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Advantages of Gaining ESG Certification

July.19.2024

Advantages of Gaining ESG Certification

July.19.2024

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.

Companies with strong ESG programs can reap the benefits because stakeholders recognize them as more sustainable and likely to succeed in the long term. Additionally, 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?

ESG certification is a third-party confirmation that a company meets the highest environmental, social, and governance standards. It’s an investment and corporate governance framework for businesses to evaluate and declare their level of sustainability and corporate responsibility.

ESG certification for companies demonstrates proficiency in delivering definable results to consumers, employees, investors, government, and regulatory bodies. It helps businesses gain the trust and confidence of stakeholders, making them more competitive in their industries.

The certification typically comes from SGS, a global leader in sustainability and ESG across all industries. They assess and audit your business against ESG risks using the following standards:

  • Environmental: The environmental standards consider a company’s environmental impact by assessing its greenhouse gas emissions, energy management practices, waste management strategies, green energy initiatives, pollution, biodiversity, water usage, biodiversity, and carbon footprint.
  • Social: In the social category, they assess frameworks for fair work practices, workplace safety, diversity and inclusivity, employee welfare, and information security.
  • Governance: Governance standards guide fair and ethical business practices, including anti-bribery, corruption, executive pay, board diversity, political contributions, and lobbying management strategies.

Other parts of certification include topics like stewardship and sustainability.

ESG certification is the highest level of ESG compliance, but businesses can start with verification. ESG verification provides risk and materiality evaluation, due diligence, report assurance, and data verification from an independent party. Although verification isn’t as comprehensive as certification, an external party’s opinion or verification statement can still boost stakeholder confidence and trust.

Why Is ESG Certification Important for Companies?

To succeed in today’s highly competitive business environment, companies need more than high-quality products and services. They must prove to consumers and future investors that they’re committed to sustainability and social responsibility.

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According to recent reports, approximately 90% of investors now consider ESG initiatives before making investments, and a staggering 88% of consumers show more loyalty to businesses that invest in social and environmental issues. ESG certification can also determine employee turnover. A Deloitte survey reveals that 49% of Gen Z and 44% of millennials admit to making career choices based on their personal ethics.

ESG certification demonstrates a positive response to the ongoing climate crisis and up-to-date legal requirements surrounding diversity, inclusion, and equality. Stakeholders appreciate and reward companies that contribute to a healthy planet and fight against social injustice while working toward economic growth. Finally, companies that pursue ESG goals inevitably become well-run, making future-proof investments, contributing to stable economic growth, and supporting the long-term health of financial markets.

How to Achieve ESG Certification

Achieve ESG Certification

Achieving ESG certification involves obtaining individual certifications for each category — environmental, social, and governance — before achieving full ESG certification. The process involves a company evaluating material information on sector, regional, internal, and external ESG risks. Once risks are identified and mitigated, an audit is in order.

The process begins with selecting the certifying organization that best aligns with the company’s industry and operations. As mentioned, SGS is a global leader in ESG certifications for businesses in all industries. Other options include the International Association for Sustainable Economy (IASE) or industry-specific bodies like the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB).

The certification process typically depends on the program, but all of them generally require organizations to meet the following standards. Findings under each of these considerations must be well documented to assist in the certification process.

1. Environmental Impact

Achieving the environmental standard certification involves satisfying the following factors, which are geared toward minimizing the negative impact of the business’s operations on the planet.

  • Setting targets to meet net-zero carbon dioxide emission standards to reduce the company’s carbon footprint.
  • Implementing renewable or energy-efficient technologies to minimize overall consumption.
  • Investing in water conservation practices aimed at preserving water quality.
  • Contributing to initiatives that conserve biodiversity by reducing harm to delicate ecosystems like forests, wildlife, and wetlands.
  • Following circular economy principles by using eco-friendly packaging or recycling and reusing raw materials.

2. Social Impact

Assessing social impact involves analyzing whether a company respects human rights and how involved they are in the well-being of the community. Here are key elements to focus on:

  • A company’s human rights and labor practices include fair wages, safe working conditions, policies against discrimination, diversity, and equal opportunities.
  • The level of community engagement through philanthropy or volunteer efforts as well as their ability to listen and respond to community needs.
  • The ability to create a supportive workplace while providing good benefits, offering opportunities for growth, and encouraging work-life balance.
  • A business’s focus on delivering customer satisfaction and building trust and loyalty by maintaining ethical business practices and customer-centric service delivery.

3. Governance Impact

The corporate governance aspect of an ESG certification focuses on how well a company is managed to ensure long-term stakeholder value. It covers the following features of a company’s management structure:

  • Ensuring independence, diversity, and strategic board selection that accurately represents the shareholder’s interest and provides good governance.
  • Implementing transparent and timely reporting practices for financial, employee, and carbon footprint metrics to foster trust and accountability.
  • Establishing a fair and transparent executive pay structure to ensure sustainable performance and the company’s long-term success.
  • Addressing anti-bribery management systems to mitigate damaging criminal activities and preserve the company’s reputation.

What Are the Benefits of ESG Certification?

Benefits of ESG Certification

An ESG certification is more than a public relations move — it assures stakeholders that the business follows responsible and sustainable business practices. Below are some of the main 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 boost 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, some consumers say they’re willing to pay more for sustainable products — 9.7% more, on average. Environmental sustainability can appeal to these customers, especially the younger, more eco-conscious generations, 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. Global sustainable investment assets under management exceeded the 25% projection, hitting $30 trillion in 2022 and being on track to exceed the predicted $40 trillion by 2030.

The impressive growth potential of ESG investments can be attributed to the notion that 9 in 10 asset managers believe integrating these into one’s investment portfolio improves overall returns. Even better, 60% of institutional investors report that ESG investing has brought higher performance yields than non-ESG equivalents.

Many research firms, including Bloomberg, the S&P and Dow Jones Indices, and JUST Capital, offer ESG risk scores for investors. These scores help them evaluate a company’s ESG performance and compare different investment opportunities. The rating also provides a clear metric to evaluate each of the ESG components based on corporate sustainability and guidance measures, board structure, and annual financial reports.

The rise of ESG investing can be attributed to the fact that more investors seek to contribute to positive environmental and societal outcomes in addition to financial returns. These investors also 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.

As trendsetters, businesses put themselves on the ground floor of ESG initiatives, establishing themselves as industry leaders. Again, ESG is growing quickly, so companies that get on board early can position themselves as more innovative and responsible partners. Pursuing ESG goals enables businesses to anticipate and mitigate risks associated with climate change and expected regulatory changes.

By obtaining ESG certification early, businesses avoid trailing behind competitors in the industry. For instance, they can attract and retain top talent by implementing strategies that protect employee welfare and ensure a safe working environment. A commitment to sustainability also provides companies with a competitive edge by boosting the trust and confidence of investors and consumers.

4. Improving Talent Acquisition and Retention

Passion for an organization can help cultivate workers’ 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 states that employers with higher levels of employee satisfaction and attractiveness to talent tend to have an average of 14% higher ESG scores than the global average. 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 generations of workers.

During the application process, ESG plays a huge role in the perceptions of company applicants. 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.

ESG-focused companies stay ready for regulatory changes and avoid attracting penalties and fines imposed by failure to comply with environmental, governance, and social standards. ESG certification also opens businesses up to gaining government support and makes it easier to obtain new licenses and permits when expanding.

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 cover 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.

VPS Helps with ESG Certification