Top ESG Metrics to Track

Reporting is a way for companies to provide transparency to stakeholders on their business and operations. ESG (environmental, social, governance) reporting among companies has been increasing significantly and, in some countries, is no longer voluntary, but is regulatory.

Reporting is a great way for companies to highlight progress their company has made and by making public commitments, holds themselves accountable to their targets. Most companies include key metrics that they track year on year in their ESG reporting as they provide a way to track progress. While each company and industry will have different metrics that are material, there are some common topics that companies track metrics for, often guided by well-known frameworks and standards. Let’s look at some of these typical themes and metrics that may be useful for your company to start tracking. 

Carbon Footprint 

As climate change increasingly becomes a topic of concern, many standards, frameworks and regulations require reporting on GHG emissions. Companies report on their scope 1 and 2 emissions, or the emissions that come directly from their operations. However, companies have indirect emissions associated with their operations from their supply chain, so oftentimes companies also report on their scope 3 emissions. Understanding where your company’s emissions are coming from allows you to set targets and make meaningful reductions.  

When calculating your direct emissions, you have to understand your energy consumption which is also an important reporting metric. Reporting on metrics such as total energy consumption, the percentage from renewable and non-renewable sources, and energy intensity provides information that companies can use to reduce their carbon footprint, find operational efficiencies, and better manage their energy consumption. Reporting on GHG emissions and on key energy metrics provides transparency on a company’s environmental impact and allows them to make improvements. 

Climate Risks 

Businesses are experiencing new and worsening risks to their businesses as a result of changes to the climate and the transition to lower carbon economies. Stakeholders, especially investors, want to understand what the financial impact will be if these risks materialize and want companies to report on metrics that will provide useful insights on this topic. The Task Force on Climate-related Financial Disclosures (TCFD) has created guidance for these climate-related disclosures and multiple regulations have leveraged this guidance for regulatory requirements. In addition to reporting on your company’s strategy to identify and manage risks, metrics provide an understanding of the impact of climate-related risks and opportunities.

Metrics can include assets or business activities that are vulnerable to transition or physical risks (e.g., % of revenue from oil extraction, revenue associated with water withdrawn in areas of high-water stress), activities aligned with opportunities (e.g., revenues from products that support the transition to a lower carbon economy), or capital deployment related to these risks and opportunities (e.g., Total investments made in climate adaptation measures).[1] These metrics will give both your company and stakeholders an understanding of how significant an impact climate-related risks and opportunities will have on your company and how equipped your company is to deal with the risks.  

Water and Waste Management 

Effective water and waste management is important for preserving natural resources, reducing pollution, and limiting a company’s impact on the environment. Industries or companies that are water intensive can track metrics such as water consumption, water intensity, recycled water, and any effluents to water. Companies can gain insights into their water management so that they can find efficiencies, incorporate improved water treatment processes, and develop novel processes or equipment that reduce overall water consumption, all of which can be potential cost-saving for the company. Proper water management is especially important for companies with operations in areas of high-water stress or are prone to drought, so these metrics are important indicators to monitor.  

Waste management is important for companies of all industries as it lessons their impact on the environment and by reducing the amount of waste produced, the lower the cost for waste management services. Important metrics for companies to track are the amount of each type of waste (e.g., recyclable, compostable, hazardous), cost of disposal, and waste disposal rates. Companies can develop or improve waste management plans to reduce the amount of waste produced. Companies can find innovative ways to reduce the amount of material used initially, or maximize the use of material, or find ways to reuse scrap or byproduct. Tracking hazardous waste can also be important for regulatory purposes. Tracking waste disposal rates gives companies insight into their impact on the environment so they can set goals and work with other companies and waste management organizations to better dispose of their waste.  

Health and Safety  

Tracking health and safety metrics is not only important for maintaining a strong safety culture and protecting employees but is also necessary for regulatory purposes and reporting for ESG standards (when material). Some important metrics to track should focus on how many work-related injuries or illnesses occur, the type of injury/illness, the consequence of each injury/illness, and how many days an employee is unable to work or must work in a limited capacity.

These metrics can then be used to calculate rates of incidents (TRIR) and lost time (LTIR). These metrics give insight into the effectiveness of your company’s health and safety program and can highlight where corrective action may be needed to reduce workplace risks. Companies can also track worker compensation that resulted from more serious injuries as this can impact company and investor decision making. Health and safety metrics provide the information needed for companies to identify common work-related injuries and illnesses so that they can be prevented in the future.  

Diversity and Inclusion 

It has become increasingly important that employers develop a diverse and inclusive workforce as it can help drive employee retention and satisfaction, bring in new perspectives and ideas, and enhance company reputation. Many companies are publicly reporting on the diversity of their workforce to attract new talent. Not doing so, or having metrics that are not attractive, may make employers less competitive in the market for quality employees. Tracking racial and gender diversity metrics at various levels of the organization will give insights into the overall composition of their business and whether programs and initiatives to establish a diverse workforce are effective.

To gain further understanding, companies can conduct employee surveys to see whether DEI (diversity, equity, and inclusion) contributed to their interest in the company and their reason to stay and whether they feel the company has established inclusive environments at all levels of the organization. Employee surveys are a great tool to understand the direct impact your company has on the workforce so that new initiatives or improvements to existing ones can be made. Understanding the diversity within your organization and what’s important to your employees can make your business stronger.   

Executive Compensation 

Understanding the compensation of top executives within an organization can influence the motivation, performance, and retention of other employees. Companies can be transparent about the renumeration policies and practices of their organizations. They can also track metrics to ensure that compensation for executives is appropriately by tracking metrics such as total compensation or compensation as percentage of revenue or net income to determine if compensation aligns with the growth of the company.

Companies can also use metrics to compare top executives to other employees, such as excessive CEO pay ratio[2]. This gives insights as to whether the compensation for top executives is appropriate or extreme. Financial compensation is important for any employee so understanding the expectations tied to renumeration and how it compares to executives can provide motivation for the company’s workforce, influencing the overall performance of the company.  

Human Rights  

Human rights violations can be detrimental to a company, so it is important that companies are establishing and monitoring working conditions where they operate. Companies can monitor employee wages to ensure that they are livable for the areas they are operating, any incidents of child or forced labor along with how the company remediates it when a violation is discovered, and the number of grievances, resolutions, and time for resolutions. Along with regular audits, this can help companies understand if they have proper oversight on human rights within their organization or if they need a more robust program to monitor and prevent violations.  

Companies are often part of complex supply chains so monitoring their suppliers can also lead to more responsible practices. Companies can integrate due diligence into their procurement practices, so they are working with suppliers that also have policies and procedures to identify human rights violations in their operations. Companies can track the number of human rights violations (e.g., UN Guiding Principles on Business and Human Rights, OECD Guidelines) of suppliers and can make informed decisions on whether to continue working with that supplier. Establishing effective human rights protection within your own organization and within your supply chain enhances your company’s reputation and protects your workforce.  

Conclusion 

Data provides information to your company to determine the effectiveness of programs and procedures, insights on what is important for your business, and allows you to track progress towards your goals. Understanding the topics most pertinent to your business is a good starting point for determining which metrics to track.

Metrics should be chosen with the goal of making improvements in your business on those important topics. Gathering data is a cross-functional effort so getting multiple teams onboard and prepared is essential. Once you start gathering year-on-year data, your company can start identifying areas of success and areas of improvement and can start taking action.  

[1] Task Force on Climate-related Financial Disclosures Guidance on Metrics, Targets, and Transition Plans, October 2021 

[2] Final Report on draft Regulatory Technical Standards on the review of PAI and financial product disclosures in the SFDR Delegated Regulation, 4 December 2023