Growth Case Studies
What Is an ESG Score?
An ESG score or rating is calculated based on a company’s performance against environmental, social, and governance (ESG) metrics that are most relevant to its business. Examples include:
- Greenhouse gas emissions resulting from a company’s business operations.
- The diversity of a company’s workforce, not just in terms of race, but also gender fluidity.
- The company’s anti-corruption policies.
How Is an ESG Score Calculated?
In collaboration with our Sustainability Partner, C-MORE, Six Paths Consulting facilitates ESG assessments for businesses whereby your ESG score is calculated via an in-depth questionnaire. The assessment is based on 350 to 450 metrics that have been academically assessed and validated, inspired by the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Global Impact Investing Network (GIIN) methodologies.
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CEO, Keemotion
Frequently asked question:
This is one of the most frequently debated issues about ESG—its effect on a company’s financial performance. The answer to the question is unfortunately not a straightforward one due to the different rating systems and at times inconsistent methodologies used to calculate ESG scores.
Despite the above, a recent McKinsey article reports that “on average, companies that show an improvement in ESG ratings over multiyear time periods may exhibit higher shareholder returns compared with industry peers in the period after the improvement in ESG scores.” However, the article acknowledges that these findings are not yet conclusive as ESG ratings are comparatively new compared to financial ratings, and can be expected to continue evolving.
Nevertheless, the article goes on to underscore the bigger issue: if companies, especially those in high-polluting industries, wait for financially compelling data and a perfect rating process to be in place before committing to ESG-friendly practices, they may well find themselves out of business within the next 20 years.
There seems to be mounting pressure on companies to earn their social license to operate, which is based on legitimacy, credibility, and trust. So while a high ESG score might not increase a company’s profitability in the short term, not having one could lead to its obsolescence in the foreseeable future.
Despite the above, a recent McKinsey article reports that “on average, companies that show an improvement in ESG ratings over multiyear time periods may exhibit higher shareholder returns compared with industry peers in the period after the improvement in ESG scores.” However, the article acknowledges that these findings are not yet conclusive as ESG ratings are comparatively new compared to financial ratings, and can be expected to continue evolving.
Nevertheless, the article goes on to underscore the bigger issue: if companies, especially those in high-polluting industries, wait for financially compelling data and a perfect rating process to be in place before committing to ESG-friendly practices, they may well find themselves out of business within the next 20 years.
There seems to be mounting pressure on companies to earn their social license to operate, which is based on legitimacy, credibility, and trust. So while a high ESG score might not increase a company’s profitability in the short term, not having one could lead to its obsolescence in the foreseeable future.
Six Paths Consulting partners with C-MORE, a tech consultancy focused on translating sustainability into business using its management tool, ESG Maturity. We’ll combine our innovation programmes with C-MORE’s sophisticated ESG management system to help you develop sustainable business models for elevated performance. Talk to us to find out more.