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How to monitor portfolio ESG performance


by Valerio Sabelli

Gone are those days when more or less important companies could carry on their activities with lack of care in their effect on the environment or in the exploitation of their employees. The innovation of ESG performance, in addition to having had a social and environmental impact on the world around us, also marked the emergence of a new factor that can represent, if properly supervised, a way to improve the outcome of our investments.

Let’s find out what ESG performance is, and how to monitor it, both from the point of view of investors and company under the magnifying glass.

What is ESG performance

To correctly define ESG performance, it is first necessary to clarify what ESG criteria are (Environmental, social and governance), defined in the UN’s 2030 Agenda for Sustainable Development (September 2015). We refer to a set of standard parameters relating to the company’s activities that are increasingly accessed by socially responsible and environmentally conscious investors. 

To evaluate the ESG company performance, it will therefore be necessary a real assessment that aims – relatively to the Environmental part – to assess which energy resources are used by the company, how waste and pollution are processed and weather the company will face now or in the immediate future risks related to the environment (for example, related to the emissions management in medium and long term, or the non-management of climate change aspects).  

For the Social “section”, donations to local communities, participation in voluntary activities by their employees and how the employees themselves are treated also contribute to good performance.

And finally, as regards Governance, aspects such as the company’s reporting methods, the ability to listen to stakeholders for important decisions, and the ability to avoid any conflicts of interest in choosing the company key roles are put under scrutiny.

In total, we refer to 17 objectives, divided into 169 total targets.

How to monitor ESG performance

It is certainly no coincidence that giants of the caliber of Amazon have created medium-long term plans for emission reduction (such as Shipment zero, that is the reduction of at least half of the CO2 emissions from their shipments).

Taking care of ESG performance and, from a communicative point of view, the perception we give on the outside, is a key factor in promoting a brand.

The focus on the design of these policies necessarily requires ESG financial performance monitoring tools, both from the point of view of the companies (in order to ensure to be in line with the expectations) and investors (to figure out where to invest minimizing the risks).

First of all, it is crucial to understand the company’s degree of maturity in which you want to invest in terms of ESG. We will have different “stages” where the company can place itself:

  1. The company has identified the issues relating to the ESG criteria
  2. The company has developed an action plan in this regard
  3. The company is incessantly monitoring the related KPIs to possibly correct the planned strategies
  4. The company shares and communicates, externally and internally, its approaches and results

If who reads the article is therefore a manager, that manager shall identify (without modesty or excessive critical issues) the stage in which his or her company is located and possibly contact the appropriate assessors to define the situation in a more precise manner and choose the next moves. 

What if you need to monitor the ESG performance of a supplier or an external company to invest in?

On the market, there are various software that allow you to define a real fingerprint of what for us are ESG criteria and to create different models based on artificial intelligence that analyze data and information divided by topic.

Hence, such software offers a plethora of integrations with different analytics platforms to group together these data with the information already in possession.

The data are usually obtained through a real mining of information that is available on the web, such as compliance data of various companies, articles, scientific studies and international legislations.

By combining all this information and managing appropriate reports and periodic reviews, it will be possible to monitor ESG performance and have clear projections relating to our company or our assets.