Advantages of Gaining ESG Certification
Today's investors, consumers, and employees want to work with responsible, ethical companies. To find out where a business stands, they often look to its environmental, social, and governance (ESG) initiatives — and companies with strong ESG programs can reap the benefits. They often see higher profitability and revenue growth, positive environmental impact, and improved employee morale.
One of the best ways to prove commitment to ESG is to become certified. ESG certification is a comprehensive process, but it has a lot to offer, so let's take a closer look.
What Is ESG Certification?
Any company can enact ESG initiatives, but ESG certification offers third-party confirmation that a company has met some of the highest standards with its ESG program. Certification typically comes from SGS, a global leader in sustainability and ESG across all industries. Certification allows a business to prove to customers, shareholders, and employees that it takes its commitment to ethics, society, and the planet seriously.
The standards for ESG certification cover a variety of topics in different areas:
- Environmental: The most robust are the environmental standards, which cover concerns like greenhouse gasses, energy management, and carbon footprints.
- Social: In the social category, there are frameworks for fair work practices, health and safety, and information security.
- Governance: Governance standards guide fair and ethical business practices, including anti-bribery management strategies.
Other parts of certification include topics like stewardship and sustainability.
Becoming certified in ESG demonstrates proficiency in these areas and can play a significant role in relationships with customers, stakeholders, employees, governments, and regulatory bodies. ESG certification can illustrate a company's commitment to innovation, continuous improvement, responsibility, and change. It is designed to put mechanisms in place that deliver definable results.
ESG certification is the highest level of ESG compliance, but businesses can also start with verification. ESG verification provides risk and materiality evaluation, due diligence, report assurance, and data verification from an independent party. This option can help boost stakeholder confidence and trust but isn't as comprehensive as certification.
How to Achieve ESG Certification
To achieve certification, a company should start by evaluating material information on sector, regional, internal, and external ESG risks. Once risks are identified and mitigated, an audit is in order. Businesses obtain individual certifications for each category — environmental, social, and governance — before achieving full ESG certification.
The basic elements of ESG certification are relatively straightforward. SGS has provided a clear outline of the standards required in each category.
The environmental standards for ESG certification include:
- ISO 14064: This standard comes from the International Organization for Standardization (ISO) and covers greenhouse gas emissions. It specifies principles and requirements for quantifying and reporting greenhouse gas emissions and removals. It also includes provisions for the design, development, management, reporting, and verification of greenhouse gas inventory.
- ISO 14067: ISO 14067 is about an organization's carbon footprint and whether the company's practices are consistent with International Standards on life cycle assessment (LCA). Some topics it addresses include the principles, guidelines, and requirements for quantifying and reporting on the carbon footprint of a product (CFP).
- ISO 50001: ISO 50001 is a management system standard, offering an in-depth framework for energy management. It uses a continuous-improvement model and aims to help organizations integrate energy management into overall quality and environmental management. Some topics include developing a policy for efficient energy use, measuring results, and fixing targets and objectives to meet the policy. Many renewable energy strategies, like solar panels and wind energy, are emphasized in modern energy management policies.
- AWS Standard: The Alliance for Water Stewardship's International Water Stewardship Standard sets a framework for understanding and addressing water use and its impacts, helping companies collaborate and work transparently to cultivate sustainable water management.
- FSC/PEFC: Certifications from the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC) offer forestry standards to promote responsible, sustainable forest management.
- R2: R2 is a roadmap for responsible used electronics management, helping companies do their part in handling the entire supply chain of electronics, including environmental, quality, health and safety, and data security.
Social standards required for ESG certification include:
- ISO 45001: This standard includes specifications for occupational health and safety management systems. The guidelines help companies provide safe and healthy workplaces that mitigate adverse effects on physical and mental health. They focus on controlling the interaction between an organization and its business environment to create healthy, safe workspaces.
- SA 8000: SA 8000 is a leading social certification with a framework for conducting business fairly and decently for workers, covering topics like child labor, discrimination, working hours, and remuneration. It draws on recognized standards like the Universal Declaration of Human Rights, national laws, and International Labour Organization (ILO) conventions. It uses a management-systems approach and emphasizes continuous improvement.
- ISO/IEC 27001: Information security management standards help ensure organizations can securely and effectively manage assets like financial information, employee details, intellectual property, and information entrusted by third parties.
Governance has just one associated standard. It covers ISO 37001, which addresses anti-bribery management systems to help ensure transparency and trust within an organization. It outlines:
- Anti-bribery policies
- Risk assessment
- Due diligence
- Financial and commercial controls
Reporting and investigating procedures
This recognized standard can help mitigate these damaging criminal activities while demonstrating a company's commitment to transparency.
Certification also depends on a few standards unique to the ESG industry:
- ASI: The Aluminum Stewardship Initiative (ASI) has standards and certifications for responsible aluminum production, sourcing, and stewardship. They apply across the value chain of aluminum, including everything from bauxite mining and alumina refining to semi-fabrication, refining recyclable scrap, and downstream aluminum use.
- SuRe: The Standard for Sustainable and Resilient Infrastructure (SuRe) aims to integrate sustainable and resilient aspects into infrastructure development. Objectives include establishing a common understanding of sustainable and resilient infrastructure, improving project quality with sustainable and resilient principles, and helping investors identify responsible investment opportunities.
- ISO 20121: The ISO standard for sustainable events promotes more responsible consumption and tries to relieve strain on local infrastructure and utilities when a business hosts an event. It provides guidance and best practices for managing an event and its social, economic, and environmental impact. Events might include everything from county fairs to school outings.
What Are the Benefits of ESG Certification?
At one point, ESG was a public relations move. It was a way to convince those outside the company that it abided by responsible practices. Today, the standards are higher, and ESG can be verified with third-party certification.
Many companies implement an in-house initiative, but certification by a third party is typically very robust and assures others that the business does what it claims. That is the primary function of ESG certification, but the activities outlined in ESG standards can have many other, wide-reaching benefits for a company.
Everything from stocks to employee retention can improve with ESG. Investors recognize ESG certification's importance, and it is necessary for long-term success and competitiveness. Many ESG topics lead back to increased profits. Green building certifications, for instance, can help businesses meet environmental standards, but they may also come with tax credits. Increased brand loyalty from a strong ESG program can bring in more sales, while knowledgeable investors can help secure funding for new projects.
Below are some areas where companies benefit from ESG certification.
1. Gaining Good Press and Competitive Value
One of the top benefits of ESG certification is its impact on a company's image and reputation. Customers want to know they're supporting ethical, sustainable businesses. One study found that companies that took on more social responsibility found current or new audiences that shared those values. These new audiences helped build more trust, memorability, credibility, and awareness.
In another study, one of the top detractors of brand loyalty was how a company treated its employees. Many consumers cited low pay, lack of benefits, and harsh working conditions as negative aspects of a brand.
Those examples investigated social elements, but companies can also see benefits through environmental and governing efforts. For instance, two-thirds of consumers think about sustainability when they make purchases and say they're willing to pay more for sustainable products — younger generations are the most eco-conscious. Environmental sustainability can appeal to these customers, building brand loyalty and increasing profits.
Meanwhile, shareholders want to know they're investing in companies that can adapt to changing socio-economic and environmental conditions while identifying strategic opportunities. ESG certification centers around the ideas of continuous improvement and long-term success. It can show shareholders that a company is a competitive partner with the know-how to make smart business decisions in the face of evolving demands.
2. Building Stock Liquidity and Attracting “Sticky” Investors
Those same principles of supporting ethical, sustainable business guide many investors. In 2020, sustainable investment assets made up $17.1 trillion of all U.S. assets under professional management — a 42% increase from 2018. By 2025, ESG is expected to make up 40% of all investments. It will likely be a significant part of attracting investors in the years to come. Many groups offer ESG risk scores for investors, so keeping those numbers low can help companies maintain competition in the stock market.
Another positive part of the rise in investments is that these investors tend to be “sticky” — they're often interested in long-term partnerships. They may be less worried about what happens in the next quarter and more concerned about what happens in the next decade. They typically care about values and know that change takes time and resources. They may be more likely to work with a company for several years and help build a basis for success.
3. Staying Ahead
No company wants to be the target of an activism campaign or public scrutiny. ESG certification can help businesses:
- Stay proactive: By getting ahead of ESG issues before they happen, companies can minimize their effects and eliminate reactionary responses, which tend to be costly and are often seen as “too little, too late.” Even if an incident occurs — like a lack of carbon footprint reporting — having proactive plans ahead of time can mitigate the adverse effects.
- Establish themselves as industry leaders: As trendsetters, businesses put themselves on the ground floor of ESG initiatives. Again, ESG is growing quickly, so companies that get on board early can position themselves as more innovative and responsible partners.
- Avoid lagging behind the competition: Just as being the first is valuable, being last is not. By obtaining ESG certification early, businesses avoid trailing behind everyone else in the industry. They can mitigate the damage that comes with that image.
4. Improving Talent Acquisition and Retention
Passion for an organization can help cultivate workers' feelings of loyalty and engagement. People are interested in supporting companies that abide by ESG best practices. These companies are likely to see more commitment from employees and better applicant pools.
Research tells us that employers with higher levels of employee satisfaction and attractiveness to talent tend to have significantly higher ESG scores. Since satisfied employees tend to work harder, stick with their employer, and strive for better results, employee enthusiasm can be a particularly advantageous effect of ESG initiatives. In addition, younger generations place more importance on environmental and social concerns, making ESG a valid focus area for attracting these workers.
During the application process, ESG can play a large role in applicant perceptions of a company. Topics like diversity and inclusion, for instance, seem to influence how likely someone is to apply for a position — 62% of job seekers said they were more likely to apply for jobs where the company was openly committed to improving diversity and inclusion in its workforce. It can help companies attract more talent and keep them on board with respectful, safe, and fair work environments.
5. Reducing Legal and Regulatory Interventions
Regulatory and legal effects can range from needing to file paperwork to implementing remediation programs or paying massive fines. Pressure from legal or regulatory agencies can also affect operations and add unexpected restrictions or alterations. With less intervention or pressure, companies can enjoy greater strategic freedom.
An average of a third of corporate profits are at risk from state intervention. That number is higher for some organizations, such as banks, aerospace and defense businesses, automotive companies, and technology businesses. Those with strong ESG programs can reduce their risk of adverse government action and even gain government support.
Get Closer to ESG Certification With VPS Parking Solutions
Energy management is one of the major components of ESG certification. Solar energy is an excellent option for many businesses. In addition to supporting an effective energy management solution for ESG initiatives, it can help companies save on electricity and meet other energy initiatives or tax credit opportunities.
Many companies have prime space for solar panels in their parking lots. Solar-covered parking solutions from VPS can help businesses harness solar power for ESG-compliant energy management solutions. These structures offer all the benefits of solar panels while helping protect vehicles from hail damage. They can also provide a cover for other types of weather, giving employees a more enjoyable experience as they enter and exit the workplace — no scraping snow after a long workday or trying to find their keys in a downpour.
To learn more about how VPS solar parking solutions can support ESG initiatives and certifications, reach out to an expert today.