CCH Tagetik ESG & Sustainability Performance Management

ESG is a framework used to assess a company's sustainability and ethical performance. ESG helps investors make informed decisions by considering these non-financial factors, encouraging responsible operations, risk mitigation, and positive environmental and societal contributions.

Environmental, social, and governance reports include qualitative and quantitative information on three key topics: 

• environmental impact 
• social responsibility 
• corporate governance. 

The environmental aspect evaluates a company's efforts to be an environmental steward, reduce its ecological footprint, and promote sustainability. The social dimension focuses on improving lives and encompasses employee treatment, community engagement, and human rights. 

Corporate governance assesses a company’s leadership, transparency, and accountability. 

The larger goal of ESG is to protect the environment, the people companies affect, and the ethics under which companies operate. ESG reporting fosters transparency by exposing how organizations plan for, handle, and impact ESG factors. ESG reporting gives investors, consumers, and stakeholders an understanding of an organization’s ESG performance and values, and can serve to influence investing and purchasing decisions. ESG reporting provides a basis of comparison between competitors and holds organizations accountable for their ESG promises.

Corporate governance refers to the structures, processes, practices, policies, and rules that control and direct an organization and all corporate behavior. For companies, establishing corporate governance means a balancing act of stakeholders and their respective interests in an effort to align company activities with them.

There are two types of ESG stakeholders: internal and external. Internal stakeholders refers to those with interests within the company, including executives, management, the board of directors and employees. External stakeholders refers to anyone affected by the corporation, including customers, suppliers, shareholders, investors, financiers, government, regulators and the public at large.

Ideally, corporate governance creates a set of rules and controls that everyone in the company abides by in order to not just reach company objectives, but even in setting them. Corporate governance implicitly refers to managing and monitoring the activities within a company in order to mitigate risk and manage behavior in order to ensure corporate responsibility. It includes internal controls, performance management, reporting, disclosure, corporate values and data governance but that’s not all. A comprehensive approach to corporate governance puts all these processes within the larger social, regulatory and market environment.

For example, the UK’s Cadbury Report, the OECD’s Principles of Corporate Governance and the US’s Sarbanes- Oxley Act list a set of principles and guidelines that set a standard for corporate governance and internal controls in an effort to hold companies more accountable for ethics, record keeping and reporting integrity.

ESG regulations have landed on the desk of major authorities. The EU is leading the way with the EU taxonomy, Sustainable Finance Disclosure Regulation, and New Corporate Sustainability Reporting Directive all recently effective. Even in regions where compliance is not yet mandatory, many companies are voluntarily adopting ESG frameworks in order to demonstrate an early commitment to investors, consumers, and other stakeholders.