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The E in ESG, and why the S and the G are Equally Important

Lately, everyone is talking about carbon footprint and managing GHG emissions. As new solutions for dashboarding and monitoring these issues are springing up, it’s important to remember there is a lot more to ESG than just the “E” aspect. Let's make some sense of this fascinating world.

In recent years, Sustainability, climate change, global warming and GHG emissions seem to be on everyone’s mind, from the individual to the executives of the largest companies in the world, heads of states and international organizations - all are addressing the impacts on the environment, the planet, and its inhabitants as a result of human actions. Along with emerging regulation, and shareholders and other stakeholders’ demands, the risks arising from human activity can no longer be ignored. 

As was well established by years of research, the main cause for global warming is GHG emissions. As a result, most efforts, global and local, are now focused on reducing the carbon footprint of companies, states and individuals, and many new carbon emissions monitoring and dashboarding solutions or service providers recently came to life. While monitoring and managing the “E” pillar of ESG (Environmental, Social, Governance), specifically the Greenhouse Gas Emissions of a corporation’s activity, is especially important for organizations looking to reduce their environmental impacts, this is also the hardest to keep track of. For that reason, GHG emissions monitoring and tracking has become a world of its own - part of which is the GHG accounting. 

Greenhouse gas accounting is a way to track and measure a corporation’s carbon footprint by quantifying the total amount of greenhouse gasses it emits through its activities. By assessing the total GHG emissions emitted, corporations can mitigate their impacts on both the environment and society, by establishing emission-reduction targets or trading carbon credits. 

Typically, carbon emissions measures and estimates will include direct (scope 1) and indirect (scopes 2&3) emissions that are the outcome of processes such as burning fossil fuels, purchasing electricity, industrial processes, refrigeration, transportation end-of-life of products, deforestation, and more. By analyzing activities along its supply chain, the organization can learn where, when and what initiatives it can promote to lower its carbon emissions and become carbon neutral.

With all that in mind, it’s important to remember that ESG is made not only of the “E” (and even within the E, topics such as water conservation, waste management, responsible and sustainable supply chain and more, are just as equally imperative if we want our grandchildren to grow on a healthy planet), but also of the “S” and “G”. As a whole, ESG monitoring and reporting is increasingly seen as a standard requirement for businesses, who are expected to collect and report on their ESG performance, in the hope that monitoring will lead to understanding and managing these impacts and may be used as a business tool. What exactly falls under this umbrella? 

ESG provides a framework to communicate strategies and performance on a range of environmental, social, and ethical issues. The main challenges of ESG reporting are that each of its three domains presents different measurement and collection methods and frameworks, and unlike financial data reporting, ESG data is not yet straightforward to collect or monitor. It’s often held in disparate systems and managed by different personas in the organizational hierarchy, often sailing the ship without a renowned captain.

The “S” part includes everything that is social. We are talking about diversity and inclusion in the organizations’ workforce and supply chain, the health and safety of customers and employees, ethical consumerism, and a lot more parameters to track. The “G” part refers to the way organizations manage themselves and the relationships with their many stakeholders. Corporate governance is the system of rules, practices, and processes the organization is based and controlled by. Maintaining good corporate governance and enhancing the social aspects of a business could lead to better profitability for the long run while keeping a good reputation.