Corporate sustainability: ESG screening an effective tool

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The concept of corporate sustainability refers to a company's ability to operate in such a way as to ensure a balance between economic, environmental and social aspects. The ESG (Environmental, Social and Governance) factors qualify a business as sustainable. In this context, ESG screening is of relevance for responsible investors who seek to diversify their portfolio with environmentally and economically sustainable investments and funds. Therefore, the benefits are not only economic but also shared benefits considering ESG criteria. These principles are the foundation of the European Union's Sustainable Financial Strategy 2.0.

The meaning of sustainable finance can be found in the Abi Handbook: "Doing sustainable finance means realising, next to an economic-financial return, also a socially shared benefit through the reduction of environmental risks and inequalities". The environmental criteria concern mitigation and adaptation to climate change, along with environmental risks, such as natural disasters. The social criteria focus on inequality, inclusiveness, labour relations and investment in human capital and communities. Finally, governance concerns public and private institutions, management structures and employee relations, ensuring that social and environmental criteria are integrated into the decision-making process.

The concept of sustainable finance officially emerged about 15 years ago and has become more prominent over time. One of the basic tools of sustainable finance is sustainable and responsible investing, which aims to generate value for both the investor and the company by looking at medium- and long-term investments and evaluating all financial, environmental, social and governance aspects. Choosing sustainable investments means focusing on various aspects ranging from climate change to energy efficiency. One of the basic principles of sustainable finance is to value dialogue with companies on sustainability issues, also in the stock market to help influence the behaviour of companies in a positive way. Sustainable investments comply with international standards set by bodies such as the Oecd and United Nations.

Proper sustainable investment requires ESG screening, which can be employed in the various investment strategies. Specifically: 1. Best-in-Class, which includes investments focused towards companies that excel in ESG measures within their sector; 2. ESG Best-in-Class, for companies that are rapidly improving their ESG metrics relative to competitors, capitalising on the positive change in sustainable investments; 3.planning thematic investments, a strategy based on selecting companies that address specific ESG challenges, e.g. climate change or gender diversity; 4. Impact Investing, focuses on companies that generate a positive sustainability impact. Sustainable assessments and strategies also serve as a positive screening tool, allowing Professional Investment Funds to identify the best companies in various sectors and select them for portfolios.

In its current form, ESG screening evaluates companies on various parameters, such as their products, ESG controversies and alignment with global regulations. Data on sustainability can be used for screening depending on the investor's priorities by setting appropriate thresholds. This assessment determines inclusion or exclusion from investment options, depending on the company's ESG objectives and profile. Proper screening is based on compliance with the UNGCs, the impact of the SDGs, the ESG controversies and product involvement, to align with different sustainability priorities.

An increased interest in ESG investments makes the implementation of a customisable screening essential. Investors and fund managers are increasingly motivated to build portfolios that not only avoid harmful activities, but also actively contribute to positive change in society and the environment. Customisation of ESG screening enables effective data processing, tailoring it to different needs and objectives. Effective implementation of customised ESG screening requires careful consideration of thresholds for inclusion and exclusion. It is essential to work with data partners that support investors in developing products tailored to their specific needs.

The scope of ESG data has grown considerably due to the detailed information contained in corporate sustainability reports complying with CSRD obligations, enabling the development of advanced screening strategies. However, this expansion has raised concerns about the ability of suppliers to capture relevant information and ensure its quality over time. In this context, 3Bee can help companies achieve their ESG goals by defining an ad-hoc climate and biodiversity strategy based on a scientific-technological approach.