The explosion of environmental, social, and governance (ESG) ratings firms and rankings has generated tremendous public attention and discussion about which metrics are predictive measures of strong EHS and sustainability management programs.
The increasing focus by business leaders, Wall Street, environmental NGOs, and policy makers to evaluate a company based on its EHS and sustainability performance demonstrates the critical importance of these issues in 21st century business management. As the demand for information has grown, however, several issues have emerged that may be inhibiting more widespread transparency among publicly-held U.S. corporations:
- Internal Resources: Companies are understandably struggling to keep up with the flood of research requests. This challenge is especially prevalent among publicly-held U.S. corporations, where the task primarily falls to the corporate EHS manager.
- Lack of Transparency: Research firms do not typically disclose their methodology, the algorithms they use to derive ESG rankings, or their business partnerships.
- Questions about Relevancy: Lengthy surveys have led many corporate leaders to question how certain data points are relevant to their analysis, and whether this data even accurately reflects strong environment, health and safety (EHS) and sustainability management within a company.
- Need for Standards: There is a strong sense among companies that there needs to be greater standardization of the ESG reporting process, including explaining and validating data.
- Unclear Value of Participation: While leadership companies recognize the value of stakeholder engagement, it’s often unclear whether participation with ESG surveys advances this goal. There is also limited understanding of who the requesting entities are, who the audience for the ESG information and the explicit benefits of participation.
In the fall of 2010, the National Association for Environmental Management (NAEM) launched its ‘Green Metrics that Matter’ initiative as a way to understand and begin to address these issues for its members. The first phase was an audit of the ESG research landscape.
The second phase was an in-depth survey of what companies track and why. Heretofore, the conversation about what defines a ‘sustainable’ company had been driven by external entities; this research was the first to successfully document how leadership companies define and manage sustainability metrics internally. The third phase was a stakeholder dialogue between corporate leaders and ESG researchers to identify recommendations for the research process going forward.
To download a copy of the results, please visit: http://c.ymcdn.com/sites/www.naem.org/resource/resmgr/Docs/gmtm-2012-p3-report-naem.pdf