Environmental, social and governance (ESG) issues are well known for their financial importance. For this reason, investor interest in ESG issues will continue. Thus, to sustain this investor interest, we must seek to improve the performance of ESG ratings. Read this article to discover some practical steps to help you improve your ESG performance.
Introduce ESG into your business strategy
Investors want to know how companies are responding to macroeconomic trends and how they can identify risks and opportunities. Yet only 3 of the 10 largest listed companies in Europe fully disclose the environmental and climate impacts of their business models. For more details, you can see here. Leading companies will pay close attention to how ESG factors affect their business and integrate them into their strategies. Meanwhile, laggards tend to view ESG issues as relevant only to corporate responsibility or sustainability reporting.
Develop an ESG rating strategy
To communicate their decisions, private and institutional investors regularly consult ESG ratings. In fact, the latest research shows that 65% of institutional investors check their ESG ratings at least once a week. As a result, when a company’s ESG rating is high, it receives 15% more investment and a 10% lower cost of capital. With this in mind, the performance of ESG ratings must be improved every year. Therefore, to achieve this goal, it is recommended to develop an ESG rating strategy and work with rating agencies. The goal is to get an overview of the E (Environmental), S (Social) and G (Governance) scores to identify gaps and opportunities. This will allow you to focus on improving and better communicating the messages that matter most to your investors.