ESG Indicators: How to Turn Data into a Performance Lever?

Extreme weather events are a threat to business resilience: forced shutdowns to relieve pressure on the local power or water grid, protecting employees during heatwaves, supply chain disruption caused by flooding, and so on.

ESG indicators now have a role to play in managing company performance. They are no longer simple compliance boxes to tick, but powerful tools serving your resilience and competitiveness.

In this article, we will: 

• explain the purpose of ESG indicators
• compare the main mandatory and voluntary frameworks
• look at how to select ESG indicators for your company
• review a selection of ESG indicators

Reporting on these indicators lets you move from a narrative approach to CSR to data-driven management.

What are ESG indicators really for?

ESG indicators assess a company's non-financial performance across three dimensions: Environment, Social and Governance. They meet the requirements of various non-financial reporting formats (CSRD, ISSB, etc.) and ESG rating agencies.

They are also essential tools for: 

1. Managing risk

ESG indicators help identify risks that could affect the company's long-term viability or profitability, so they can be mitigated.

The risks monitored fall into 3 categories: 

Environmental risks

Social risks

Governance risks

2. Accessing funding

ESG indicators influence access to funding and its cost. Investors and banks use them to assess resilience and long-term value creation.

Examples of ESG-linked funding: green loans, sustainability bonds, public grants, reduced-rate loans.

3. Employer brand and attractiveness

Indicators relating to quality of working life (remote-work policy, extended parental leave, employee satisfaction rate), as well as diversity rates or training hours per employee, strengthen attractiveness and employee engagement. 

In addition, talented candidates increasingly choose their employer based on their overall ESG commitments: respect for the environment, mission-driven company status, and so on.

4. Operational efficiency

Finally, ESG indicators help identify waste and optimise processes, resulting in direct savings.

For example: 

Overview of reporting formats: a global language?

There are several ESG reporting formats. Their role is to harmonise, standardise and make non-financial data comparable.

Overview of the main formats: 

Internationally: ISSB

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Created in 2021 by the IFRS Foundation (which also oversees international accounting standards), the ISSB's goal is to develop international standards for sustainability reporting, in order to meet investors' requirements.

In Europe: CSRD and VS (formerly VSME)

In China: CSDS

Internationally, on climate / water / forests: the CDP

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It is the most widely used standard for climate transparency: CO2 emissions, water management and deforestation.

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Thanks to this structured reporting, ESG has become a shared language between companies, their investors and regulators.

There are many ESG indicators; for reporting on them to be relevant and reflect the reality of your company and its issues, you need to choose carefully which ones to track.

Methodology: How to prioritise and choose your indicators?

In Europe, for companies subject to the CSRD, ESG reporting must follow the ESRS, the European Sustainability Reporting Standards. These define the information that companies must track and publish.

It is the double materiality analysis that determines which ESRS standards will apply to your company.

This analysis measures: 

• the impact that the topic covered by the ESRS has and will have on your company (financial materiality)
• the impact that your activity has and will have on the ESG topic covered by the standard (non-financial or impact materiality).

Only criteria deemed significant for the company are mandatory. They help prioritise which ESG indicators to track.

At the heart of the double materiality analysis lies the analysis of IROs (Impacts, Risks, Opportunities).

This involves identifying: 

1. the sustainability-related impacts linked to the company's activities (impact materiality): positive and negative, actual and potential, over the short, medium and long term
2. the risks and opportunities that will influence its development, financial results, cash flows and access to funding (financial materiality).

Here are 2 examples: 

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Once the material issues for your company have been identified through double materiality and your IRO analysis, you have identified the ESG indicators you need to include in your reports.

The Gap Analysis lets you measure the gap between the data already available and the data still to be collected or made more reliable in order to meet CSRD requirements.

For example, if your indicator relates to Scope 1, 2 and 3 emissions, you need to ask yourself: 

• What data is already available? E.g. electricity bills, fuel consumption records
• What data is missing? E.g. subcontractor emissions, subsidiary data
• What collection processes need to be put in place? E.g. formalise data collection (frequency, owners, etc.), deploy an ESG software to help automate data collection and analysis.

Examples of key ESG indicators and their uses

Finally, here is a sample of common ESG indicators, along with their main use.

They can be used in CSRD reporting, supplier and investor questionnaires, ESG ratings and internal management.

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These indicators help anticipate many risks that could harm the company's financial performance (cybersecurity risks), gain a strategic edge over competitors (diversifying supply sources, etc.), and simply strengthen the company's resilience.

Conclusion

ESG data is your new financial data: it must be reliable, auditable, and above all, useful for strategic decision-making.

Even if you are not subject to non-financial reporting requirements, ESG indicators help you prepare for the regulatory requirements of your major clients or investors, while also improving your company's resilience.

And if you do need to produce CSRD or other reporting, by carefully selecting your indicators you kill two birds with one stone: you get powerful KPIs to steer your company's strategy. While financial KPIs reflect performance in a stable world, your ESG indicators predict your ability to navigate an unpredictable environment.