ESG and Corporate

Governance
 1 Topic presentation

2 Relevance

3 Key factors

Contents 4 How has evolved and current situation

5 ESG Metrics

6 ESG metrics benefits

7 ESG metrics challenges

8 Conclusion
1 Topic Presentation
ESG means Environmental, Social, and Governance and is related to a company’s
behavior. Environmental criteria take into account how a company safeguards the
environment. Social criteria examine how the company manages relationships with
employees, suppliers, customers, and the communities where it operates. Governance is
related to a company’s leadership, executive pay, audits, internal controls, and
shareholder rights.
ESG criteria are used to screen investments based on corporate policies and to
encourage companies to act responsibly. It is a set of metrics used to describe the
transparency, sustainability, and performance of a company.
2 Relevance
Since sustainability is becoming a central topic, boards should take into
consideration an ESG approach in order to compete and create value. By taking this
type of approach into consideration to use as a strategy, companies would be able
to build risk resilience and manage new growth opportunities.
Now, more than ever, investors, employees, consumers and the public in general
expect a company to be actively addressing ESG priorities and opportunities. Since
sustainability is impacting the relationship between companies and their
employees and stakeholders, companies should take action in order to not be at a
disadvantage.
By incorporating ESG factors into a long-term value strategy, a company can
surpass its competitors, improve profitability, and uncover new sources of value.
ESG metrics are an opportunity for companies to improve their image and increase
performance. Besides that, those metrics can reveal where a business is at risk,
guiding companies on where to focus.
3 Key factors
Key factors that will enable boards to effectively achieve their sustainability goals
while capitalizing on emerging opportunities include:
Integrating ESG into a long-term growth strategy
External and internal challenges, such as how to drive long-term value in a
volatile and challenging environment and how to generate long-term value
when the board’s role in ESG is still evolving
Three priorities that support strategic decision-making on ESG: An effective
board operating model, new approaches to reward and remuneration and ESG
reporting will support long-term sustainable growth.
4 How has evolved and current situation
In the past few decades, ESG analysis has become mainstream. Historically,
sustainability ratings were offered only to select groups such as church investors,
ethical funds or small specialty banks, which were primarily interested in upholding
ethical standards. Sustainability research is now seen as an essential part of
managing risk and opportunity in investments by mainstream investors.
Recent events, like the financial crisis and major environmental catastrophes, as
well as governance scandals, have triggered the shift. Additionally, sustainable
information and data have become more accessible, relevant, and pervasive across
capital markets, which has grown exponentially in recent years. Regulatory and
voluntary initiatives have also played a key role.
Despite ESG metrics not being required to be included in financial statements for
publicly traded companies, a growing number of companies are including them. A
growing number of regulators are in agreement that public companies listed on
most global stock exchanges will be required to disclose ESG factors.
5 ESG metrics
ESG metrics are divided into three categories – environmental, social, and governance.
Environmental: company’s impact on the planet, such as climate-change initiatives;
Social: how the company treats its employees, stakeholders and the societies in
which it operates;
Governance: set of organizational practices, controls, and procedures used to ensure
the company is doing what it claims to do.

Environmental

Social

Governance
5 ESG metrics
Metrics included in ESG categories:
Environmental: Greenhouse gas emissions, Air and water pollution, Biodiversity,
Business circularity, Deforestation,Recycling and waste management, Water
security, Energy efficiency, Product carbon footprint;
Social: Diversity and inclusion, Corporate social responsibility, Data protection
and privacy, Labor standards, Animal welfare, Product safety, Responsible
sourcing, Sustainable supply chain, Conflict minerals;
Governance: Board composition, Management diversity, Shareholder rights,
Lobbying activities, Executive compensation, Accounting transparency,
Reporting and disclosures, Conflict of interest, Shareholder actions, Investor
relations.
6 ESG metrics benefits
Companies that manage their environmental, social and governance assets
effectively can be more profitable and resilient in the long-term, since they can
anticipate and manage risk better than the others. Besides that, ESG criteria can be
used to identify which companies are innovators and leaders in a certain market.
There are many benefits of using ESG metrics and some key ones are:
Helps companies track their progress on sustainability goals;
Encourages companies to be more transparent about their environmental and
social performance;
Can lead to cost savings by identifying operational efficiencies;
Builds trust with stakeholders and can attract investment.
7 ESG metrics challenges
Besides the benefits, it's important to take into account some of the ESG Metrics
challenges:
Data availability – there is a lack of consistent and reliable data which makes it
difficult to compare companies across different sectors;
Data quality – even when data is available, it is often of poor quality which
limits its usefulness;
Standardization – there is no globally accepted set of standards for measuring
and reporting ESG data, which makes difficult to compare companies;
Time and effort – collecting and analyzing ESG data is time-consuming and
resource-intense.
Despite these challenges, since more investors are becoming interested in this
aspect, it's expected to see greater progress regarding the challenges mentioned
above.
8 Conclusion
Many different industries have applied ESG concepts to promote sustainability. The
potential for cost savings, increased efficiency, and risk reduction are some of the
associated benefits. The result will be even more positive as more companies
adopt ESG principles.
An ESG strategy implementation is not just about benefits since companies will
face both challenges and opportunities as they pursue ESG priorities. In order to
have success, it is imperative to have strong corporate governance and a central
role for boards if companies are to drive and achieve the cultural and mindset
changes required to achieve sustainability. Having the operating model, data, and
capabilities to provide strong direction and support, as well as embracing
innovative approaches to reward and remuneration and ensuring ESG reporting is
optimized, are key to building a good strategy.
Thank You!