A complete guide to ESG: meaning and importance

The acronym ESG stands out in the environment of finance and sustainability, but is also known in other fields. Its acronym is based on three fundamental dimensions:
● Environmental = environment;
● Social = social;
● Governance = corporate governance.
These three factors combined qualify an activity as sustainable.
ESG refers to measurement criteria and standards that assess an organisation's environmental, social and governance activities, and which are used by investors to evaluate and decide their investment choices.
The ESG phenomenon dates back to 2005, but only in recent years has reporting become sufficiently extensive and detailed to allow statistical analysis.

The 'E' criteria assess the company's behaviour towards the environment. In particular, environmental factors refer to the need to promote production processes that require less energy and thus, have a lower impact on the environment. The "S"criteria examine the social impact of the company and its relationship with the territory, employees, suppliers, customers, inclusion, community wellbeing and respect for human rights. The "G" criteria concern corporate management inspired by good practices and ethical principles. Specifically, corporate governance factors include diversity policies in the composition of companies' boards of directors, the presence of independent directors, executive remuneration arrangements and respect for minorities.

ESG represents a set of fundamental evaluation criteria for verifying, measuring, controlling and supporting a company's or organisation's commitment to sustainability, and is an increasingly important element in financial investment choices. With this in mind, 3Bee implements biodiversity regeneration projects that align with the global sustainability goals and whose impact data can be included within the company's sustainability report.

ESG criteria are based on three major, closely related themes: awareness of environmental limits, the concept of resource management and the principle of sustainability. These themes have been developed since the 1970s, with the Club of Rome's report to MIT entitled 'The Limits to Growth'. During that historical period, the Stockholm Declaration emphasised the right of all human beings to live in an environment with respect for dignity and well-being. This led to the emergence of sustainable development issues, highlighted in the 1987 report of the World Commission on Environment and Development of the United Nations entitled "Our Common Future". This report attempted to synthesise the concept of sustainable development, and comes close to the basic concepts of the ESG criteria. Over time, ESG principles have included, among others, social impact, inclusiveness, and responsibility towards people and territories.

In order to understand whether the three criteria have been effectively expressed at the corporate level, there are specialised agencies that develop scores, known as rating ESG, which represent a summary judgement of the sustainability of issuers such as corporations, states and supranational organisations, as well as financial securities and collective investment instruments such as OICRs and ETFs. These issuers and instruments are defined as 'sustainable' or 'ESG' on the basis of their scores. However, it is important to note that there is currently a lack of shared international standards for sustainability assessment. European regulation is working to establish uniform criteria for the construction of ratings. When it comes to sustainability, 3Bee sees itself as a leading Nature Tech company. A group of sustainability experts who support companies and organisations in implementing regenerative projects.

The reference points of ESG logic can be identified in two major moments in the history of sustainability: the 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs) of the United Nations and the Paris Agreement. These two major events have inspired the strategies and ways in which sustainability is being realised in states, organisations and businesses. The latest Sustainable Development Goals (SDGs) report, dated 14 June 2023, presents 223 statistical measures that have been updated since the previous release in October 2022, along with five newly introduced indicators. These data provide an up-to-date and detailed picture of global progress in the implementation of the SDGs, allowing the effectiveness of policies and actions taken to achieve the goals to be assessed.

ESG and the principle of Carbon Neutrality, represent an important benchmark for environmental sustainability. Carbon Neutrality is the ability to reduce greenhouse gas emissions and to create the conditions to bring them to zero. According to the IPCC, Intergovernmental Panel on Climate Change, Carbon Neutrality is defined as the ability to balance residual emissions with activities aimed at removing carbon dioxide from the atmosphere. In other words, Carbon Neutrality implies the ability to develop a sustainable economy in which the goal of zeroing or neutralising CO2 emissions can be achieved through various means. According to these criteria, a product or company can be considered 'carbon neutral' or 'carbon free' even if it undertakes to remove from nature the same amount of carbon dioxide that was emitted during production.

Sustainable finance is the practice of considering ESG factors in investment decision-making in order to direct capital towards long-term sustainable activities and projects. Financial players are paying more attention to ESG criteria in their company evaluation and investment decisions. ESG analysis is known as "extra-financial analysis" because it complements with traditional financial analysis to complete the assessment of corporate values and assets also from a sustainability perspective. The positive impact of the ESG approach from a financial perspective is determined by several factors. Firstly, sustainable companies are less exposed to risks related to environmental emergencies, comply better with environmental regulations and are less prone to litigation.

Sustainable companies show a greater commitment to scientific research and innovation, both in terms of production capacity and the relationship with their customers and partners, in terms of transparency and trust. This approach results in a reduction of risks related to incidents or poor practices in operations, customer relations and legal actions. Companies that are inspired by biodiversity, choose ESG criteria and adopt appropriate criteria to measure and monitor their commitment, are companies that can achieve better business results and at the same time are less exposed to risks. 3Bee is constantly working to protect biodiversity through technology. The 'Oasis of Biodiversity' project, through the use of innovative technologies, offers a unique opportunity for companies to start on the path to biodiversity.

The Transition Risks are the risks associated with a company's transition to a model that is more environmentally and socially sustainable. When a company embarks on a path to migrate its operations in this direction, it must manage a transition project that requires preparing the organisation, production infrastructure and people to support the new model. This transition is not without risk, as the adoption of ESG criteria entails the addition of new goals related to environmental impact, social and business objectives that remain paramount. Transformation requires time and constant attention to implement ESG processes that bring long-term results.



Article edited by Angelina Tortora