Has your business ever struggled to manage risks of environmental pollution, working procedures, and ethical governance issues and overcome them? Using an ESG rating is the answer!
If these challenges are often ignored, they will damage the environment with pollution, decrease work productivity, and lose the trust of customers and investors, decreasing your company’s value because of its ESG impact.
ESG rating principles can overcome challenges. ERP systems can provide the right solution to these challenges. With an ERP system integrated with ESG rating, your company will be automated in assessing environmental, social, and governance impacts.
Therefore, implementing ESG ratings is necessary at present. Let’s read this article to gain a deeper understanding of ESG ratings and how they can improve your business’s efficiency.
Table of Content:
Table of Content
Key Takeaways
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What is ESG Rating?
Before discussing ESG ratings further, it is essential for you first to understand what an ESG rating is. That will provide a clear picture and understanding of how the ESG rating works for your business.
ESG rating is a method for evaluating environmental, social, and governance impacts based on company performance. It can also assess a company’s efficiency based on the management of its internal operations.
The purpose of the ESG rating is to calculate the company’s ESG effect accurately so that the business owner and investors can determine how much impact is generated and provide problem solutions for the company’s sustainability.
How ESG Ratings are Calculated
After discussing the definition of an ESG rating, it is now time to delve deeper into how the ESG rating calculates the ESG factors, such as environmental, social, and governance. ESG ratings are calculated by assessing a company’s performance in three main areas:
- Environmental impact
- Carbon emissions and energy efficiency
- Waste management and pollution control
- Use of renewable resources
- Climate risk mitigation
- Social responsibility
- Employee working conditions and labor rights
- Diversity, equity, and inclusion (DEI) policies
- Customer protection and product safety
- Community engagement and social impact
- Governance practices
- Board diversity and executive accountability
- Anti-corruption policies and ethical business conduct
- Shareholder rights and transparency
- Data privacy and cybersecurity
These factors are assessed using company disclosures, third-party reports, and regulatory data. The final ESG score is calculated based on weighted criteria, with different rating agencies applying their methodologies.
Here are the ESG rating methodologies, along with their explanations:
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- Data collection
- Company-provided data: Companies provide detailed information on CSR reports, environmental impact assessments, and governance structures, including policies, program documents, reports, and records.
- External information sources: Analysts assess data from trusted sources, including media, regulators, and monitoring reports.
- Certifications and standards: Certifications like ISO 14001 (environmental management), ISO 26000 (social responsibility), and FSC labels boost ESG scores by demonstrating compliance with business sustainability standards.
- Audit reports: Third-party audits evaluate a company’s ESG compliance, measuring policy effectiveness and highlighting areas for improvement.
- Assessment: Reviewing the company’s ESG policies, practices, and performance.
- Weighting and scoring: Assigning weights to ESG factors based on their importance to the industry or company.
- Final score: Generating an ESG rating or score, typically on a scale (e.g., 0–100 or letter grades).
- Data collection
Top ESG Rating Agencies
Specialized ESG rating agencies, such as MSCI, Sustainalytics, S&P Global, and Refinitiv ESG Score, usually calculate ESG scores. Here is the explanation of how each ESG rating agency rates the ESG level of a company:
1. Morgan Stanley Capital International (MSCI)
MSCI ESG Ratings is a company that manages financially relevant ESG risks and opportunities. MSCI uses a rules-based approach and identifies industry leaders and laggards based on their risk exposure and management compared to peers.
MSCI makes ratings range from leader (AAA, AA), average (A, BBB, BB), to laggard (B, CCC) and also evaluates equities, fixed-income securities, loans, mutual funds, ETFs, and countries of the companies.
2. Sustainalytics
Sustainalytics is an ESG research and analysis company in the environmental, social, and governance fields that supports every company to implement responsible ESG. ESG ratings evaluate a company’s risk exposure and its ability to manage those risks, resulting in a single score that reflects overall ESG risk.
Sustainalytics ESG Risk Ratings provide in-depth insights that prioritize key ESG issues, such as assessing risk through exposure and management, providing dynamic governance insights, ensuring cross-industry comparability, and incorporating forward-looking analysis.
3. S&P Global
S&P Global is one of the companies that can rate ESG on a scale of 0 to 100. The score is derived from a company’s responses to the S&P Global Corporate Sustainability Assessment (CSA), public data, and analytical modelling.
The ESG metrics assessment conducted by S&P Global refers more to the answers to the questions given to companies, dividing the questions in terms of criteria and dimensions so that it becomes an ESG assessment.
4. Refinitiv ESG score
It is a data-based score measurement that can show the value of a company’s ESG performance. Refinitiv ESG score is usually based on the relative performance of ESG factors with the company’s sector (for environmental and social) and country of incorporation (for governance).
The Refinitiv ESG score analyzes the most material ESG measures of each company as they are used to assess the overall performance of the company. The score is also derived based on the company’s relative performance.
ESG Rating vs ESG Reporting
ESG rating refers to an external assessment of a company’s environmental, social, and governance performance, typically conducted by third-party agencies. It provides investors and stakeholders with a comparative score to evaluate ESG risks and opportunities.
ESG ratings get data on various factors, including greenhouse gas emissions, workplace policies, board diversity, and community engagement, to assess a company’s overall performance. The ratings help investors, analysts, and stakeholders evaluate long-term sustainability and manage risks.
ESG ratings vary across agencies, as each applies different methods and criteria for company evaluation. They serve as one of many tools for assessing corporate sustainability.
On the other hand, ESG reporting is the company’s self-disclosed information about its ESG initiatives, policies, and performance. It includes sustainability reports, disclosures, and compliance with ESG frameworks such as GRI or SASB.
GRI provides sustainability guidelines, while SASB focuses on industry-specific financial impacts. ESG reporting also reports climate risks and tracks environmental impact. ESG reporting also integrates financial and non-financial data of the business.
Although slightly different, ESG ratings rely on ESG reporting as a data source, they also incorporate independent research, public data, and risk assessment to provide an objective evaluation.
How Businesses Can Improve Their ESG Rating
You may be wondering how to improve a company’s ESG rating. It is certainly a special challenge for you to improve your environmental, social, and governance impact rating. To help your company improve its ESG rating, we have outlined a few ways that your business can do so.
1. Environmental
The environment of a company requires special monitoring because it affects the natural environment, such as carbon footprint, resource usage, and waste management. Here is how you can improve environmental aspects:
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- Reduce carbon footprint: Adopt renewable energy, energy-efficient solutions, and carbon offset initiatives.
- Sustainable practices: Improve resource efficiency, establish recycling programs, and minimize waste.
- Environmental transparency: Share clear and detailed reports on sustainability efforts and results.
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2. Social
Social aspects refer more to the company’s relationship with employees, customers, and communities. It also focuses on diversity, labour practices, and community engagement. Here’s the right way to improve social aspects:
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- Diversity and inclusion: Implement policies that promote an inclusive and equitable workforce.
- Employee well-being: Ensure fair wages, safe work environments, and mental health support.
- Community engagement: Contribute to local communities through donations, volunteering, and partnerships.
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3. Governance
The governance aspect is related to leadership, business ethics, and transparency in a company’s corporate decision-making. Here’s how to improve it:
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- Transparency: Ensure clear and transparent engagement with stakeholders through comprehensive financial and ESG reporting.
- Ethics, anti-corruption/anti-bribery practices: Uphold ethical standards and prevent conflicts of interest across all levels, including the board and executives.
- Accountability: Implement stakeholder feedback systems and establish oversight committees.
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Your company can easily improve these three aspects of the ESG rating with the support of an ERP system. The HashMicro ERP system is certainly capable of providing effectiveness and efficiency in improving the ESG rating.
The system has been integrated with HashMicro ERP software so that your company can automate ongoing ESG rating checks automatically. Want to know more about HashMicro ERP software? Know the price scheme through the banner below.
Role of ERP Systems in ESG Rating Compliance
ERP systems are essential for businesses to track, manage, and enhance their ESG performance. Platforms like SAP Sustainability Control Tower, Oracle ESG Reporting, Microsoft Cloud for Sustainability, and Workiva offer integrated solutions to monitor ESG metrics.
Here’s how these tools support ESG rating compliance with their ERP systems:
1. HashMicro ERP system
HashMicro ERP system assists businesses in streamlining operations and improving ESG rating data integration. It uses ERP software that makes it easier for companies to monitor ESG ratings in real-time.
HashMicro ERP software streamlines ESG management through automated data tracking, sustainability reporting, and compliance oversight. With this integrated solution, businesses can boost efficiency, minimize risks, and drive long-term ESG sustainability.
Equipped with advanced analytics, HashMicro ERP helps businesses recognize ESG aspects that need improvement. The system also facilitates access to accurate and well-documented ESG reports, supporting data-driven strategic decision-making.
2. SAP sustainability control tower
SAP Sustainability Control Tower (SCT) helps businesses meet ESG rating requirements by delivering real-time insights, simplifying reporting, and enhancing sustainability initiatives. SAP improves ESG reporting by streamlining data collection and providing clear dashboards.
SCT integrates seamlessly with SAP ERP to give a comprehensive view of sustainability efforts. It embeds ESG data into key ERP processes and includes pre-configured data models, automated workflows, reports, and KPIs. SAP is a good ESG tool, but it is costly, complex, and requires extensive ESG training.
3. Oracle ESG reporting
Oracle ESG Reporting seamlessly integrates with Oracle ERP systems to help businesses monitor, manage, and enhance their ESG performance. It automates data collection, provides real-time insights, and simplifies reporting to meet ESG rating requirements.
Oracle ESG reporting ensures ESG compliance by automating data collection from business operations, providing real-time insights through dashboards, ensuring alignment with ESG standards, identifying risks and improvement areas, and enhancing transparency for investors and regulators.
Oracle ESG reporting definitely has its drawbacks, such as difficulty in customization, integration challenges, and data accessibility issues that can hinder efficiency and ESG decision-making.
4. Microsoft cloud for sustainability
Microsoft Cloud for Sustainability enables businesses to monitor, manage, and enhance ESG performance by seamlessly integrating sustainability data into ERP systems. It automates data collection, improves reporting accuracy, and ensures compliance with ESG regulations.
Microsoft Cloud for Sustainability centralizes ESG data and automates reporting. It ensures compliance with global standards and tracks performance in real-time. It seamlessly integrates with Microsoft Dynamics 365 for better sustainability management.
However, Microsoft Cloud still makes it difficult to make decisions when facing the challenges of reducing emission scores and reducing dependence on carbon compensation.
5. Workiva
Workiva supports ESG rating compliance by integrating financial and ESG data from ERP systems and other sources. It enhances reporting, ensures regulatory compliance, and improves data accuracy for ESG disclosures.
Workiva unifies ESG data from ERP systems for accurate reporting. It automates dashboards and ensures compliance with global standards. Seamlessly integrates with ERP platforms to embed sustainability data.
Workiva is effective for ESG reporting, but ERP integration is limited, data automation requires configuration, and flexibility is lacking compared to dedicated ERP solutions.
Improve Your Company’s ESG Rating with HashMicro’s Best ERP Software
Improving a company’s ESG rating requires initial steps that are not easy if done manually. But with the right technology, in the current era, these strategies can be carried out more effectively and transparently with the use of ERP software.
ERP software with an ESG rating improves the efficiency of company assessment and evaluation in environmental, social, and governance aspects. Therefore, choosing the right ERP system vendor is very important to ensure your company’s smooth workflow.
As the best ERP system provider, HashMicro ERP software can be the right choice in helping to realize your company’s ESG rating improvement efficiently. In addition, HashMicro ERP software can also make it easier for companies to monitor ESG scores in real-time, collect data accurately, and optimize ESG rating sustainability reporting.
HashMicro also offers a free demo to help companies improve their ESG management. This allows companies to explore key features and customize the system they want.
Here are the top features of HashMicro’s ESG software:
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- Carbon footprint and energy monitoring: This feature automatically calculates carbon emissions. Companies can easily find out the amount of carbon generated by their work activities.
- Auto-generate PDF report: This feature can help companies prepare ESG reports automatically so that they are more efficient and do not take a long time to report.
- ESG firm consulting: A feature that is useful in providing deeper insights into the application of ESG principles so that companies can consult on ESG policy expert guidance and recommendations.
- Beyond environment: This feature is able to measure diversity in the company, such as counting the number of women in the office. It also supports broader social and corporate governance aspects.
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Conclusion
ESG rating is a system used to assess a company’s environmental, social, and governance impact based on its performance. It also measures operational efficiency by evaluating how well the company manages its internal processes.
To effectively improve ESG ratings and realize sustainable ESG strategies, using technology such as HashMicro ERP software is the right solution to help your company achieve sustainability goals more quickly.
HashMicro has offered ERP software with various excellent features such as carbon footprint and energy monitoring, auto-generate PDF reports, and ESG firm consulting. This ERP software has been integrated to support the automatic improvement of environmental, social, and governance impact ratings.
If you want to try how this software works and experience the direct benefits of improving ESG ratings for your company now, click here to start the free demo!
FAQ ESG reporting
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What does ESG stand for?
ESG stands for environmental, social, and governance. ESG is often called sustainability. In a business context, sustainability is about the company’s business model, how its products and services contribute to sustainable development.
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Why is ESG important?
ESG (Environmental, Social, and Governance) has become crucial as investors and stakeholders are considering non-financial factors in their decisions. ESG factors help assess a company’s sustainability and ethical impact, influencing long-term success and reputation.
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What benefits from ESG rating?
ESG reporting can improve risk management, stakeholder engagement, better reputation, enhanced financial performance, and compliance with legal regulations.
