ESG committed
What is ESG?
Our Travel Operator is part of The 360° Tourism Companies Program that encourages businesses in the sector to report on their sustainability performance, providing technical support for integrating ESG factors – Environmental, Social, and Governance – into their business strategy, management, and organizational culture. It also guides them in the regular reporting process of information related to their environmental, social, and governance practices.
The three dimensions of ESG
Environmental
Refers to whether the organization is operating as a steward of the environment and covers environmental issues like climate change, greenhouse gas emissions (GHG), deforestation, biodiversity, carbon emissions, waste management and pollution.
Social
Refers to the impact the organization has on people, culture and communities and looks at the social impact of diversity, inclusivity, human rights and supply chains .
Governance
Refers to how the organization is directed and looks at corporate governance factors like executive compensation, succession planning, board management practices and shareholder rights.
Why is ESG important?x
The impact a company can have on its surrounding ecosystem has become vividly clear, whether it’s on a global scale or within its local community. At the same time, people have become increasingly concerned about ESG issues such as climate change, human rights and executive compensation. And so, embedding sustainability in business is top-of-mind for executives and investors alike in today’s eco-conscious business landscape.
Given that stock markets traditionally mirror public sentiment, investors have recalibrated their asset management strategy to focus not only on financial performance but also various ESG factors. Now more than ever, businesses are being scrutinized by institutional investors looking to align their investment strategies with their values—namely their ESG considerations.
How are ESG metrics disclosed?
Organizations are increasingly including ESG metrics in their annual reports to help stakeholders make more sustainable investment choices. Through ESG reporting, companies can show how they compare to industry benchmarks and targets using qualitative and quantitative data to measure their progress across ESG initiatives. ESG reporting also provides stakeholders with the necessary insights to make informed decisions by highlighting potential ESG risks and opportunities that might affect the company’s long-term value.
There are numerous ways to draft an ESG report. Typically, they’re created using an established ESG framework that can offer instruction on which ESG topics to focus on. ESG frameworks also help organizations understand how to best structure and prepare information for disclosure so that they can earn a higher rating or ESG score.
An ESG score is used to track a company’s ESG performance, providing greater visibility into its operations for investors, stakeholders and regulatory bodies. Organizations that provide more robust ESG reports typically score higher, whereas those that don’t track or showcase their ESG performance will often have a lower ESG rating.
The Task Force on Climate-related Financial Disclosure (TCFD) is an organization that provides a set of recommended climate-related disclosures that companies and financial institutions can use to inform shareholders. Similarly, the Sustainability Accounting Standards Board (SASB) has helped establish and maintain industry-specific standards to guide the disclosure of organizations’ sustainability information.
Institutional investors can also look towards organizations like Morningstar, Morgan Stanley Capital International (MSCI) and others to offer up ESG data on certain companies. All these providers play a crucial role in delivering key ESG metrics that can help determine how investible an organization is.
What are ESG regulations?
There are several regulations that have been put forth to help companies take ESG factors into account. For instance, the Corporate Sustainability Reporting Directive (CSRD) is a European Union legislation that requires companies to report on the environmental and sustainable impact of their business activities, as well as their ESG initiatives. The Sustainable Finance Disclosure Regulation (SFDR) aims to do the same by standardizing the reporting of ESG metrics.
Various frameworks have also been created to aid companies in their ESG disclosure. In Europe, the Carbon Disclosure Project (CDP) enables companies to provide environmental information to their stakeholders and consists of risks and opportunity management, environmental targets, as well as strategy and scenario analysis. In that same vein, the Global Reporting Initiative (GRI) provides a global framework that standardizes approaches to materiality, management reporting and disclosure for a full range of ESG issues.
While these regulations and frameworks are designed to steer organizations and investors toward more sustainable business practices, they’re not a fool-proof deterrent against greenwashing or green fraud. Nor are they a buffer to a global disruption.
The COVID-19 pandemic quickly exposed the fragility of companies’ supply chains, health and financial services, as well as the climate itself. In the face of uncertainty, scholars grew concerned that companies would deprioritize their ESG initiatives to stay afloat. And while this was the case in some instances, an interesting discovery was made: companies that had strong ESG performance were better equipped to weather the pandemic as they had already accounted for the possibility of disruption.1
It’s a powerful reminder that ESG is more than just metrics, regulations and frameworks. At its core, ESG is an actionable way to measure progress and take steps towards a more sustainable future.
