What is environmental, social and governance (ESG)? Who are the key participants in the puzzle, how do they fit together, and why do they matter?
When building something from the ground up, each piece matters. For the better part of the past quarter-century, the business community has been constructing the framework for ESG, piece by piece.
Some pieces of the framework remain more nascent than others, but great strides have been made to describe and quantify the impacts of our ESG activities. This work has allowed the community to identify the most material environmental, social and governance issues and prioritize them accordingly.
ESG Defined – What Exactly Does it Mean in the Business Community?
ESG is a stakeholder-centric approach to the consideration of environmental, social and governance factors. These factors represent risks and opportunities to an entity’s business strategy, governance, and control framework. More frequently than ever before, the examination of these factors is used by a host of market participants in financial analysis, investment decisions, and lending processes.
ESG Stakeholders – Key Responsibilities and Impact
So, who are they key participants and stakeholders in the ESG puzzle? How do they fit together and why do they matter? Download our infographic by clicking on the preview image or continue reading below to learn more.
Stakeholders
- Key ESG Responsibilities: Stakeholders are the entities and personnel requesting proactive ESG action from companies. They are the customers, employees, management and local communities, to name a few.
- Impact: Stakeholders directly influence companies and regulators. They convey what is important to them and present both internal and external viewpoints. Companies need to engage in open dialogues with their stakeholders to determine the most pressing issues from their points of view.
Companies
- Key ESG Responsibilities:Â Companies are the change agents for a more sustainable world that considers the material impacts of their operations and reports on metrics to assess progress towards stated goals.
- Impact: Working with internal and external stakeholders can effectively determine ESG impacts and requirements. Companies can then determine which of those impacts are the most material and within which framework to report; this identification of material impacts allows for the creation of strategic goals, targets and metrics. Lastly, companies can develop the needed governance and oversight framework to ensure the ESG program is properly controlled.
Regulators
- Key ESG Responsibilities: Regulators drive voluntary and mandatory compliance regulations for the business community to abide by. Eliciting stakeholder feedback will ensure consumer and investor protection on key ESG topics.
- Impact: Regulators protect investors by stipulating that the companies and products they invest in disclose how they think about ESG risks and opportunities, how they’re progressing towards their goals, and how they ensure that proper governance is in place.
Asset and Wealth Managers
- Key ESG Responsibilities: Asset and Wealth Managers consider how companies are embedding ESG factors into business strategies and governance functions before deciding whether to allocate capital or not.
- Impact: Asset and Wealth Managers invest in companies with varying degrees of ESG integration, including ESG products. These products are one of the primary results of consumers expressing their preference towards ESG.
Lenders
- Key ESG Responsibilities: Â Through the underwriting process, lenders evaluate how companies are considering and integrating key ESG factors, such as climate change metrics, good governance practices, and loss of biodiversity, into their existing business frameworks.
- Impact: Lenders evaluate companies relative to different ESG standards. These evaluations factor into the terms of financing to ensure companies are capturing the proper ESG risks and opportunities in their framework.
Rating Agencies
- Key ESG Responsibilities: Â Rating agencies are responsible for researching and assigning ratings to companies in several ESG areas.
- Impact: Rating agencies evaluate key ESG risks and opportunities for companies and governments to provide more consistent and transparent information for stakeholders, asset and wealth managers, and regulators.
Audit and Assurance
- Key ESG Responsibilities: Audit and Assurance bodies are public accounting firms that provide attestation to companies’ publicly disclosed statements and metrics due to their subject matter expertise in ESG.
- Impact: Audit and Assurance bodies are responsible for validating that an organization has proper processes and controls to implement its ESG strategy. Furthermore, they ensure the data underpinning the disclosed metrics is properly sourced, vetted, and governed. Lastly, their opinion helps to validate a company or product’s approach and implementation towards ESG.
Governments
- Key Responsibilities: Government bodies and agencies provide incentives to accelerate the transition towards a sustainable and circular economy.
- Impact: Government bodies and agencies determine jurisdiction-wide strategies and provide incentives for stakeholders, asset and wealth managers, and companies to transition to a more circular and sustainable economy.
Industry Bodies
- Key Responsibilities: Industry bodies develop frameworks by which companies and products can report on ESG narratives and data to end-consumers. They also validate assumptions, calculations, and progress by companies.
- Impact: Industry bodies provide pragmatic guidance to companies, lenders, and assurers on how to implement voluntary and mandatory guidelines.
Let’s have a conversation about where you are in your ESG journey. We can help set up your ESG program, identify what’s important to you and translate that to tangible outcomes, and perform ESG-related audit and assurance services.
Environmental, Social and Governance Resources
- Schneider Downs ESG FAQ
- Schneider Downs ESG Article – What Are the Key Roles Internal Audit Plays in ESG?
- Schneider Downs ESG Article – Top Ten ESG Questions for Board and Audit Committees
- Schneider Downs ‘Our Thoughts On’ ESG Articles
About Schneider Downs ESG Consulting
With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization develop an ESG program, comply with ESG regulatory requirements and evaluate ESG risks and opportunities within the context of your ESG strategy.
For more information, please visit our ESG Consulting page or contact us at [email protected].
