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Investors and stakeholders increasingly emphasize the importance of environmental, social and governance metrics to drive corporate sustainability and ethical business practices.
Is it possible to do well while doing good? Environmental, social and governance (ESG) describes a set of business performance metrics that are focused on environmental sustainability and ethical issues. ESG metrics hope to drive companies to do just that. ESG has been one of the most buzz-worthy terms in the business community for the last several years.
Increasingly, investors are applying these non-financial ESG factors as part of their analysis frameworks. Growth in ESG has been nothing short of amazing. A 2022 study by the Capital Group found that nearly 90 percent of investors consider ESG issues as a part of their investment analysis. Stakeholders hope that greater inclusion of ESG factors in investment decisions will contribute to more stable and predictable markets. This thinking is particularly relevant for environmental risks, the “E” in ESG. The “E” considers a company’s utilization of natural resources and the effect of its operations on the environment, both in its direct operations and across its supply chains.
Every business has carbon emissions (or carbon footprint) associated with its normal operations. These emissions are generally categorized into “scopes” to help bucket emissions sources and associated responses.
Emissions scopes are defined as follows:
• Scope 1. Direct emissions from company assets. Scope 1 includes emissions from combustion, process emissions and accidental emissions from leaks and spills.
• Scope 2. Indirect emissions from purchased energy like heating and cooling buildings and running production processes.
• Scope 3. All other emissions associated with a company’s activities. This includes all other indirect emissions associated with a company’s upstream and downstream operations.
A good shorthand to understand what each scope includes is that Scope 1 pertains to what the company burns, Scope 2 relates to the energy the company buys and Scope 3 is everything else. All the indirect emissions from goods purchased by the company are included in Scope 3 emissions.
Right now, there is a heavy focus on Scopes 1 and 2 emissions, particularly for water conservation and direct energy consumption. But Scope 3 emissions are just as important and can provide low-hanging fruit for sustainability gains. Scope 3 emissions are often the largest culprit of a company’s carbon footprint, potentially accounting for more significant carbon emissions than Scopes 1 and 2 combined. Just think about all the purchased plastics in a typical manufacturing facility, all of which represents Scope 3 carbon emissions.
This article originally appeared in the June 2024 issue of Occupational Health & Safety.
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