Thematic Intelligence: ESG Framework (2024 Edition)

ESG is a complex and wide-reaching subject that is often approached in a piecemeal, reactive manner. Boardrooms need a systematic way to identify and mitigate ESG risks early.

In this report, we have updated our ESG framework-originally published in 2020-to help CEOs identify all potential ESG risks and implement mitigating actions to improve their company’s ESG performance.

Key Highlights

• Numerous companies all over the world are hurriedly adapting their operations and supply chains to manage an influx of new ESG-related regulations. This includes mandatory ESG reporting, emissions pricing, and laws governing supplier due diligence.
• CEOs who do not take a forward-thinking approach to mitigating ESG risks will face the wrath not only of regulators, but also investors, lenders, customers, suppliers, and employees.
• Forever responding to the next regulatory deadline, they will find themselves constantly on the back foot, failing to properly strategize for the longer term.

Scope

• Sustainability used to be just about saving the planet. Today it has morphed into an umbrella term for environmental, social, and governance (ESG) issues.
• Adopting a holistic approach that encompasses all environmental, social, and governance issues can help company leaders ensure all aspects of sustainability are covered in their ESG strategy. In 2024, pressure come to bear on companies to be more transparent about their ESG credentials. We designed the the analyst ESG framework to help companies build trust with society and set them on a path toward a sustainable future.
• Environmental performance measures the energy a company consumes, the waste it generates, the natural resources it uses, and the consequences for our habitat. Climate change is increasing the frequency of extreme climatic events, and these climatic changes will have direct, negative consequences for all businesses. One certainty is that climate change will bring about many uncertainties, increasing the risk for companies and delaying investments.
• Social performance assesses a company’s engagement with its workers, customers, suppliers, and the local community. It covers human rights, diversity and inclusion, health and safety, and community impact. Social injustices created by big business can generate negative publicity, ensure that companies fail to capture the benefits of a diverse workforce, and lead to issues around regulatory compliance.
• Governance assesses how a company’s internal controls are used to inform business decisions, comply with the law, and meet moral obligations to external stakeholders. Repeated failures in corporate governance-from aggressive tax avoidance to corruption, excessive executive remuneration, and relentless lobbying-have meant that society is losing trust in big business.

Reasons to Buy

• CEOs like Sam Bankman-Fried of FTX have been jailed for poor governance; questionable carbon offset schemes have resulted in negative press for the likes of Disney, Apple, and Shell; a US government investigation found in 2024 that several major automotive companies, including BMW, Jaguar Land Rover, and Volkswagen, had tangible links to forced labor across their supply chains; and banks like Goldman Sachs and BNY Mellon have been fined for greenwashing. Numerous companies all over the world are hurriedly adapting their operations and supply chains to manage an influx of new ESG-related regulations. This includes mandatory ESG reporting, emissions pricing, and laws governing supplier due diligence.
• CEOs who do not take a forward-thinking approach to mitigating ESG risks will face the wrath not only of regulators, but also investors, lenders, customers, suppliers, and employees.