Companies globally are increasingly reporting on the environmental, social and governance (ESG) impacts of their operations and their supply chains. Some business leaders sit at the forefront of ESG activism and disclosure, while others are facing tough questions from stakeholders about how they are proactively addressing ESG to avoid financially material impacts and controversies. It is no surprise then that investors, from large institutional investors to individual retail investors, are also paying keen attention to ESG to better understand their exposure as well as capture undervalued market opportunities.
Before business leaders can act on or react to these stakeholder concerns, companies have needed to form a better sense of where they stand with respect to the issues most material to them and that expose investor risk. Corporate ESG benchmarking – comparing ESG performance and disclosure against peers and leading practices within their industry – can be an invaluable exercise in gathering these insights and information.
In this post, we’ll make the case for companies to benchmark their ESG performance, explain how they can go about this exercise, and highlight how they can use that information to advance and enhance their own corporate ESG initiatives.
Why Companies Should Understand Their ESG Performance
As businesses, investors, private equity groups, and consumers become more aware of ESG-related risks and opportunities, material ESG issues (MEIs) have also come into sharper focus for companies. Countless studies have shown a positive relationship between ESG factors and companies’ operational longevity and market performance.[i]
For companies, efficiently and effectively allocating resources to target and address these MEIs can offer an advantage over competitors. Key ESG issues such as the management of carbon emissions, effluents and waste, human capital, and business ethics, can have a clear financial or reputational impact on a company if ignored. Having a thorough understanding of company and industry level ESG issues, as well as how to address them, is critical for unlocking new market opportunities, maintaining social license to operate, and avoiding legal and compliance issues.
Among initial public offering (IPO) candidates, understanding and demonstrating how good or bad their ESG performance is has become an integral part of their equity story.[ii] Investors want to know how the company’s business is viewed from an all-around ESG perspective. How does the product impact the environment? What types of health and safety measures are in place? Is the board/management experienced and diverse?
Sooner or later, stakeholders will start asking questions about how a company is addressing ESG-related issues. The exercise of examining the impact of ESG is a beneficial one for any company, be they an industry leader or one just starting out on their ESG journey.
Why Companies Should Also Look at Peers’ and Competitors’ ESG Performance
Conducting an ESG benchmarking exercise is as much about education as it is about a company improving its own operational performance. Companies can learn not only from their industry leaders, but also from smaller, less resourced companies employing creative or innovative approaches. By examining the programs, policies and processes adopted by their peers and regional competitors, companies can reallocate resources and personnel to address core exposure concerns, curb future non-compliance issues and improve managerial oversight on emerging ESG risks.
How Companies Use ESG Benchmarking Data
The information gathered through corporate ESG benchmarking has been used by companies across a variety of sectors to better understand their own ESG position, and their position relative to peers and industry leading practice.
Companies using the ESG Performance Analytics service, for instance, receive a final report and presentation based on extensive engagement with corporate teams, analysis of the company’s ESG exposure and management and that of its selected peers as well as analysis of key industry ESG metrics.
Such insights support corporate teams in identifying avenues to improve management of material ESG risk and related disclosure and have been used for internal benchmarking and target setting. Whatever the rationale, the information gathered through corporate ESG benchmarking is invaluable.
Notable Use Cases for Corporate ESG Benchmarking
Below are examples of how companies have put the information obtained from Sustainalytics' corporate ESG benchmarking services, ESG Performance Analytics, into practice.
How the Information Was Used
|Mid-cap, US-based telecommunications company||The ESG performance analysis helped the company create a roadmap for continued improvements towards its ESG targets and enhance its ESG communications and disclosures in line with industry best practice.|
|Large-cap, global telecommunications company||Using the insights from the service, the company set its short, medium and long-term objectives to address the most financially material ESG issues to its global operations.|
|Global, Fortune 500 extractives company||In light of recent controversies, the company wanted to use ESG Performance Analytics to help track its management of sensitive ESG issues and show internally how it’s improving its commitment to risk mitigation, reconciliation and social license to operate.|
|Fast growing, software and services company||As a private company, the organization used the service to manage a fast-paced, evolving regulatory space, where employee attraction and retention, business ethics and data privacy and security are critical to continued success.|
*Company names have been anonymized. All companies listed are Sustainalytics clients.
Examples of information provided in Sustainalytics’ ESG Performance Analytics report. (Click to enlarge)
Ways to Benchmark Your Company’s ESG Performance
Companies seeking to gather and compare the ESG information of their industry peers have several options. The most
suitable approach will depend on a company’s base knowledge of ESG issues as well as the time and resources available.
Do It Yourself
Depending on its size, a company may have a dedicated ESG team responsible for reporting and liaising with external raters. This team may also be well suited to gather and assess the ESG information of industry peers and compare that to the company’s own performance. High-level corporate ESG information and data are available online via ratings providers’ websites, investor-focused sites like Yahoo! Finance or, finance professional sites such as our parent company Morningstar.com, or Bloomberg. Conducting one’s own research will be time consuming and resource intensive for those without direct access to ESG ratings databases and platforms.
Hire an External Consultant
An external consultant can save on resources by carrying the burden of information gathering and analysis. Consultants with industry specialization may also provide insights on best practices and industry trends. While a consultant can engage with ESG ratings providers on its client’s behalf to gather relevant insights on the company’s own ESG performance, consultants still won’t have full access to comparative ESG data, resulting in holes in their analysis.
Receive Tailored Information from an ESG Ratings Expert
ESG ratings providers have access to a vast research universe of public and private companies resulting in data-driven assessments. The depth and breadth of ESG expertise can help companies identify their ESG strengths and weaknesses, performance gaps, industry trends and much more.
For instance, the ESG Performance Analytics service is well suited to provide companies with insights and analysis to help them get closer to their sustainability objectives.
To learn how Sustainalytics’ ESG Performance Analytics can help inform and advance your organization’s ESG journey, read our Customer Spotlight or learn more about our ESG Performance Analytics service.
[i] Maiden B. (2021). “Meta-study underlines ties between ESG and corporate success,” Corporate Secretary accessed (16.09.21) at: https://www.corporatesecretary.com/articles/esg/32465/meta-study-underlines-ties-between-esg-and-corporate-success
[ii] von Diegelmann, M. and Fischer, J. (2021). “No IPO (Initial Public Offering) without an ESG Story,” Cometis accessed (01.09.21) at: https://www.cometis.de/en/no-ipo-initial-public-offering-without-an-esg-story/
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