What are ESG criteria?
ESG criteria group many of the criteria used to assess organizations' impact on the environment and community into three categories: environmental, social, and governance.
Integrating ESG factors into business strategy and commercial practices is increasingly essential to identifying risks and opportunities related to long-term sustainability and contributing positively to society and the environment. Today, these factors are even recognized by investors and principals as factors in predicting an organization's success.
What are the three pillars of ESG criteria?
E for environmental: The impact of the company's activities on the environment. We are talking here about real responsible investment.
- Energy: Companies are reducing their energy consumption and favouring using renewable energies to minimize their ecological footprint.
- Greenhouse gases: They implement strategies to reduce greenhouse gas emissions, thus contributing to the fight against climate change.
- Water: Sustainable water management is adopted, with efforts to reduce water consumption and improve the efficiency of its use in production processes.
- Pollution: Companies undertake to limit air, water and soil pollution by adopting less polluting processes and treating emissions before their release into the environment.
- Waste: They develop and implement waste reduction, reuse and recycling policies to minimize their impact on landfills and the environment.
- Materials: Using sustainable and recycled materials is favoured, thus reducing dependence on non-renewable resources and reducing environmental impact.
- Encroachment: Companies are taking steps to avoid encroachment on natural ecosystems and working to conserve habitats, protecting biodiversity and ecosystem services.
S for Social: Impact of company activities on people and the entire community.
- Staff remuneration, health and well-being: Companies ensure fair remuneration of their staff while implementing programs supporting the health and well-being of employees to foster a positive and productive work environment.
- Human rights, equity, diversity and inclusion: They are actively committed to promoting equity, diversity and inclusion within their teams, thus guaranteeing a workplace that respects everyone's rights and differences. This commitment is also reflected in recruitment, training and internal promotion policies.
- Role in the community: Businesses recognize their influential role in the communities where they operate. They contribute positively to these communities' social and economic life through corporate social responsibility initiatives, such as supporting local projects, educational programs or volunteer activities involving employees.
G for Governance: Sound corporate governance often includes the following policies and procedures.
- Independent Board of Directors: Companies establish an independent Board of Directors (Board of Directors) to ensure objective and effective management supervision, thus contributing to making balanced decisions in the company's and its shareholders' best interests.
- Anti-corruption policies: They adopt strict policies to combat corruption in all its forms, ensuring ethical business operations that comply with legal and regulatory standards.
- Lobbying rules: Companies establish clear rules regarding lobbying, ensuring that all political influence activities are conducted transparently and ethically.
- Whistleblower policy and hotline: A whistleblower policy accompanied by a confidential hotline allows employees and stakeholders to report unethical or illegal practices anonymously.
- Financial (and ESG) reporting: Companies commit to transparent and accurate disclosure of their financial information and ESG performance, thereby strengthening the confidence of investors and other parties stakeholders.
- Independent audit and audit committee: An independent audit is carried out, supported by an audit committee within the CA, to review and validate the integrity of financial information and compliance with accounting practices.
- Risk management policies: Risk management policies are developed to identify, assess and mitigate financial, operational, legal and reputational risks to which the company may be exposed, thereby ensuring its stability and sustainability.
What are ESG criteria for?
Environmental: These criteria examine how a company behaves as a steward of the environment. They assess its impact on the natural environment, including waste management, biodiversity conservation, reduction of greenhouse gas emissions, and sustainable resource development.
Social: These factors assess how the company manages its relationships with its employees, suppliers, customers, and the communities where it operates. This includes considerations of human rights, fair work, occupational health and safety, and the social impact of the business.
Governance: They are concerned with corporate governance and assess management structure, ethical practices, conflicts of interest, executive compensation, and transparency in decision-making.
Why use ESG criteria?
Using ESG (Environmental, Social and Governance) criteria in business offers several significant advantages, not only to improve sustainable development and the ethics of business practices but also to strengthen long-term performance and competitiveness. Here are some key reasons why companies are adopting ESG.
Talent attraction and retention, ESG standards
Companies committed to sustainable and ethical practices often attract employees who share these values. This can improve employee satisfaction and retention, as well as their productivity and commitment to the organization.
Brand reputation and trust
Companies that engage in sustainable and responsible practices can improve their reputation, build customer trust, and solidify their market position. This can result in increased customer loyalty and increased brand appeal.
Positive contribution to society and the environment
By integrating ESG criteria into their operations, companies can significantly tackle environmental and social challenges, such as climate change, social inequality and corruption. This helps contribute to a more sustainable and equitable future for all.
Andrew Ross, director of ESG practices at KPMG, believes most Quebec SMEs firmly commit to integrating ESG criteria. The only downside is that few take action: “Many do not yet understand the ESG issues that impact their business or do not know where to start to take action."
A new KPMG survey indicates that 69% of SMEs need the data to effectively measure or evaluate their carbon footprint. (Source La Presse, October 2023)
How to implement ESG criteria in business?
Implementing ESG (Environmental, Social and Governance) criteria in a company requires a strategic and integrated approach. Here are the key steps to successfully achieve this integration:
Management commitment
The process must start with a strong commitment from the company's management. Senior management must understand the importance of ESG criteria and commit to integrating them into corporate strategy.
Evaluation of current performance
Conduct an audit or assessment of the company's current ESG situation to identify strengths and areas for improvement.
Definition of ESG objectives
Based on the assessment, clear and measurable objectives for each aspect of ESG criteria should be set. These objectives must be aligned with the overall company strategy.
Integration into business strategy
Integrate ESG objectives into company strategic planning, ensuring they are considered in all decisions and operations.
Implementation of policies and procedures
Develop internal policies and procedures to guide the company in achieving its ESG goals. This may include guidelines for environmental management, social responsibility and corporate governance.
Training and Awareness
Organize training and awareness sessions for all employees to inform them about the importance of ESG criteria and their role in achieving set goals.
Implementation and monitoring
Implement policies and procedures and regularly monitor progress against ESG goals using key performance indicators (KPIs). Adjust strategies and actions based on the results obtained.
Transparent communication
Communicate regularly and transparently with stakeholders (employees, customers, investors, etc.) about the company's ESG commitments, progress made and challenges encountered.
Continuous evaluation and improvement
Regularly evaluate ESG initiatives to identify successes and areas for improvement. Use this information to improve ESG strategies and practices continually.
Collaboration and partnerships
Collaborate with other organizations, industries and interest groups to share best practices, address common challenges and amplify the impact of ESG efforts.
Implementing ESG criteria is a dynamic process that requires long-term commitment and a willingness to adapt business practices to meet growing stakeholder expectations for sustainability, social responsibility and governance.
Fuel your thinking with these examples
Here is a list of topics to fuel your thinking about your organization's ESG performance. Use them to assess yourself and set sustainability goals.
Environmental criteria
Product (manufacturer, distributor)
- Raw materials
- Packaging
- Transport (all stages)
- Production losses and residues
- Water consumption in production
- Wastewater management
- Gases released
- Waste generated (at consumption)
Services + administrative side of businesses
- Business travel
- Telework
- Measures to encourage carpooling
- Paper saving
- Product promotional material
- Event planning
- The carbon footprint of servers
Social criteria
Human resources
- Fair and equitable remuneration
- Measures to promote the health and well-being of employees and their families
- Equity, diversity and inclusion policies for hiring
Role in the community
- Price list for NPOs
- Pro bono mandates
- Volunteer Initiatives
- Sponsorship of events or initiatives in the community
- Training for employees (to make them “better citizens”, help resources for those around them, etc.)
Governance criteria
Management and board of directors
- Current composition
- Selection criteria
Policies and Regulations
- Anti-corruption policies
- Lobbying rules
- Whistleblower policy and hotline
- Financial reporting (and ESG reporting)
- Independent audit and audit committee
- Risk management policy
Here are examples of companies that are following suit
Loop, a well-known Quebec food company is rescuing rejected fruits and vegetables because they are not the right shape or size to end up on supermarket shelves or have a shelf life that is not long enough to survive the distribution cycle. It transforms them into delicious, diversified products available to consumers and purees and juices to be used as raw materials for other food processing companies. For this company, reducing food waste is not a secondary objective of their activities; it is their primary mission!
Pomerleau, a construction company aims to electrify 75% of its vehicle fleet by 2025 and to increase the number of building projects aiming for sustainable certification by 30%. When a large company decides to go green, it significantly impacts an entire industry.
Cascades, a Quebec paper manufacturer has chosen to reduce its water consumption by 4.3% compared to the average for the North American pulp and paper industry and to reduce its production of greenhouse gases emitted by 42%. Per tonne of product compared to the North American pulp and paper industry average. With such ambitious objectives, it is not surprising that this Quebec flagship ranks among the 100 most responsible companies in the world, according to Corporate Knights.
Tackling ESG criteria can be scary
Would you also like to follow the movement? Do you have fears about the resources and means available? It is possible to begin to change quietly, one step at a time. Here are some tips to help you in the process:
- Start small, but start now: Covering all the criteria in the first year is optional. Gradually expand your criteria and goals over time.
- Do it as a team: Engage all teams, form a representative committee with members from different departments and pursue these initiatives collaboratively.
- Take inspiration from the giants of your industry: Sustainability reports published by major companies are available online. Use them as inspiration and consider whether any of their strategies or goals can be adapted to your situation.
The importance of communication
If a company goes to great lengths to meet ESG criteria but fails to communicate these initiatives, it risks missing critical opportunities to attract new customers and generate investor interest.
Consequently, it is essential to highlight the steps taken from the start, even if the objectives set seem modest. Transparency and communication around ESG actions are ethical practices and an innovative business strategy that can differentiate a company in the market, strengthen its reputation, and build a deeper connection with its stakeholders.
The company is committed to sustainable and responsible practices by making these efforts visible. It opens the door to growth and financing opportunities by aligning its values with those of its customers and potential investors.
ESG factors that will impact your business
In conclusion, adopting ESG criteria represents more than simply conforming to market trends or responding to societal expectations. It is a profound transformation that can redefine a business's success and sustainability in the modern economic landscape. Environmental, social, and governance factors are not only corporate responsibility indicators; they have become essential levers of growth, innovation, and competitiveness.
Companies that effectively integrate ESG principles into their overall strategy enjoy many benefits, from an enhanced reputation to expanded access to capital to increased talent attraction and retention. Additionally, by taking a proactive approach to ESG, companies can anticipate future challenges and open new avenues for sustainable and profitable development.
We invite you to contact us to explore together how you can stand out from the competition by publicizing your company's initiatives regarding ESG criteria. Let's make ESG principles, not a burden but an opportunity for growth and innovation.