decided not to invest in the $16.5 billion projects, despite the fact it will create thousands of jobs and produce approximately 25 million tonnes of coal per year.
Westpac even released a new climate policy for investing stating that it would only invest in existing coal producing basins, which must have energy content in the top 15% globally.
What metrics Westpac will be using for both qualitative and quantitative measurement remain to be seen, and whose data they will be relying on, poses an interesting question.
Environmentally and socially conscious individuals, and even political parties are now able to influence government policy around the globe, as to the importance of ESG issues into big infrastructure and business decisions that affect the lives of everyday people.
Companies losing contracts due to ESG failure
BP was banned from bidding for US Government contracts for three years after its Deepwater Horizon oil drilling platform, first ruptured and then exploded, killing 11 people, in April 2010.
The explosion resulted in more than 200 million gallons of crude oil pumped into the Gulf of Mexico for a total of 87 days, making it the biggest oil spill in U.S. history. It also affected 10,000 kilometers of coastline among American cities.
This not only resulted in the loss of billions of dollars income for BP, but also led to a severe drop in the share price. This shows that governments are not immune to taking ESG factors into consideration when awarding tenders.
It took a great deal of advocating from BP to be accepted into the US Government tendering process again.
Future business impact
ESG factors can affect online investing, too. Popular crypto-currency dealings such as Bitcoin have come under the microscope, as the currency requires vast amounts of electricity for its algorithms. One estimate has the energy consumption to run the currency compared to that used in the Czech Republic or Ireland.
According to the report, one bitcoin transaction uses 500,000 times more power than that of a credit card. This could have a serious impact on its future.
But understanding ESG factors is one part of the equation, assessing how you calculate the risk and performance is another.
Many large companies are now forming their own team to segregate the ESG principles and devise complex methods of analysis.
Non-financial factors are heavily based on the human conscious and therefore weighting, which is not strictly scientific, can influence the protocols and principles applied.
This does not mean that companies cannot be assessed on how their investments are performing in the ESG categories nor how company policy can be set to determine whether an investment should be made.
How can ESG assessments be more factual?
Forecasting, measuring and assessing ESG factors is available in sophisticated software platforms that will eliminate the bias of individuals and allow more rational decisions to be made.
Software is now being tailored made and therefore will enable you to specify what data you need to help make sound logical business decisions regarding corporations or specific projects.
If you think your business could benefit from this type of sophisticated analysis, then it’s worth considering a system to enhance your data management and ultimately your decision making.
There is a great variety of software systems to capture and manage data for environmental, compliance, health and safety, and risk needs. Most offer each as its own separate solution, which can make it challenging to manage multiple areas in one place and consistently. Having everyone in one place, a single source of truth provides you with greater visibility and makes it easier to gather, analyse and interpret information to report on.
An integrated software solution such as INX Software can be the answer to your workforce management needs. INX offers a range of products to cover areas across OHS, risk, compliance, environmental, stakeholders, and people and contractor management. What makes INX different from other software is their integrated solutions approach and their product end-to-end cover.
If you’d like to find out more about INX Software and their solutions, go here >