Unveiling The ESG Acronym, Part I, “E”

Acronyms are abundant in our world, whether learning what TBH (TBH = to be honest) means in a Facebook comment or defining what VOC stands for on an environmental lab report (VOC = volatile organic compound). It's essential to take the time to unveil what they stand for and the importance and implications their concepts have in our lives.

ESG (Environmental, Social, and Corporate Governance) is an acronym you may have seen recently. You may have read about it in a magazine, heard it on a podcast or read about it on our website. There is no indication that it will lose relevance any time soon. In fact, according to a study shared in a March 2023 Forbes article, 64% of surveyed individuals who self-identify as Millennial people believe that ESG principles will become the standard for future business. In many ways, ESG has transcended from an acronym to a financial, social, and sometimes political buzzword. In our April 2023 blog by Jennifer Cronin, BBJ Group's Environmental, Social, And Corporate Governance Practice, we discuss the basics of ESG. We will look to expound on that in this blog series.

As businesses respond to the call to balance profit with purpose and accountability, understanding the "E" in ESG becomes essential. In this blog, we will delve into what the "E" represents and unpack how disclosures surrounding environmental impacts can help drive positive change and support global accountability in our changing world. In this series of blog posts, we will build off our foundational understanding of ESG and separate it into its three components.

Elements of "E"

The "E" in ESG stands for 'Environmental,' encapsulating a corporation's use of energy, water, and materials and their contribution to greenhouse gas emissions, pollution, and waste. 'E' data can include three scopes of greenhouse gas emissions: Scope 1, 2, and 3. The EPA explains these Scopes further here, and a summary is provided below:

• Scope 1 emissions have a direct tie to the company operations or property and might include emissions generated by company vehicles or facilities.
• Scope 2 emissions are related to the purchase of electricity, heating, or cooling,
• Scope 3 emissions are from upstream or downstream sources utilized by the company but not owned or directly controlled by the company.

Responsible water management has emerged as a critical pillar of environmental commitments, reflecting the growing recognition that water is a finite and invaluable resource. ESG standards, like those written in the Global Reporting Initiative (GRI), increasingly amplify the significance for companies to address water-related challenges, which include tackling water scarcity by efficiently managing water resources and enhancing water efficiency across their operations. Equally important is adopting best practices for water discharge, ensuring that the water released back into ecosystems is high quality and meets regulatory standards.

Like water use and greenhouse gas emissions, biodiversity is housed within the 'Environment' section of the ESG framework and encompasses life across many different ecosystems around the globe. This dimension of ESG reporting aims to recognize a company's role in preventing habitat destruction and species loss and its role in promoting ecosystem health. A focus on biodiversity underscores a company's social responsibility by acknowledging its influence on local communities and indigenous populations, especially in resource-rich areas.

From reducing carbon emissions and conserving water to preserving biodiversity, promoting sustainable resource management is a common theme in the environmental component of ESG reporting, highlighting the 'E' as a critical pillar for businesses aiming to contribute to a better world.

Quantifying the "E" mpact

So, we know what the 'E' encompasses – but how can we make it meaningful? In other words, what is the 'e'mpact (see what I did there)? ESG reporting provides companies with the information they need to make necessary decisions and adjustments to maintain profitability while contributing to global climate goals. For example, let's say I have a mini refrigerator company, and for years, I have been manufacturing and distributing mini-fridges using R-404A as a coolant. R-404A might be just another acronym floating around in the universe, but more than that, it is a high Global Warming Potential (GWP) coolant, meaning, in this instance, one small canister of R-404A is as potent to the atmosphere as the fuel for eight cars over a whole year. Maybe, as the business owner, I was not aware of this when I began manufacturing the mini-fridges. However, the annual ESG report I receive points this fact out to me and suggests alternative, effective, low GWP coolants that would significantly reduce my impact on the environment.

Conclusion

In this blog, we have explored the components that make up the 'E' in ESG reporting and worked through an example where ESG reporting could give a business owner the knowledge and power to make company and climate-forward decisions. Stay tuned for our upcoming blogs in this series, where we'll dive deep into the "S" and "G" aspects of ESG—Social and Corporate Governance. Just as the "E" represents a commitment to the planet, the "S" and "G" signify the pivotal roles that social responsibility and ethical corporate governance play in shaping businesses that not only thrive but also inspire positive change. In the meantime, additional resources can be found here.