ESG Evaluation Demystified: Unpacking the Environmental Factors

Overview of Environmental, Social and Governance (ESG)

• ESG factors are becoming more and more vital to investors.
• There is a distinction between ES, SO, and CG: CG is about how the company is run. SO is about how people interact with each other and their environment in groups. ES has to do with the effect humans have on the planet as a whole.
• ESG analysis can determine which companies will be financially successful, but it must be researched thoroughly to ensure credibility.
• When looking at an ESG profile, remember that there can often be trade-offs between all three factors (CG, SO, and ES).
• ESG is a relatively new concept in the investing world, meaning that there aren’t many opportunities for investors at this time.
• Rating agencies exist to help investors establish which companies have the healthiest ESG profiles.
• Every company presents different challenges and opportunities when it comes to analyzing its ESG profile.
• Be sure to do your homework before you invest!

Evaluation of the Environmental factors of ESG.

The following are clear evaluations of the environmental aspect of ESG.

What the environmental factor is all about.

• The impact made by companies on the environment.
• It’s all about the conservation of the natural world.
• It is based on the fact that business activities might affect and create environmental risk for ecosystems.

Examples of these environmental factors to be considered by companies include:

• Waste management:- This is simply adopting a circular economic principle that would help in managing waste responsibly.
• Use of Renewable Energy:- This system helps to reduce environmental pollution and participate less in climate alteration.
• Responsible practices:- Taking the value chain practices such as deforestation and animal welfare responsibly.
• Information disclosure:- Giving out the needed information on all environmental policies.
• Conservation of water:- Water has a huge impact on investments as it affects their overall environment in terms of food supply, health, and productivity.

Areas of a company’s impact on the environment.

1. Direct operation

• • The correlation between resource efficiency and financial performance is to be considered when evaluating comparable resource efficiency.
  • With more developed sustainability, companies tend to perform better than their associates.
  • One good approach to this is to impose the use of environmental policies into their operations.
  • A regular inspection should be conducted to lessen the impact of environmental factors on companies.
  • The influence of external factors will help small or startup companies to reduce environmental factor issues.

2. Supply chain

• • Supply chain issues are considered to be one major issue with a company’s sustainability.
  • The supply chain is very important to companies, especially large companies because their suppliers’ operation affects and impacts their outcome.
  • Environmental factors related to supply chains can’t always be controlled by companies but can be lessened and removed by suppliers if these companies can Impact them to do so.
  • Implementing a supplier code of conduct will help companies avoid working with unidentified suppliers that are not trustworthy.
  • On a risk-based approach, the following factors are considered by companies before selecting a potential supplier:
    • Country
    • Obedience with authorization
    • Sector
    • Reputational risks
  • Although, monitoring and accessing a complex supply chain and sustainability if a supplier is an impediment but with a collaborative effort, industries can be improved.

The green companies

A company is said to be green if the company is working on reducing the negative impact it could have on the environment. Here’s what it means to companies:

• Managing external impact: –If a company works on curbing the external effect of economic activity caused when creating wealth for investors, the coming is said to be going green.
• Following the 3Rs: –The use of these 3Rs helps reduce waste problems and their environmental impact. The 3Rs are Reduce, Reuse, and Recycle.
  • Reduce means protecting the environment through waste management.
  • Reuse means making use of a product again to reduce waste.
  • Recycle means the reproduction of new products using already used materials. This process reduces the emission of greenhouse gasses to the environment.