ESG rating: how to improve company value

The European Union has set sustainable development goals that all member states must meet. To accomplish the feat of the green transition, every actor involved must commit to building a more sustainable world by taking action in the economic, social and environmental spheres. Companies in particular have the onus to mobilise in the direction of sustainability by respecting the ESG - Environmental, Social and Governance standards. These are fundamental criteria in identifying organisations that put sustainability at the heart of their business model. The aim is to embrace sustainability goals and the reforms initiated by the European Union to implement a transition towards a sustainable economy.

ESG criteria make it possible to measure, verify and control an organisation's sustainability commitment. Through targeted product purchases or specific investment choices, companies can demonstrate care for the environment and society by increasing their value in the marketplace and improving reputation. stakeholders are, in fact, increasingly focused on business practices aimed at sustainable development. Ideal business models must include sustainable strategies, strategic and organisational solutions through which the company can produce value and position itself in the markets. As ESG performance has become a key evaluation factor for investors, suppliers, customers, and employees, by adopting Environmental, Social and Governance standards the company will secure a competitive advantage.

The ESG rating is a certification appreciated by investors, employees, and markets as it indicates how a company embraces social, environmental and governance issues. It allows for more precise and complete information in the area of sustainability and complements traditional ratings and indicators to provide a more relevant picture for investors. Thanks to ESG rating, stakeholders can make the necessary assessments by relying not only on the organisation's financial data, but also on its non-financial, ESG data. Environmental, social and governance programmes provide access to the transparency sought since greenwashing was outlawed. In order to prevent cosmetic greenwashing from ruining corporate reputations, it is necessary to present clear and comprehensive reports using ESG standards.

The Rating ESG clearly indicates a company's ability to manage risks and opportunities in the three key areas, environmental, social and governance. To calculate the rating, several factors such as transparency of company information, compliance with environmental regulations, environmental and human rights risk management must be taken into account. Diversity management, inclusion, litigation and governance structure are also among the assessment parameters. The higher the rating, the more trustworthy the company will be among investors for its focus on sustainability issues, a global priority.

According to a first evaluation criterion, the rating calculation takes into account the organisation's degree of alignment and compliance with international sustainability strategies and directives. EU, OECD and UN provide key pointers for embracing sustainable development from which to understand the actions to be taken to comply with regulations. Alternatively, the rating calculation can take into account how much the economic value of the company is at risk due to ESG factors or rather how much ESG risk the company fails to manage. Among the assessment methods is also the MSCI classification with the observation not only of the ESG risks but also of the opportunities for the company and the industry. Risk takes into account the costs for the organisation, opportunity evaluates capitalisation aimed at making a profit.

Whichever calculation method one chooses, one must take into account two approaches for calculating the ESG Score, which are indispensable for a realistic and convincing assessment. The first approach is quantitative, based on information made public by the organisation according to international standards. On its own, it cannot be considered sufficient because relying on the company's self-declarations runs the risk of an incomplete assessment due to the partial data considered by the organisation and the reporting method chosen. In 2024, however, it will be mandatory for ESG-certified companies to adhere to precise reporting policies aimed at demonstrating the impacts of business activities on the environment and the community. The second approach is qualitative, using alternative external data that offers an unbiased and truthful view of sustainability parameters.

Companies should aim to improve their ESG rating in order to enhance their reputation and achieve higher levels of business. The score rises if attention is focused on the company's organisation and the criticality of the environment's target market as well as the sector in which it operates are studied. Manufacturing, logistics, suppliers, employees, every sphere of activity of the company must be placed in the broader context of sustainability. And every strategy/action undertaken must be monitored to understand how it affects the company's business but also the territory and the environment. The ideal direction to take uses ESG criteria to demonstrate a commitment to sustainability. Companies can, for example, manifest their intention to protect biodiversity by joining the 3Bee Oasis of Biodiversity project.

With a view to improving the ESG score, the company needs to understand what is its company's impact on the environment. Once they are aware of their emissions, they should devise strategies to reduce emissions, such as switching to renewable energy sources or joining certified environmental projects. The ESG rating will rise by promoting sustainable, responsible and long-term practices. The rational use of natural resources, biodiversity protection, social inclusion, and energy efficiency are ways to improve one's company's Environmental, Social and Governance score. In this context, 3Bee supports companies in implementing regenerative projects through technology to have a positive impact on biodiversity and the environment.

Wanting to improve ESG rating is not an option but a necessity if one intends to remain active in the market. The demand is for an ever-increasing focus on sustainability and, as a result, every company must make an effort to demonstrate that it is following the green transition demanded by the European Union. Adopting ESG criteria will bring immediate benefits such as the introduction of transparent corporate governance models, the completeness of data measuring the environmental, social and economic impacts of a company's activities, and the development of KPI indicators aimed at ensuring the adoption of sustainability plans in the medium and long term. All this will have a positive impact on stakeholders attentive to sustainability and to the idea of a company that protects the environment in which it operates. The company's credibility and image will grow and its market positioning will be improved.

To calculate your ESG Rating and understand how to improve your company's score, you can seek advice from a rating advisor, i.e. an experienced professional capable of drawing up an ESG performance assessment and pointing out the actions needed to increase your rating. In this way you will be able to demonstrate your commitment to sustainability and social responsibility by following appropriate business practices. Such practices will create a positive impact on people, society and the environment and will simultaneously ensure a better position of the company on the market and a higher profit.

Article by Valentina Trogu