What is a Good ESG Score? Your Helpful Guide
Tuesday, 31st May 2022
ESG stands for Environmental, Social, and Governance. It sets the standards for how a company operates in the context of its environmental, social, and governance practices. ESG considers dozens or—even hundreds—of factors in those three wide-ranging areas.
These might include:
Environmental, such as a company’s carbon emissions, energy usage, and waste.
Social, such as employee satisfaction, retention, and diversity within the workforce.
Governance, such as corporate culture, pay ratios, and company ethos.
There are a number of regulations, certifications, and frameworks that can be used to measure and demonstrate ESG performance.
Each of these has a different purpose and scope. For example, WELL is concerned with human health and well-being and is completed at the building project level, while GRESB is an overall measure of how well ESG issues are integrated and conducted at the organizational level. These different systems are often interrelated, in the above example, WELL can be reported within (and receives partial recognition) in GRESB.
In this post, we focus on ESG ratings which are typically generated to understand a company's ESG performance and consumed by participants in the financial markets. Common examples include MSCI Sustainable Impact, MSCI Low Carbon Target, and Sustainalytics ESG Risk Ratings.
ESG factors are determined and calculated by third-party firms that specialize in ESG ratings. They use a range of methodologies and consider many factors when determining a company’s ESG rating.
Some ESG ratings (or ESG scores) methodologies give a range from 0-100, with 70 and above considered a “good” ESG rating and 50 and below considered a “bad” rating. But others use a letter-based scoring mechanism—C (or CCC) being the worst and AAA being the best.
What are the benefits of having a good ESG rating?
A good ESG rating is beneficial for a number of reasons:
ESG rating is used by investors to decide whether or not to invest in a company.
Some governments use ESG rating to help determine whether a company can operate within its borders.
You can get a snapshot of your working practices and operational performance.
You also get the benefit of being independently verified as having a sustainable business model in terms of your environmental impact, social practices, and corporate governance structure.
Companies with better ESG ratings tend to also be more productive and profitable due to having more efficient practices and a happier, healthier workforce.
Companies looking to better their ESG rating should consider incorporating smart building technologies. These will reduce your carbon emissions, energy, and waste—as well as increasing employee satisfaction and retention over a relatively short period of time.
For more info about how Infogrid can help you with your ESG rating, get in touch here.
What is a good ESG rating, and how can it be achieved?
A good ESG rating is considered to be between 70-100. So how can you get there?
In our experience at Infogrid, we’ve seen the huge advantages for companies that switch to a smarter building and workplace management. This can have a real impact on ESG ratings.
Here are some ideas around using smart building technology to influence ESG ratings:
Improve your energy efficiency
Manually managing a workplace’s climate—from lighting to humidity and temperature—is time-consuming and leads to inefficient use of resources. This equates to poorer ESG ratings.
With IoT (Internet of Things) sensors plugged into a Building Management System (BMS), climate control can be predominantly automated, with the sensors detecting temperature and adjusting the controls to create the optimal working environment.
Using sensors will give you smarter heating, ventilation, and air conditioning (HVAC) systems throughout your building, creating comfortable spaces while limiting energy usage. One leading supermarket we worked with was able to save $1.6 million a year on HVAC alone.
Minimise your waste
Manual maintenance of buildings and office sites can lead to excess waste. And excess waste is certainly something that will lower a company’s ESG rating (on the environmental criteria).
When building maintenance isn’t automated, this may result in overdue maintenance checks or site engineers not being alerted to potential issues before they become an expensive problem. This leads to costly replacements, repairs, and an increase in waste.
Automated sensors—such as the pipe monitoring sensors we install in pipes to track the quality of the water supply—is just one solution we can mention. It automatically monitors the water temperature and movement, which reduces the risk of contamination.
Leak detection sensors can detect leaks before the problem becomes too big, saving wasted water, labour costs, and damages in the future.
In fact, the implementation of Infogrid’s smart building system in one leading global bank eliminated three metric tons of carbon emissions and thousands of litres of water wastage per building per year. Additionally, these sensors took just one hour to install, and it meant the company reduced the time it spent on water quality compliance by 81%.
These sorts of environmental improvements reflect positively in any ESG report, and are sure to improve your overall ESG rating when they’re taken into account.
Consider employee health, safety, and security
When it comes to the social aspect of ESG scoring, worker health and safety is a major part of this. So how can you improve employee health and safety at work?
Building management improvements certainly contribute to a safer, healthier workspace. This is because they enjoy a comfortable, clean, and well-managed working environment.
Plus, IoT-based systems that can measure occupancy and monitor doorways and windows. This also contributes to a safe working environment. For example, Infogrid installed discrete door monitors on approximately 8,000 fire safety doors on apartments for one client, ensuring they weren’t being propped open for large periods of time. This improves fire safety for occupants.
Door sensors can also help monitor security concerns such as tailgating and unauthorised access to ensure certain areas are kept secure. Similarly, sensors can monitor the opening and closing of windows. All of this contributes to a safer environment.
Improve worker satisfaction
Better working environments boost employee happiness and satisfaction. This is a crucial part of improving the social and governance aspects of your ESG rating.
Studies show that happier workforces are up to 13% more productive. This creates a positive domino effect in other aspects of a company’s ESG rating, such as sustainability and profitability.
For example, Infogrid implemented a smart cleaning solution in toilet facilities in a shopping centre in London. These monitored traffic, feedback, and usage using three discrete sensors. The switch led not only to savings of £15,000 a year for every ten bathrooms across the centre, but it also improved employee retention.
Put simply, giving employees direct access to feedback and channelling resources increased employee satisfaction and their likelihood to remain in the job. And lower employee turnover and greater happiness is hugely beneficial to a company looking to better its ESG rating.
Get in touch with Infogrid to learn more about how our solutions impact your ESG rating.
What is a bad ESG rating, and how does it happen?
When the scoring system ranges from 0-100, anything below 50 is considered to be a bad ESG rating. Generally, companies that are seen as bad for the environment (such as dirty energy corporations) or that have poor or unethical corporate performance will struggle to get good results on any ESG rating system.
But not all the negative factors are as obvious as oil spills or labour violations. Some negative things that may fly under the radar include:
Environmentally inefficient and manual practices
If you can automate routine tasks, your staff have more room for value-add projects and finding ways to improve their environmental efficiency. But everyone is tied up in day-to-day repetition, it’s difficult to get this space. By removing time-consuming and energy-intensive manual practices, your organisation can take action that will directly benefit your ESG rating.
Poor—or average—health and safety standards
Ensuring the health and safety of employees in the workplace is paramount. Automating checks will ensure that you’re consistently operating to the required standards. Compliance is a legal requirement—but you can also go above and beyond when you’re guided by technology.
If you aren’t putting employees and customers at ease with regards to health and safety, this will influence your ESG rating. Even if you’re fully-compliant, there’s always room to excel.
Failure to consider employee needs
Having recently seen the “Great Resignation” during the COVID-19 pandemic, it’s clear that many companies can do with improving the working lives of their employees. This means they need to keep asking for direct feedback on how to make work, and workplaces, better.
Failing to do this means big problems go unseen, and staff turnover will increase.
Lack of transparency and poor information-sharing
Failure to share important data with partners means that ESG monitors might be unable to provide a high ESG rating, even when you’re doing well on all fronts.
This doesn’t necessarily mean you’re hiding sensitive information—more likely you don’t have the capacity to collect, process, and share data about your ESG performance. You can change this by making your building smarter, and gathering the data you need to inform ESG analysis.
What are the challenges of reaching a good ESG rating?
One of the main challenges for companies looking to achieve a good ESG rating is the lack of consistency between ESG rating providers. As ratings are trying to quantify an incredibly broad, difficult-to-measure number of factors, there are major discrepancies between approaches.
This means it can be difficult for companies to know exactly which areas they need to focus on when they’re trying to improve their ESG rating.
Another challenge is cost. Major restructures—of working practices, physical locations, client bases, or other things—can be incredibly expensive. But when it comes to workplaces, retrofitting is more cost-effective than it seems. Installing sensors and a smart building system is remarkably affordable, and can have an immediate impact on ESG performance.
Final takeaways: what is a good ESG rating?
A good rating is anywhere between 70-100 on the ESG rating scale.
How you achieve a good ESG rating very much depends on the type of business you are, and where your ESG risks currently are. You can make inroads in different operational areas.
However, your building is a fantastic place to start. Our clients have benefited directly from having smarter solutions for cleaning, maintenance, climate control, occupancy, security, water management, and other areas. The end result is a healthier building, happier employees, and a lower carbon footprint. These are all key factors in any ESG scoring methodology.
Get in touch with Infogrid to see how we can help improve your company’s ESG rating.
