ESG topics are organised into logical threads. They share some common themes but, unlike money, ESG outcomes are non-Fungible. A good result on one metric, say diversity equity and inclusion, does not mean a company can ignore it’s carbon footprint.
ESG has three three main categories, but within each category there are five branches. Within each branch, several metrics are defined, and for each of these in turn, sub-metrics often apply too.
The resulting metrics set is large. Exact definitions vary too. Plainly, though, not all have equal relevance to a particular company.
An ESG exercise is needed to judge the relative importance of ESG factors to a company’s strategy by considering ESG from:
- a risk perspective.
- a reputation viewpoint; and
- a competitive advantage angle.
Measurement and valuation of ESG impacts is at an early stage. This will improve rapidly as management of ESG deepens and as shareholder expectations, and mandatory disclosures (like TCFD and CSRD) become more entrenched.