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October 10, 2022

What is ESG?: Learn about ESG metrics, reporting, and investing

As due diligence regulations gain momentum globally and consumer activism continues pushing for sustainable products, it seems like ESG has finally made the shift from something that’s nice to talk about to an essential part of doing business. But what is ESG? Why is it important? And how can companies realistically balance the rising demands of ESG policies, metrics, investing, and compliance? Can you have ESG tracking without supply chain traceability? And is there reliable ESG software to help “do it all”?

What is ESG and why is it important

ESG stands for environmental, social, and governance and is a framework designed to help measure an organization’s impact on related factors. For example, the environmental portion may include what type of impact an organization has on greenhouse gas emissions, reforestation, or regenerative agriculture. The social aspect might focus on how a company works to support gender and diversity, equity, and inclusion throughout its organization or supply chain. Governance, which tends to take less of the ESG spotlight, might include internal audits, shareholder rights, and parameters for company leadership and executive pay.

ESG metrics, tracking, and reporting are becoming increasingly crucial for businesses across industries as markets shift toward more intentional, sustainable practices. The ESG framework is influencing government policies and global trade and compliance requirements, greatly impacting companies who do any sort of business internationally — even if they just source one ingredient across borders. ESG investing is also trending, with more and more socially conscious investors using the ESG framework to screen potential investments.

ESG can affect businesses across all industries, regardless of their for-profit or for-good model. However, most companies that are early adopters of the ESG framework and ESG software tend to be those with global supply chains, who wish to ensure that even the more remote, invisible portions of their business are taking care of people and the planet     .

ESG Companies & Examples

Examples might include fashion companies that source internationally want to ensure workers are being paid a living wage, with no forced labor involved. Maybe you own a coffee company and want to ensure the farmers who harvest your coffee beans are able to send their kids to school. Another example would be if you own a furniture company and you want to track, measure, and reduce its carbon footprint throughout production and shipping.

Even if you’re like some critics who dispute the effectiveness of tracking ESG, most experts recognize that while current ESG tracking and reporting falls short, it’s not going away anytime soon. ESG policies will change and standards will rise, so the quicker companies can get a handle on their ESG metrics, goals, and reporting, the better! Starting small is always an option— tracking one ESG metric, the social or environmental impact of one ingredient, or those of the components of one product. But the consensus is: the sooner you start, the better.

Companies who aren’t already hyper-aware of ESG compliance and metrics should start thinking about it immediately. But, more than that, they need a way to prove every claim they make.

Is there a risk that companies might greenwash if they attempt to back sustainability claims through an ESG framework?

 When done right, no. Using an ESG framework alone won’t save you from the risk of greenwashing—a term coined to mean making sustainability claims that are false or lack the data to back them up. It’s all about how you use the ESG framework. We recommend using the following “check-list” for ESG best practices:

  1. Reliable source-level data. Ensuring that whatever ESG-related claims you decide to make are backed by tamper-proof and reliable source-level data is the number one action you can take to avoid greenwashing.
  2. Trustworthy partner. Choosing a trustworthy traceability partner or ESG software that can help you streamline your efforts and connect them throughout your entire value chain from source (the farm, the landfill, the mine) to the shelf will be essential.
  3. Proactive agility. Leaders in ESG understand that this is not an exercise in ticking a box, rather it’s about consistent progress. Regularly reevaluate your ESG metrics and tracking, searching for ways to improve and scale.

How to choose the right ESG software for your company

Whether you’re a health & beauty brand wanting to track the ingredients of your sustainable moisturizer or a food & beverage company wanting to prove the percentage of recycled materials in your bottles you can leverage ESG metrics and software to start tracking and proving your impact today. 

As ESG trends, more and more software and partners pop up claiming they can track, achieve, and back your sustainability claims. So how can you choose the right ESG software or partner for your company? We suggest ensuring that your partner or software can provide you with the following four criteria:

  1. Source-level data. Most ESG partners rely on spot-level audits or high-level shipping data that don’t truly prove compliance or impact, nor give them actual data about what’s happening in their supply chain. Ensuring that your ESG software can get your raw data from the source–and keep it unaggregated even after mass balancing or the addition of other ingredients–is crucial to ensuring clean, honest data.
  2. Real-time reporting. Many ESG software or solutions today conduct audits or gather data on your behalf, resulting in third-party, delayed reports. Make sure that whatever partner you choose, it’s one that allows you to view, control, and report on your data in real time.
  3. Environmental & social metrics. It goes without saying that you should ensure the solution you choose can track the metrics you want to track. But just as important is ensuring that it’s capable of tracking the inputs you need to get accurate metrics. For example, if you’re trying to prove gender equality throughout your supply chain, is your system tracking what female farmers are getting paid versus male farmers for the same commodity?
  4. A direct connection to your supply chain. Traceability and ESG tracking are intricately connected. ESG tracking is incomplete if it is not directly connected to what’s happening in your supply chain. And incomplete data means risking fines and reputational damage for non-compliance. Most software solutions cannot get you true traceability down to the source or they do not integrate ESG tracking with their supply chain tracking. Whether you need to track carbon offsets or gender equality, you need software that gives you traceability and ESG visibility into every step of your supply chain.

A multi-solution software to help you achieve full ESG compliance — for any industry

BanQu is a true traceability platform built for companies across all industries, with multi-purpose solutions to prove your sustainability claims with real-time, source-level data. Our one-of-a-kind ESG dashboard enables companies to choose, track, and prove their ESG metrics throughout their entire value chains. Click here to request a demo!

BanQu creates blockchain solutions for some of the modern world's biggest challenges, such as supply chain transparency and identity platforms for impoverished populations. We believe that with blockchain's bright future, world poverty can become a thing of the past.

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