What is ESG benchmarking?
What is ESG benchmarking? It’s primarily a way to compare your company’s ESG strategy to competitors’. It is essential to understand.
ESG benchmarking is a catch-all concept that gives you both inward and outward viewpoints.
Done right, it shows how your company ranks among others in your industry and how stakeholders in that industry view your company.
Because of these crucial viewpoints, it is always necessary to incorporate ESG benchmarking into your business strategy.
What is ESG benchmarking?
It is the practice of comparing a company’s ESG performance against peers within its industry.
It incorporates everything from strategy to goals (both desired by stakeholders and required by governments) to any achievements and shortcomings along the way.
Why is ESG benchmarking important?
Because it provides context for all stakeholders involved.
Information on a company’s ESG progress is helpful, but it means little without a broader industry-based context.
Stakeholders cannot asses a company’s (or, indeed, an entire industry’s) performance if they can’t understand how each entity compares against the other. Thus, we have to benchmark.
What information do we use for ESG benchmarking?
Primarily, we use ESG scores and ratings.
These metrics are carefully developed to measure how good a company’s ESG strategy is and how much ESG risk it is exposed to.
The frustrating thing about scores and ratings is that there is no universal standard, so many different variants operate alongside each other – sometimes in the same industry, making comparisons more difficult.
However, calculated and analysed correctly, they lay the groundwork for benchmarking.
What are the benefits of ESG benchmarking?
Think of benchmarking as similar to reading a map. When you do it, you have a better idea of where you’ve come from, where you’re going next, and where you stand concerning your peers.
Not only is this valuable information for your board and executive team, but it’s also beneficial for shareholders and employees who seek direction and, in many cases, are motivated by it.
Practically, benchmarking is crucial in assessing what works and doesn’t work in your ESG strategy.
Is ESG benchmarking easy?
It depends on how concise and specific the data feed your efforts need to be. Realistically, as stakeholders call for more of both, you’ll likely encounter some difficulties along the way.
ESG benchmarking can be limited by the rating system a company decides to go with. Usually, other companies will likely use the same rating system or similar, but we can’t guarantee it yet. And without a universal standard, there is always the possibility of cross-confusion.
Moreover, ESG ratings depend on accurate ESG data, which can be confusing at the best of times. These days, it takes the proper training to spot and process the data that feeds an ESG scoring system.
ESG benchmarking gives context to a company’s ESG performance through comparison across peers in the industry.
It uses ratings/scores to give this context. However, as there remains no universal standard for ESG scoring, benchmarking can sometimes be difficult.