ESG Metrics

ESG metrics enable stakeholders to better understand an organization’s risks, opportunities, and performance on environmental, social, and governance issues.

What Are ESG Metrics?

Environmental, social, and governance (ESG) metrics are qualitative and quantitative measurements that capture company performance against key sustainability factors. Quantitative metrics are number-based and measurable, such as the amount of carbon emissions a company produces.

Qualitative metrics are focused on the “why” and “how,” such as an explanation of why a company’s carbon emissions are decreasing year over year. Tracking and measuring this material data can help companies assess risks, identify areas for value creation, and track progress on sustainability initiatives over time.

As the ESG landscape evolves, transparency into performance on material metrics is becoming increasingly important for stakeholders and investors in private markets. Integration of ESG has the potential to improve financial performance in the long term, leading to increased company growth and intentional/improved asset management.

Principal Dimensions of ESG

Environmental Metrics

Relate to the impact of business practices on the environment, including natural resource and energy management. Some examples of environmental metrics include quantitative measures of carbon emissions and total amount of waste generated, deforestation, and biodiversity programs and policies. These metrics can be both qualitative and quantitative.

Social Metrics

Cover a company’s relationships with employees, customers, local residents, and others who are directly or indirectly affected by its business practices. These metrics can include employee safety, protection and privacy of data, and diversity, equity, and inclusion (DEI) measures.

Governance Metrics

Cover the structures, policies, and processes that a company has in place to make decisions and conduct business. This also includes the accountability measures an organization maintains. Examples of governance metrics include measures of board diversity, business ethics, and anti-corruption policies.

The Importance of ESG Reporting

There are many different aspects of value creation that ESG reporting can provide to a company. From identification of risks to improving financial performance, here are some of the reasons companies should start tracking ESG metrics:

Valuation Accuracy

Through the incorporation of ESG data, companies can achieve more accurate market and industry forces assessments. 70% of European LPs agree that ESG commitments influence valuation premiums. ESG integration can help improve financial performance by identifying cost-saving opportunities such as increased efficiency and lower operational costs.

Risk Mitigation

Tracking ESG metrics and analyzing the data collected can reveal potential business risks. These risks can negatively impact the company’s bottom line. By finding emerging and managing existing risks, ESG reporting helps alleviate any potential harm on the company’s functionality and financial states.

Regulation Compliance

As ESG grows and more disclosure requirements are being put into place, tracking data today helps companies better prepare for the future.

Transparency and Communication

ESG reports are becoming increasingly important to investors and other stakeholders, which includes transparency into a company’s internal programs, social responsibility initiatives, and functional aspects of corporate governance. These reports help investors understand the company’s activities and encourage sustainable growth and investments.

Identifying Material ESG Metrics

When considering which ESG metrics matter most for a company, there are a few things to keep in mind. Developing an ESG policy and strategy, considering the issues important to stakeholders, and determining potential risks are important steps in the process. It is also important to be aware of any ESG regulations that govern your area and find which metric frameworks and standards work best for the company. Get started with the top ESG metrics requested on the Novata platform.

Reporting Standards and Frameworks

ESG reporting frameworks and standards are important tools that guide corporate actions around ESG factors. These tools provide guidance into tracking and measuring key metrics across material environmental, social, and governance topics. Frameworks and standards, as well as regulations, are driving increased ESG disclosures in private markets. See widely-accepted ESG frameworks, standards, and regulations.

Novata’s Approach to Metrics and Guidance

Novata’s platform is designed to create an easy and clear environment for your ESG reporting process. With in-platform guidance and a team of customer success managers and ESG experts, you will always have help no matter where you are in your sustainability journey. Whether you are identifying metrics or completing reports, Novata is with you at every step.