Guide on ESG performance: definition, measurement, and impact on business

What if the key to sustainable success lay in ESG performance? Far more than just a compliance criterion, it shapes reputation, attracts investors, and drives innovation. ESG performance is a key indicator for assessing a company's sustainability and responsibility. Measuring this performance allows understanding the overall impact of an organization, from its greenhouse gas emissions management, its company's diversity to the transparency of its governance. In this guide, we will explore the precise definition of ESG performance, the methods for effectively evaluating it, and the strategic consequences it can have on business growth and reputation.

ESG performance refers to a company's ability to manage and optimize its impact in the areas of Environment, Social, and Governance. This performance is measured through specific criteria, often defined by international frameworks. Good ESG performance goes beyond risk reduction: it also creates opportunities by enhancing reputation, attracting responsible investors, and ensuring sustainable growth.

ESG indicators

To measure a company's ESG performance, it is beneficial to rely on key indicators that reflect its commitments and results in environmental, social, and governance areas. These indicators not only account for the actions taken but also identify areas for improvement and strategic opportunities.

• Environmental indicators used can include: carbon footprint (tons of CO2 emitted), renewable energy consumption, water management, etc.
• Typical social indicators are the rate of diversity and inclusion, the number of hours of employee training, or the pay equality index.
• Governance indicators can be: financial transparency, the number of corruption cases reported, or the independence of the board of directors.

These different indicators are based on recognized frameworks such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), for example. We have reported and analyzed these different indicators in an article dedicated to ESG indicators.

The ESG performance evaluation process

The ESG performance evaluation process is based on a multi-step approach that combines data collection, analysis, and communication of results.

1. Identification of material issues

The company must determine the material ESG issues, that is, the factors that have a significant impact on its activities and stakeholders (investors, customers, employees, etc.). This step often relies on a materiality analysis, which allows prioritization of risks and opportunities.

1. Data collection and consolidation

The company gathers ESG data from various internal sources (energy consumption, staff diversity, governance policies) and external sources (suppliers, partners). The data must be accurate, verifiable, and aligned with normative frameworks. ESG specialized software can facilitate this task; here is a presentation of some.

1. Definition of performance indicators

For each material issue, the company selects key performance indicators (KPIs). These indicators have been previously developed. The company will thus monitor these different indicators, rate them, and report them.

1. ESG analysis and rating

The collected data is then analyzed to evaluate the overall ESG performance. This analysis can be carried out internally or by ESG rating agencies (MSCI, Sustainalytics, EcoVadis, etc.), which assign a score reflecting the level of sustainability and transparency of the company.

1. Communication and improvement

Following the analysis of its ESG performance, a company or a fund may decide to publish its results in a report. This report can adhere to a specific framework, standard, or regulation. It can also help boost investor and partner confidence by demonstrating commitments made. Additionally, these analyses can allow for strategy adjustments and setting new ESG performance goals. For more information on this reporting, visit our dedicated article.

ESG performance evaluation methods

1. Ratings by specialized agencies

ESG rating agencies assign scores to companies based on their practices. However, be cautious about the lack of harmonization of these ratings. Each agency uses its own criteria, leading to occasional score discrepancies. For example, Tesla receives very contrasting ESG scores depending on the agencies, due to different methodologies. Among the most well-known rating agencies are:

• MSCI ESG Ratings: evaluates ESG risks and opportunities specific to each sector
• Sustainalytics: measures exposure to ESG risks and the ability to manage them
• EcoVadis: focuses on responsible supply chain

These ratings strongly influence investors, third parties, and partners. These ratings are based on detailed ESG criteria outlined here.

1. The completion of reporting

This may be to meet specific normative frameworks.

Indeed, as seen earlier, several international standards structure the evaluation of ESG performance: GRI, SASB, or even the CSRD, which will require companies to detail their ESG impacts according to strict criteria.

These frameworks ensure the comparability and transparency of ESG data. Thus allowing for a comparison of performance within this sector.

But companies and funds can also choose to consolidate and publish their data in other sustainability or non-financial reports.

Furthermore, some companies conduct internal audits or ESG questionnaires to assess their performance and identify areas for improvement. This can be done via:

• Internal dashboards to monitor ESG objectives
• Independent reviews to ensure data reliability

It is an asset for financial attractiveness and access to capital.

Investors, particularly those engaged in sustainable finance, increasingly prioritize ESG criteria in their investment decisions. Strong ESG performance has become a key criterion for socially responsible investment (SRI) funds, green bonds, and sustainable financial labels. To learn more about ESG investing, see our article on this topic.

• Easier access to capital: well-rated companies may benefit from favorable financing. Contrary to common belief, a 2024 study by Morningstar Sustainalytics shows that ESG funds are not more expensive than their conventional counterparts.
• Increased stock market valuation: according to a Terra Academia publication, more than 70% of investors view ESG information as essential when evaluating a company. A 2023 Morningstar study reveals that 58% of ESG funds outperformed their category average over 10 years.
• Reduction in the cost of capital: by limiting sustainability-related risks, companies engaged in ESG practices attract financing at more attractive rates. Indeed, a robust ESG approach allows for anticipating and mitigating major risks related to climate change, social practices, and governance.

1. Better management of ESG risks

• Regulatory risk: although some legislative relaxations exist, numerous standards like the CSRD, SFDR and the European Taxonomy require increased transparency. Non-compliance can lead to financial penalties and restrict market access. For example, Goldman Sachs was fined $4 million by the SEC in 2022 for ESG violations.
• Reputational Risk : a company involved in an ESG scandal (pollution, abusive working conditions, corruption) may see its value plummet suddenly. Indeed, the image has "a value of about 15% of market capitalization" according to the Interbrand & Brand Finance rankings. However, be careful not to overestimate its ESG performance. This could lead to greenwashing or social washing, which is defined as a discrepancy between committed advocated values and the actual policies of the company.
• Financial and Market Risk : poor governance management is not without risks. The Volkswagen affair and Dieselgate led to a loss of more than 30% of the company's stock value.

Climate, Social, Ethical, and Legal Risks :

• Climate Risks : a company that analyzes its ecosystem, adapts its energy mix, and deploys a strategy to reduce its carbon footprint and its dependence on risky assets is better equipped to face future developments, whether it concerns new regulations, energy price fluctuations, or extreme weather events.
• Social Risks: by adopting inclusive and responsible policies, it avoids internal social conflicts, high turnover, and damage to its reputation.
• Ethical and Legal Risks: a strong governance, supported by effective controls and strategies for promoting best practices, reduces the risks of corruption, litigation (e.g. related to supplier payments), or regulatory sanctions, thus ensuring greater stability for the company.

1. A lever for regulatory compliance

ESG regulations are proliferating and establishing themselves as essential standards for companies, particularly in Europe:

• CSRD (Corporate Sustainability Reporting Directive): obligation for large companies to establish detailed non-financial reporting.
• SFDR (Sustainable Finance Disclosure Regulation): increased transparency on the sustainability of financial investments.
• European Taxonomy: classification of economic activities according to their contribution to environmental objectives.
• SDR (Sustainability Disclosure Requirements): British regulation governing the transparency of financial products on ESG criteria, notably to combat greenwashing and strengthen investor confidence.

Compliance with these regulations guarantees companies better credibility with investors and consumers, while reducing possible sanctions. Indeed, although the CSRD does not specify sanctions in the event of non-compliance with its provisions, Forbes indicates that France might consider imposing severe sanctions in the event of non-compliance, including exclusion from public markets (https://www.takeair.fr/blog/tous-les-articles/risques-sanctions-non-conformite-csrd/#:~:text=À partir du 1ᵉʳ janvier 2026%2C si une,des services%2C y compris les contrats de concession.).

1. A competitive advantage

Companies performing well in ESG benefit from better brand image and increased stakeholder loyalty.

• Enhanced Brand Image: a company perceived as responsible attracts more engaged consumers. For example, according to a PwC study in 2021, 80% of consumers are more likely to purchase from companies that share their ecological values
• Talent Engagement: new generations are particularly sensitive to corporate social and environmental commitments. A strong ESG policy enhances talent attraction and retention: according to the same PwC study cited above, 84% of employees are more likely to work for companies that share their ecological values
• Acceleration of Innovation: the transition to more sustainable economic models (renewable energy, circular economy) stimulates innovation and market differentiation
• Cost Optimization: ESG initiatives, such as energy efficiency or waste management, reduce operational costs while improving the company's ecological footprint

Finally, acquiring recognized ESG labels allows companies to stand out by asserting their positive impact and strengthening their credibility with stakeholders

ESG is no longer just a trend, but a true lever for performance and resilience for companies. Whether it's to enhance your attractiveness to investors, mitigate risks, or improve your brand image, incorporating ESG criteria into your strategy is a necessity

Ready to enhance your ESG performance?

• Assess your current performance with an ESG diagnostic
• Implement concrete actions to optimize your environmental, social, and governance impact
• Anticipate regulations and remain competitive in the long term

Take action now! Contact our experts or explore our solutions for a sustainable and profitable transformation.