Greener Future: Calculate Your ESG Score

ESG score calculation provides a self-portrait of your impact on the planet and its inhabitants. It acts as a mirror, reflecting the nuances of your environmental footprint, your social interactions and the ethical structure of your leadership.

In the first part of the Greener Future blog series, we looked at global action on sustainability from different countries, current pension funds worldwide, and ESG ETFs. We now turn our focus inwards, recognising that global change begsins with individual action. The road to a sustainable future is paved with our daily choices, and understanding the weight of our choices is critical.

What is the meaning of ESG?

An environmental, social and governance (ESG) score measures an individual or company's performance on key sustainability and ethical criteria. Investors and stakeholders use ESG scores to assess a company's commitment to responsible business practices and its impact on the environment, society and governance structures.

The score typically considers factors such as carbon emissions, labour practices, diversity and inclusion, board composition and ethical business conduct. A higher ESG score indicates that a company effectively manages its environmental and social risks, demonstrates good governance and adheres to ethical principles, which can be valuable information for investors seeking sustainable and socially responsible investment opportunities.

What is the starting point?

ESG is closely aligned with various UN initiatives and frameworks, in particular the UN Sustainable Development Goals (SDGs). Launched in 2015, the SDGs are a set of 17 global goals designed to be a "blueprint for achieving a better and more sustainable future for all" by 2030. These goals address global challenges related to poverty, inequality, climate change, environmental degradation, peace and justice. Many of the metrics and considerations in ESG scoring align with these goals, such as climate action, responsible consumption and production, and reducing inequality.

While the UN does not directly oversee ESG rating, the organisation's work in promoting sustainability and responsible business practices has had a significant impact on the development of ESG criteria and reporting. Bodies such as the UN Global Compact and the UN-backed Principles for Responsible Investment (PRI) have been instrumental in encouraging companies and investors to integrate ESG factors into their decision-making processes.

The importance of ESG score calculation

Why, you may ask, should you, as an individual, seek to quantify your actions through an ESG score? It is a pathway to self-awareness and proactive change. By understanding your daily choices' environmental, social and governance impact, you begin to see the imprint you leave on the world. It enables you to make informed choices, leading to a more sustainable lifestyle and profound social engagement. As we strive for a high ESG score, we inspire others, creating a ripple effect that can lead to a more responsible society.

How to calculate your ESG score?

The calculation of the ESG score depends on how important they are to you personally.

1. Define ESG categories and identify key metrics

The main ESG categories are assessed in three key areas: environmental, social and governance.

Environmental (E): Assess your impact on the environment. Consider your energy use, waste generation, transportation choices and use of natural resources.
Social (S): Assess your social impact. Look at your relationships, community involvement, diversity and inclusion efforts and your treatment of others.
Governance (G): Examine your governance practices. Assess your ethics, adherence to principles and decision-making processes.

Within each category, identify the specific aspects that are most important to you.

2. Collect data

Gather relevant data to support your judgements. This might include checking your utility bills, reflecting on your social interactions, and considering your ethical choices.

3. Set weightings

Determine the importance of each category and metric to you personally and assign weights accordingly. For example, if environmental impact is your top priority, give it a higher weight.

4. Assign scores or ratings

Specify measurable metrics for each ESG factor in its respective category. Metrics can be qualitative or quantitative, depending on availability and preference. For example, you could use a scale of 1-10, with 10 being the most sustainable or ethical. This is not a competition or a point system. Please be honest and objective in your self-assessment.

5. Calculate and evaluate your score

Apply the weightings you have determined to the scores for each ESG factor to calculate your overall ESG score. Multiply each score by the weighting, then add the weighted scores for environmental impact, social responsibility and governance practices. Finally, combine these weighted scores to arrive at your overall ESG score.

Who calculates for you?

As mentioned above, ESG scores vary from person to person. Finding an online calculator will, therefore, be a challenge. You can calculate it manually (see the previous section), use a calculator built into your wealth management application, or check out the various organisations and rating agencies that can help you calculate your ESG score. But remember that each organisation has its own methodology and data sources.

MSCI ESG Ratings: A global provider of investment decision support tools, including indices, portfolio risk and performance analytics, and governance tools. They use AI and alternative data to deliver dynamic, investment-relevant insights.
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Sustainalytics: Provides ESG research, ratings and analysis to investors and companies to help them assess ESG-related risks and opportunities. They assess a company's ESG performance across various issues, including climate change, labour practices and corporate governance.
Sustainalytics Risk Ratings - 360 Report eBook/MS_ESG_RR_360_Review_Ebook_Final.pdf
S&P Global: Providing financial intelligence and analytics, including credit ratings, benchmarks, and data for capital and commodity markets. They combine in-depth company engagement, reliable public data, and media/stakeholder analysis for comprehensive ESG insights.

https://www.spglobal.com/esg/csa/1000-datapoints-chart_1360x765.jpg

ISS ESG: A global provider of corporate governance and responsible investment solutions, analytics and advisory services to financial market participants. They have globally recognised expertise across the full range of sustainable and responsible investment issues.
https://www.issgovernance.com/file/2023/04/esg-corporate-rating-performance-scale.png
Bloomberg: A global financial services, software, and media company known for its Bloomberg Terminal and providing financial data, news, and analytics to professionals. Their methodology is based on a company's exposure to ESG risks and their ability to manage those risks, and they provide ESG scores for over 11,000 companies.
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Keep improving

ESG scores face challenges like non-standardisation, limited scope, and reliance on self-reported data. However, when calculating your ESG score, viewing it as a reflective tool is key. Recognise that your ESG score is dynamic and that there is room for improvement. Consistently evaluate your actions, set targets for improvement and track your progress. Focus on implementing positive changes in areas where your score is lower to improve your overall ESG performance.