What are ESG criteria and why are they important?

The acronym ESG stands for Environmental, Social and Governance, and refers to the factors that make a company sustainable through its social, environmental and governance commitment, without neglecting the financial aspects.

What are these Criteria?

These criteria are parameters of corporate sustainability in environmental, governance and social development issues. Criteria that are taken into account in the non-financial reports that arise from Law 11/2018 in Spain.

The term ESG emerged in 2005 in a study "Who Cares Wins", a conference that brought together for the first time different stakeholders from the business world to evaluate the work of environmental, social and governance (ESG) values in financial issues.

What legislation exists in relation to ESG?

In the European Union, since 2020, progress has been made in legislative matters. It is worth highlighting the creation of a classification of economic-environmental actions based on five objectives:

1. Climate change mitigation and adaptation.
2. Protection of water and marine resources.
3. The transition to a circular economy.
4. Pollution prevention and control.
5. Protection and restoration of biodiversity and ecosystems.

In 2020, the European Green Pact was presented, which states that sustainability should be taken into account in EU policy and laws. The World Economic Forum in Davos has also been a major driver in the dissemination of ESG metrics.

In Spain, these reports are required to be submitted by companies, according to the Law 11/2018who meet the following requirements:

1. The average number of employees employed by the company or group, as the case may be, during the fiscal year exceeds 500.
2. Either they are considered public interest entities in accordance with auditing legislation, or, for two consecutive fiscal years, they meet at least two of the following requirements at the closing date of each of them:

• The total of the asset items exceeds 20,000,000 euros.
• The net amount of the annual turnover exceeds 40,000,000 euros.
• The average number of employees employed during the year exceeds 250.

How do ESG criteria influence a company?

Large companies and those in the stock market are obliged to be transparent and provide information of all kinds. One such report is non-financial reporting.

According to Binay, M. "Institutional investors have become the main owners of equities in the world and institutions tend to work on a long-term investment strategy". ESG reports are therefore taken into account as they are indicators that protect and enhance investment returns, especially long-term investments.

Non-financial reports, obtained from ESG criteria based on GRI standards, are taken into account by potential shareholders to invest in a company. Also, by the state to audit and control the CSR of companies in accordance with national and European legislation. In addition, ESG criteria are a way to measure the intangible assets of value of a company or group.

80% of large companies worldwide publish information on their ESG sustainability strategy.

From Qaleon we offer a business intelligence and artificial intelligence tool that audits these criteria to promote transparency, time savings in ESG data management, GRI standards. It also includes the strategic vision with the SDGs and dialogue with stakeholders. With SineQia you can make a complete sustainability diagnosis.