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The analysis of ESG goals criteria

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sustainability esg criteria

Author: Luigi Bottos, Head of ESG Product Management – RINA

ESG ratings have an increasingly significant impact on the functioning of capital markets and investor confidence by providing an objective opinion on the sustainability profile of a company or financial instrument, assessing its exposure to sustainability risks and its impact on society and the environment. But are they a representative tool of the company’s value and growth potential?

In whatever sector it operates, an organisation can be considered sustainable if it can have a competitive business position with stable returns over time, including in economic terms (operating margin, EBITDA, etc.), and if it can create shared and lasting value for all stakeholders.

This concept must be shared and developed at the individual organisation and value chain levels.

The stakeholders’ perspective

Although an organization would not exist without its economic dimension, the growth of sustainable businesses should be guided by ESG (Environment, Social and corporate Governance) factors by effectively distributing resources along the value chain and evaluating their strategic choices from the perspective of their stakeholders.

Indeed, stakeholders themselves are increasingly demanding reliable and harmonized ESG information from companies, which is crucial to avoid distortions in markets and the phenomenon of greenwashing.

The goal to be set

The real challenge for companies is not setting ambitious sustainability goals without a long-term vision: it is reacting to environmental, social, and governance issues by making sustainability a factor in competitiveness. One of the starting points is the creation and consolidation of a strong engagement between governance and its employees, which must then extend to the entire value chain by involving the customer/user as well.

Measure to improve

Companies need to measure their decisions and tangible impacts in ESG terms to identify their negative externalities and eliminate or, at least, reduce them. Only what is measured is improvable, Galileo Galilei said as early as the 17th century.

It is necessary to identify point indicators for each criterion to do this. For example:

  • For the environment, indicators that measure combating climate change, energy efficiency, efficient use of natural resources, etc;
  • For the social sphere, indicators measuring health and safety, equal opportunity and diversity management, customer privacy, and respect for human rights;
  • For corporate governance, indicators that measure, for example, economic performance, anti-corruption practices, procurement, taxation, and cybersecurity.

These aspects refer to the organization’s assessment methods, particularly its ability to align with requirements for all-round sustainable development.

Objective monitoring by a third party

To continue virtuously on its sustainable growth path, however, it is essential that the indicators and evaluation methods chosen are those required by stakeholders to avoid “convenience” choices.

ESG criteria also make it possible to measure, in an objective and shared way, a company’s activities (as well as their representation and related communication) in this area, which, for a long time, have been a free and independent choice on the part of organizations.

The approach of independent third-party verification services is not only based on the analysis of ESG criteria of an economic-financial nature, often processed by rating agencies through more or less structured databases and questionnaires.

Instead, it is based on the analysis of the ESG criteria applicable to the operational processes from which the goods and services placed on the market derive, including through on-site audit activities: the purpose is to verify the effective implementation of the strategies, defined objectives, and investments (measured through economic-financial indicators) made by a company.

ESG measurement indicators

Today, several ESG measurement metrics are available based on international models and standards, such as the Global Reporting Initiative (GRI) and IFRS, developed by the International Accounting Standards Board (IASB). Specifically, the GRI Standards are a modular system to be used together: universal standards, industry standards and subject standards, designed to facilitate ESG reporting and transparency.

In addition, from July 2023, there are the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG) in collaboration with the Global Reporting Initiative (GRI), which the European Commission adopted on July 31, 2023.

On Feb. 14, 2024, the European Council and Parliament reached a tentative agreement on the proposed regulation on ESG rating activities, which aims to strengthen investor confidence in sustainable products.

ESG assessment: the details

The ESG Assessment with rating activity developed by RINA consists of verifying the integration of Social, Environmental and Corporate Governance Responsibility into an organization’s organizational and operational policies and processes per the GRI Standards. It applies not only to the individual organization but also to its value chain.

The ESG Assessment activity considers key performance indicators in the three areas through a dedicated digital platform. Through the use of an independent and documented verification and “rating” method, an ESG Score Index is assigned, which allows for:

  • Assess the alignment of the organization’s activities and processes to defined KPIs customized by commodity sector;
  • Identify specific improvement goals that will be monitored over time.

The ESG of the port of Viareggio

This is the context for the supply chain ESG Assessment that RINA is conducting as part of the “CIELO” project.

The objective is to verify the level of integration of Social, Environmental Responsibility and Corporate Governance in the organizational and operational policies and processes of the concessionaires of the port of Viareggio: indeed, an ambitious goal for this Project designed and managed by NAVIGO funded by the Fondazione Cassa di Risparmio di Lucca on the call for productive supply chains implemented by Lucense.

ESG benefits

Integrating ESG aspects into one’s organization improves the effectiveness and efficiency of processes, resulting in benefits in terms of:

  • Reputation and competitiveness;
  • Attractiveness to workers, users, customers;
  • Motivation of its employees;
  • Relationships with investors, owners, donors, and the financial community;
  • Objective contribution to the achievement of sustainable development goals (e.g., UN-sponsored Agenda 2030 – SDGs);
  • Improving its positioning in ESG criteria management within its value chain;
  • Ensuring greater ESG accountability of the supplier to the supply chain leader.

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