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ESG rating: what is it and why is it important?
ESG, which stands for Environmental, Social, and Governance, represents the key areas of interest for socially responsible investors
It's an investment approach that acknowledges the significance of environmental, social, and governance factors and aligns with the principles of sustainability and responsible development.
ESG principles find their foundation in the United Nations' 2030 Agenda for Sustainable Development and the Paris Agreement.
In today's socio-economic context, ESG rating topics are gaining increasing prominence in public and institutional discussions.
ESG rating refers to the score that assesses a company based on its commitment to environmental, social, and governance issues.
Now, let's delve into these three ESG themes in detail:
Environmental
The first aspect examined in ESG ratings is related to environmental concerns. This includes all the initiatives a company undertakes to protect the ecosystem in which it operates.
A conscientious company in this context will pay particular attention to reducing CO2 emissions and pollutants while favoring the use of natural and renewable energy sources.
An environmentally responsible company not only seeks sustainability but also strives to minimize its negative impact on other areas, such as protecting biodiversity and water resources.
Social
The second aspect considered in ESG evaluations is the social dimension, which encompasses all corporate decisions and initiatives that have a social impact.
Among the three ESG aspects, the social aspect is the one most readily observable to external stakeholders.
While the environmental focus concerns the relationship between a company and its environment, the social focus shifts to the relationship between a company and its people.
Thus, positive actions involve principles like respect, meritocracy, equality, and individual rights.
An organization's commitment in the social dimension goes beyond the employer-employee relationship; it also considers the company's broader role in society, including initiatives that enhance community well-being.
Governance
The third and final criterion relates to the governance responsibility of a company. Assessment in this aspect provides insights into the management and corporate identity.
Governance evaluation is primarily concerned with internal organizational structures.
A high governance rating coincides with a company's active resistance to corruption in any form, adherence to meritocracy, and respect for shareholder rights.
Il rating ESG, tuttavia, non si esaurisce a mero strumento di classificazione, ma assume un ruolo fondamentale in quello che è l’attuale contesto socioeconomico orientato verso la decarbonizzazione. It also involves policies promoting diversity in the board of directors
ESG rating goes beyond classification; it plays a fundamental role in the current socio-economic landscape oriented towards decarbonization.
The United Nations' 17 Sustainable Development Goals (SDGs) serve as a reference for ESG parameters and can be utilized to manage ESG reporting and create long-term financial value.
Why ESG Compliance Is Vital?
Resilience
A high ESG score doesn't just reflect a company's commitment to the environment, society, and governance; it also underscores the company's ability to adapt effectively to future challenges.
Reduced Operating Costs
ESG-compliant organizations benefit from reduced operating costs, achieved through energy efficiency policies and responsible resource management.
Stock performance
Lower operating costs translate into improved stock performance. A study by McKinsey found that high ESG performance leads to positive returns on investment in 63% of cases.
Marketing Customers Loyalty
Companies that excel in ESG aspects, by enhancing the social, environmental, and organizational contexts in which they operate, build a stronger corporate image. This strengthens the company's credibility and fosters consumer trust.