Although ESG rankings are often criticized, we can use them as tools to drive improvements in our sustainability practices. We present a practical approach to not only elevate your position, but also move towards a more responsible future.
Yes, I know. Those of us who work in sustainability do not trust ESG rankings. Because it is argued that they are not reliable, that the metrics are biased, and that they are based on qualitative information instead of evaluating the real impact of organizations.
However, these rankings can be very useful in certain contexts, for different people. Therefore, I propose to explore how we can take advantage of them to improve corporate sustainability practices and, consequently, improve our ESG performance.
But what are we talking about?
ESG rankings, or Environmental, Social, and Governance criteria by the Spanish acronym, are tools that evaluate the performance of companies in areas related to sustainability. They are mainly aimed at providing complementary financial information to the public investor.
Among the most popular rankings is that of MSCI, which offers ESG ratings for miles of companies worldwide; Sustainalytics, which provides detailed ratings and analysis on the ESG performance of companies and bond issuers; and the ESG ranking of the London Stock Exchange Group (LSEG), formerly known as Refinitiv, which measures a company’s performance, commitment, and effectiveness on 10 main sustainability topics.
To rate a company’s ESG performance, these entities define a series of key indicators, such as carbon emissions, board diversity, or whether or not they have certain policies. Each indicator is assigned a certain value according to its importance and a methodology is applied to calculate an overall score.
The process to calculate the position within the ranking varies depending on the entity that performs it but always involves the evaluation of data from various sources, generally public, such as sustainability reports, financial data, regulatory reports, media appearances, among others.
Benefits of ESG ratings for sustainability
There are several benefits that we can find when using ESG rankings. On the one hand, the investing public increasingly considers ESG metrics when making financial decisions. And these evaluations are a reliable source of consultation for this public, because they are generally carried out by entities that also design rankings of financial topics. In this sense, the position in an ESG ranking can attract the attention of investors committed to sustainability.
These tools can also function as a quantitative and objective indicator of an organization’s environmental and social performance. This can be useful in persuading decision makers of the importance of prioritizing sustainable initiatives. Let’s talk honestly: quantitative data is always good to be able to convince people capable of releasing a budget or approving a project.
Finally, ESG rankings also offer the opportunity to benchmark yourself against other companies within the same industry in terms of sustainable practices. This can help identify areas for improvement and make informed decisions.
3 tactics to improve your position in an ESG ranking
Ok, finally. Below are three useful practices to improve your ESG ratings:
- Gap analysis: start by examining the indicators used in the ranking and comparing your company’s performance with that of your competitors. This will help you identify the areas in which your organization is well positioned, and those in which you need to improve, and set clear and achievable objectives to raise your position in the ranking.
- Feed the machine: although many rating agencies have automated data analysis and collection mechanisms to prepare rankings, sometimes they do not know or do not have access to all the information. Therefore, the second step is about identifying those indicators that appear in the ranking without information, but that your company has, and completing the data manually.
- Action Plan: with a clear understanding of your gaps and objectives, and having filled in any gap indicators, it was time to develop a detailed action plan. This can include short-term measures to address immediate areas of improvement, as well as long-term initiatives to implement more significant and impactful changes.
Now you know. Even if the initial drive is focused on gaining positions in an ESG ranking, the actions taken to that end can transcend the initial objective and generate a real positive impact on people, the economy or the environment.
Max Bensimon
About done!
done! is a strategic sustainability agency with the mission of using creativity to enhance the positive impact of business on the environment and people. Among its services, it offers sustainable brand strategy, double materiality analysis and ESG Reports.
about Max Bensimon
Specialist in reporting, strategy, and creativity oriented to sustainability.
Done Strategy Director with more than 10 years of experience in preparing sustainability reports under international standards such as GRI, SASB, and local regulations.
Graduate in Social Communication from the University of Buenos Aires.
