Hey you! Do you want to save the future? In a world of increasing environmental and social awareness, investing with your values in mind has become more important than ever. One way to do this is by incorporating environmental, social, and governance (ESG) factors into your home, habits, and investment portfolio. Saving the future is as easy as supporting the companies that share your values, and ESG is the framework that will help you determine who those companies are.
But what are ESG factors? And how can you create a personal ESG score for yourself? Keep reading to find out, but you may be surprised to find that you may already have incorporated sustainable actions into your routine. But if we are going to slow climate change and save our collective future, then we are all going to need to do a little bit more. But first, what’s this ESG thing again?
What is ESG?
For those who are already in the know, ESG stands for environmental, social, and governance factors. ESG factors take into account how a business impacts the environment and society in the course of its operations. It also includes how a company is governed. ESG is a way for organizations to be transparent about how they do business. In the past, companies took the profit out of the communities where they operated and often left a toxic mess for the people who served them. As we now know, this is not sustainable.
Sustainability is a three-dimensional concept that includes environmental, economic, and social considerations. They are increasingly being used by investors and stakeholders as criteria to assess a company’s value to the environment and the communities it serves at the global, national, and consumer levels. They are the guiding principles that will lead us to a sustainable future and are changing how we do everything.
What are the Environmental factors?
- Environmental impact: the effect a company has on the environment around it, such as waste and carbon emissions.
- Natural resources: how effectively companies use natural resources like water and electricity.
- Climate change initiatives (if any): what initiatives do companies take to limit their contributions to climate change?
What are the Social factors?
- Human rights: how well companies treat their employees, local communities, and society at large.
- Diversity: the representation of different races, genders, disabilities, etc. in hiring practices and leadership roles.
- Stakeholders: Being considerate of the communities and environment they operate in.
What are the Governance factors?
- Political contributions (if any): the extent to which companies contribute to political campaigns and whether or not they influence legislation.
- Executive compensation: how much money key company leaders make and whether there is a feasible correlation between their pay and the success of the business.
- Board diversity (if any): What percentage of board members are women or minorities?
- Job creation: how many jobs a company creates, especially those that pay a living wage and provide benefits.
In layman’s terms, ESG factors take into account how well a company cares for its stakeholders, communities, investors, employees, and partners as well as the environment around them. These important details will be reflected in a company’s ESG policies and sustainability initiatives. While some investors might argue that certain companies need to make sacrifices in order to achieve greater profits, ESG factors ensure that a business is held accountable for its practices and maintain a certain level of integrity. It is also related to the 3 Pillars of Sustainability People, Planet, and Profit.
What is the score?
An ESG “score” is set on a scale from 0-100, in comparison with a company’s industry peers. If you score a zero, then you have a bit of work to do. If you score 100 (as if), it is more likely that you need to reassess your scoring system. However, each company is responsible for evaluating their own score. Well, that may seem counterintuitive, there are many watchdog organizations that are on the lookout for companies who are greenwashing their communications.
What is a Personal ESG Score?
So then, I can hear the gears in your head grinding…what does this have to do with me, the average investor who just wants to save for retirement and send my kids (either real or imagined) to college? Great question! It’s really quite simple. To get started, you just need to answer a few questions:
Am I living sustainably? This is going to take a little soul-searching or a quick summation of your existence. Your pick. What you really need to do is just figure out where there might be room for environmental, social, and governance improvement. But we’ll get more into that later.
Can I measure myself against the same criteria as a business? Yes… with a few tweaks: just because you are not a business, that does not mean that the idea of measuring yourself against ESG standards cannot apply to your own life. After all, do you use water, consume products, produce waste, use motor vehicles, or eat beef? If you answered “Yes” to any of those, then you are either a part of the problem (one of a group that is not situationally aware) or you are a part of the solution (one of a group that is attempting to make changes in your life). You can still plot and measure your actions just as well as any Fortune 500 company. Think of yourself as the head of the board of governors of a complex hierarchy of inter-functioning systems. The CEO of Self!
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So what exactly are ESG scores or scoring?
Think about everything you do in a day and how it impacts the planet…food, heat, hot water, transportation, etc. All of those activities have an effect on the environment, on the communities where you live, and on the other people with whom you share the planet. Each can be measured individually and combined to get a score out of 100. Our personal behaviors and lifestyle choices have a much bigger effect than most of us are aware of.
If you score low, don’t panic: just think about the areas where improvement could happen. You could start by focusing on one area or you might decide to focus on a few at a time. This is about making incremental changes over time and is entirely your decision based on your life circumstances. The point is just to get started! You will pick up what you need as you learn more. The important part is to get started.
How do I begin?
So how do I begin? The first thing is to figure out all the possible areas where you might score yourself. Just pick a few from this list:
- Dietary choices (meat vs. vegan and how often, chocolate, etc.)
- Energy usage
- Transportation habits
- Attitude and outlook
- Environmental impact of your job or career choice
- Sustainable clothing choices
- Investing and investment
- Purchase of ethical goods (or purchasing them second-hand)
- Recycling habits
- Carbon footprint
- Personal contributions to betterment (random acts of kindness)
- Composting practices, grow your own
What are good sustainable food habits?
Eating organic foods is a great way to reduce your ecological footprint and improve your health. Look for organic options when grocery shopping, and try to cook meals at home using fresh, local ingredients. If you eat meat, choose responsibly raised options that are certified humane and have a low carbon footprint.
Another way to make more sustainable food choices is to reduce food waste. Plan your meals ahead of time, and only cook the amount of food you need. Store leftovers properly to extend their shelf life, and compost any food scraps instead of throwing them in the trash.
What are some good sustainable transportation habits?
If you can, walk or bike instead of drive whenever possible. This reduces your carbon footprint and is also good for your health. If you must drive, carpool when possible or take public transportation instead. When planning long-distance travel, consider taking the train instead of flying to reduce your carbon footprint. On the other hand, you might want to mitigate any travel through the use of carbon offsets.
What are some good sustainable home energy habits?
You can save energy – and money – by making some simple changes around your home. Some are very obvious and easy to start, like turning off lights when you leave a room. Unplug electronics that are not in use. Install energy-efficient light bulbs and LED lights which reduce power consumption by as much 90%.
Water waste is another area to focus on in the home. Fix any leaky faucets or pipes – a dripping faucet will waste over 5 gallons per day or 2,000 gallons per year. Install a low-flow shower head to reduce water consumption. Collect rainwater in a barrel to water your plants, and use grey water (where applicable) for other household tasks like flushing the toilet or doing laundry.
Where possible, either install solar panels or source solar power from others in your area. This allows you to power your home using renewable energy. With technology changing on a daily basis, properly installed solar panels will actually save you money in the long run and pay for themselves in the process.
What are some good sustainable purchasing habits?
When shopping for new products, look for items made from recycled materials or that can be reused or composted. Bring reusable bags with you to the store to avoid using plastic because once that plastic bag is in a landfill, it will take the earth approximately 1,000 years to break it down. By switching your purchasing power to zero waste items and plastic replacements, you will reduce your reliance on fossil fuels and help to reduce pollution. It will also reduce the war, famine, and geopolitical trauma that has become the negative side-effect of the fossil fuel industry.
Sustainable fashion is another way to shop sustainably. Look for clothing made from natural fibers like cotton, bamboo, hemp, or wool, and avoid fast fashion brands(slow fashion) that rely on cheap labor and produce a lot of waste. Instead, buy higher quality clothes that will last longer and support sustainable practices.
What are some good sustainable investment habits?
You can also make a difference by investing in companies that focus on sustainability. Avoid investing in companies that have a negative environmental or social impact. The most obvious way is to invest in companies that are leading the way in sustainability, renewable energy, or green technology. But there are many companies who are creating a sustainable world through coral farming to rebuild the oceans, earth mapping, vertical farming and reforestation of natural areas. There is money to be made in supporting sustainable development, so we highly recommend that you first learn how the markets work before you risk any capital.
What is the next step in the personal ESG process?
Next, you make a list of the things you do that have the greatest environmental and social impacts. Do not be too critical of yourself or your household. The key is to become aware of what impacts your actions have so that you can make incremental changes over time. (Do not get too deep into the weeds on this or you may be sucked down a rabbit hole and suffer analyses paralysis. In other words, it is easy to become overwhelmed and stop trying.)
What comes next is a bit more challenging: you need to track your scores over time. If you start with 5 subjects like food, transportation, energy consumption, travel, and plastic, then you can give yourself a score out of 20 for each and then add them together to get a score out of 100. Then once you learn more and become comfortable with the process, you can expand into measuring other elements or go granular with your existing measurements.
For example, you may decide to make sustainable clothing choices and energy usage on the first go around. You can also start learning about the markets right away and understanding what a sustainable business really is. If you want to make a real impact on supporting sustainable businesses and ensuring your future independence, then we recommend that you start learning how the markets work and then move into sustainable investment.
Then, over time you can add more areas or try new things. For example, one month you might decide to ride your bike to work instead of taking public transportation (this will definitely impact your score positively), and the next month you might plan a carpool (this will definitely impact your score positively). Every little change helps. The options are endless and you can pick and choose whatever areas impact your life the most.
Don’t forget: the idea of an ESG score is to figure out what’s working and what’s not so that you can take steps toward improving things. And, if you slack off, don’t worry. Every week you can give yourself a new score to keep your momentum going. Try doing it with some friends. This will help you all to become more sustainable, collectively.
In conclusion what is your personal ESG score
Everyone is different, so there is no right or wrong answer, only solutions. For example, if you live alone and have no issues with purchasing fair trade or sustainable clothing or food for one, then you are already ahead of the game.
Also, don’t forget to consider one of the most important things in this whole equation: YOU! It’s not a race so don’t make it difficult for yourself. If your score is low, then don’t beat yourself up about it. Change what you can and work on the rest. And if you’re happy with your score, take a moment to celebrate! Every step is a step in the right direction. Make it easy to improve at your own pace.
Risk ratings, credit ratings & lower risk investments
A Personal ESG score is a great way to estimate how sustainable your lifestyle choices are and gives you something tangible that you can work on improving. Whether you’re an individual or part of a company, if we all take steps towards making our lives a little more sustainable, then the world will be a better place for it.
When it comes to an ESG score for individuals, it is about living a sustainable life. ESG scores for individuals may be scoffed at by some, but your individual ESG rating or ESG score meaning for individuals is that you are making an effort to correct what is out of balance. In conclusion, it won’t be long before even the most cynical amongst us will be asking “What is my ESG score?” Kudos to you for being ahead of the curve. Keep up the good work, and just maybe we can turn this mess around. Just keep moving forward.
Terms and Definitions
- Supply chain: Supply chains are networks of organizations, people, activities, information, and resources that are involved in the production and delivery of goods and services. This includes activities such as procurement, logistics, production, manufacturing, design, marketing and distribution. The goal of supply chain management is to increase efficiency by optimizing the flow of resources throughout the entire process.
- ESG scores: ESG (Environmental Social Governance) scores are numerical assessments developed by rating agencies to measure a company’s performance on environmental and social issues. These scores provide investors with valuable insights into how well a company is managing its environmental impact, social responsibility initiatives, and ethical practices. They offer an objective way for investors to judge the sustainability of their investments across a wide range of industries.
- Company’s ESG score: A company’s ESG score is a reflection of its commitment to environmental protection and social responsibility. The higher the score, the better a company is performing in these areas according to rating agencies such as MSCI or S&P Global Ratings. The score provides investors with an indication of how well a company is doing in terms of reducing carbon emissions, investing in clean energy solutions, and managing employee engagement programs. It also offers insight into whether or not a company is taking steps toward meeting international sustainable development goals like reducing poverty or protecting biodiversity.
- Rating agencies: Rating agencies are independent firms that provide credit ratings on debt securities issued by companies and governments around the world. These ratings provide investors with an assessment of the creditworthiness of their potential investments based on analysis and research conducted by these firms. Ratings range from AAA (the highest credit rating) down to D (the lowest). Rating agencies use a variety of factors when assessing creditworthiness including financial strength, liquidity levels, and management quality among other criteria.
- Financial institutions: Financial institutions are companies or organizations that provide financial services such as banking, lending money, or trading financial instruments like stocks and bonds. These institutions act as intermediaries between savers looking for investment opportunities and borrowers seeking capital to fund their business ventures or personal needs. Financial institutions can take many forms including banks, brokerages, mutual funds, insurance companies, or private equity firms among other entities.
- Corporate reporting is the process of providing financial and non-financial information about a company’s performance in order to provide stakeholders with insight into the overall state of a business. Investment decisions are choices made by businesses or individuals that involve putting money into something with an aim to generate income or increase value. Sustainable companies are those that engage in environmentally conscious practices such as reducing their carbon footprint and utilizing renewable energy sources. A company’s carbon emissions refer to the amount of greenhouse gases released from activities such as burning fossil fuels, transportation, and manufacturing processes. Environmental scoring factors are criteria used to assess the environmental impact of a company’s operations, such as energy consumption, waste management, and sustainable sourcing practices; which can be used to create an overall score for a company’s sustainability efforts.
Caveats, disclaimers & personal ESG scores
At ESG | The Report, we believe that we can help make the world a more sustainable place through the power of education. We have covered many topics in this article and want to be clear that any reference to, or mention of ESG, sustainability, carbon, audit, or investing in the context of this article is purely for informational purposes and not to be misconstrued as investment or any other legal advice or an endorsement of any particular company or service. This also includes the mention of or writing about ESG performance, Bloomberg ESG data services, ESG investing, ESG factors, corporate governance, risk management, and corporate sustainability performance. Also mentions regarding the collecting ESG data, ESG rating agency or agencies, ESG disclosures, ESG rating agencies are not meant as a recommendation. Whereas the mention of issues regarding ESG issues, corporate disclosures, esg rating, esg metrics, asset managers, or ESG scoring in regard to ESG reports is pure coincidence, and not to be misconstrued as advice. This includes the scoring system, corporate boards, bad or good esg scores and/or climate risk. We highly recommend that investors use a financial advisor, certified financial planner, or investment professional before entering the markets. Thank you for reading, and we hope that you found this article useful in your quest to understand ESG and sustainable development goals and best business practices. We look forward to building a sustainable world with you.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SMEs and Investment professionals focusing on ESG principles. Their primary goal is to help middle-market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning, and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, UK, Europe, and the global community. If you want to get started, don’t forget to Get the Checklist! ✅