Environmental Social Governance (ESG)

ESG: The Corporate Social Responsibility in the Financial Sector

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Environmental Social Governance (ESG) expands the concept of Corporate Social Responsibility (CSR). It is the evaluation of corporate social responsibility or the voluntary contribution of business to sustainable development – beyond legal requirements.

While CSR refers to responsible corporate action in a social, ecological and economic framework, ESG ideally also links a responsible corporate attitude to investment decisions, so-called “socially responsible investing” or also known as “sustainable & green finance”. In the digital age, in which it is possible for almost anyone to take a close look at the actions and background of a company, transparency and credibility are increasingly becoming the focus of corporate decisions.

The accompanying change in society towards more conscious consumption and questioning actions also shows a clear shift towards sustainable investment decisions on the capital market. DFGE – Institute for Energy, Ecology and Economy has been supporting its clients in making the right decisions for over two decades.

Profilbild Dr. Thomas Fleissner
Dr.-Ing. Thomas FleissnerFounder and CEO of DFGE
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ESG Criteria

A large number of ESG criteria are included by, for example, investors in the valuation and analysis of securities in order to be able to evaluate social, ecological and ethical aspects. These include the following, among others:

Environment

  • Environmental protection & biodiversity
  • Climate protection strategies / climate strategies
  • Use of renewable energies
  • Reduction of emissions
  • Conscientious use of raw materials and energy

Social

  • Occupational safety & health protection
  • Compliance with labour rights
  • Fair working conditions
  • Prohibition of child labour / forced labour
  • Compliance with ESG criteria by suppliers and service providers

Governance

  • Ethical and responsible corporate governance
  • Compliance
  • Prevention of corruption
  • Independent supervisory board
  • Risk management

Corporate Social Responsibility and the capital market will therefore no longer be separable in the future; sustainability and business reports are increasingly merging. For this reason, in addition to investors and banks, other actors such as rating agencies, international institutions and NGOs are entering the game. One of the best-known examples of this is the Global Reporting Initiative (GRI), which develops and issues guidelines for the preparation of sustainability reports.

The DAX has also been addressing environmental, social and ethical aspects for a considerable time. For example, the DAX® 50 ESG tracks the performance of the 50 largest and most liquid German companies listed on the market of the Frankfurt Stock Exchange that show a similarly good performance based on ESG criteria. Furthermore, the shares must have passed standardised ESG filters in relation to SustainalyticsGlobal Compact Screening. Furthermore, companies that have a stake in businesses with controversial weapons, tobacco production, thermal coal, nuclear energy and contracts with the military are excluded.

But the European Union is also gearing up for future requirements with new directives and regulations on sustainability reporting and “sustainable finance”. As early as April 2021, the European Commission published its proposal for a Corporate Sustainability Reporting Directive (CSRD), which is to replace the existing Nonfinancial Reporting Directive (NFRD). The proposal still has to pass through the instances, but already offers a preview of the changes that will come to companies, banks and insurance companies in terms of reporting.

DFGE can support you every step of the way in ESG management and reporting. Our services range from opportunity-risk management, through the assessment and evaluation of sustainability criteria, to the full consideration of ESG criteria. As an authorised and long-standing partner of numerous ratings and through our experience, we know the methods and can advise you in the best possible way and relieve you of work. Because the consideration of ecological, social and ethical aspects has long since ceased to be a nice-to-have, but represents a clear competitive advantage.

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ESG Ratings

ESG-Ratings are objective assessments of a company’s commitment to sustainable business practices. They can help investors incorporate more non-financial but essential information into their investment process. Depending on the industry, the aspects taken into account differ or receive a different weighting. DFGE helps you to categorise these different and, above all, constantly new requirements in a uniform manner and to answer them correctly in order to actively counter capital market risks.

MSCI

MSCI ESG Research is the world’s largest provider of sustainability analysis and ratings in the ESG sector. It identifies and evaluates material ESG risks and opportunities worldwide, which are usually not taken into account in traditional financial analysis.

TRUCOST

Trucost, as part of S&P Global, assesses risks relating to climate change, natural resource constraints, and broader environmental, social, and governance factors. Trucost has been founded in 2000 and has its head office in London. The company makes estimates about the hidden costs of unsustainable use of natural resources by companies. For the United Nations Environment Programme Finance Initiative (UNEP FI) Trucost estimated the cost of environmental damage by the 3000 largest public listed companies.

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Sustainalytics is a global leader in ESG and Corporate Governance research and ratings. Over the last 25 years, they have brought together leading ESG research and client servicing professionals to retain that personal touch. Today, Sustainalytics supports hundreds of the world’s foremost investors who incorporate ESG and corporate governance insights into their investment processes.

You can find more ESG rating agencies, organisations and indices here.