According to Bloomberg,ESG assets will reach $50 trillion by 2050. To understand the magnitude of the figure, one only has to consider that the entire GDP of the Eurozone in 2021 amounted to approximately EUR 14.5 trillion.

The acronym ESG stands for Environmental, Social, Governance.

An ESG asset is an asset, such as an organisation or a project, whose investment value is primarily determined by its performance concerning the three macro themes mentioned above.

The ESG rating identifies investment opportunities and risks by analysing a company’s data based on a series of indicators (which vary according to the rating agency).

The result is a composite score that takes into account the different ESG factors:

• Environmental score: GHG (greenhouse gas) emissions, waste management, use of renewables, etc.
• Social score: protection of workers’ rights and respect for human rights, support of local communities, occupational safety, social responsibility, inclusiveness, etc.
• Governance score: compliance, enterprise risk management, transparency, etc.
• Materiality also emerges from the analysis, i.e., the relevance and relevance to the company of each of these criteria.

An example?

If the rating concerns an air transport company, among the sustainability objectives, the reduction of CO2 emissions caused by aircraft will be a more material area and, therefore, a priority than, for example, the use of biodegradable packaging for meals provided to passengers.

Is measuring sustainability a strategic action for a company?

Carrying out an ESG analysis and submitting it to a rating system is a time-consuming and labour-intensive process, varying according to size, sector and whether or not there is a sustainability plan integrated into the corporate strategy.

In a few paragraphs, we will answer the question posed above, but we can already say that a company that wants to go green today and, in times of Europe’s New Green Deal and PNRR, wants to access green funds and investments, has in a high ESG rating the key to the future.

In that episode, Environmental, Social and Governance indicators were requested to be considered as parameters in the financial evaluation of a company for the first time.

The objective? To provide a solid basis for the development of green investments by taking into account a sustainability rating that creates added value for future investors.

The good news is that many companies committed to a high ESG rating are growing. Italy included.

An interesting example?

In 2017, 62% of the shareholders of Exxon, one of America’s oil giants, obliged the company’s board to include in its strategic forecasts the effects of climate change and the resulting transition to a low-carbon economy on its business model.

Let us start with a premise. There are several rating methodologies or models. Among the most famous are the MSCI ESG and FTSE ESG models.

The second premise is that the analysis starts with the voluntary disclosure of data by the company itself. The type of data to be disclosed is determined by the model used by the rating agency, which will then verify the information provided.

For example, here are the macro criteria used by the FTSE ESG model

Once the data has been obtained, the ESG rating agency works. So rather than certification, talking about a score would be more precise.

There is another component that we have not considered.

The agency, whether it is FTSE, MSCI or, to name another, Ecovadis, will sift through every other source of information about the company being analysed.

From an NGO survey, to an academic article, to regulators, to the press and any publicly available news on the web.

If the analysis were conducted only based on data provided by the company itself, an external component would be missing.

At the same time, even if national newspapers spoke of Company X as a virtuous example, the data analysed, when true, might prove otherwise, bringing a case of greenwashing into the open.

Put this way, it sounds a bit like a psychoanalytic session where a company is on the couch, but the truth is not that far off.

Each specific model in turn, rests on a framework such as the Sustainability Accounting Standards Board (SASB) taxonomy.

Now that we know what an ESG rating is, we can finally get back to the figures we were talking about at the beginning.

50 trillion dollars by 2050 in investments on ESG assets, in a nutshell on highly rated companies and startups.

So it is not only important to know what an ESG rating is but to appreciate its strategic importance for any Italian and European company.

A company that is able to achieve a high ESG rating not only has more opportunities for future growth, in line with the goals of the international economic agenda, which is increasingly oriented toward sustainability, but will also attract more investors, since a good ESG performance is interpreted as a sign of high performance in the long run.

Not to mention that a sustainable company, which wants to prove itself, needs an ESG score to obtain European funding (as in the case of the PNRR).

An ESG rating obviously has a cost. This is not surprising to anyone given the amount of data a rating agency must process to assign a score.

Nor is it surprising, in light of the 50 trillion in ESG asset investments mentioned earlier, that more and more investors, institutions and otherwise, are basing their financial decisions on a rating.

To date, no one model can be said to be superior to the others, as the various agencies have refined their methodology over the years by specialising on some indicators rather than others.

MIT research found that the average correlation between the ESG scores of the major rating agencies in the public square is 61 per cent.

The future goal will be to create a reference system that crosses the different models and standardises them while admitting the various methodologies and their mutual improvement through healthy competition.

For completeness, here is a concise and non-exhaustive list of the main ESG rating models:

• MSCI
• FTSE
• Sustainalytics
• Refinitiv
• Ecovadis

Suppose you’ve read this far, in addition to understanding what an ESG rating is. In that case, you now know that a high ESG score is a driving force for investment and economic opportunities that continually increase for companies that take action to improve their sustainability across the board, from environmental to social.

Add to that the importance of a high ESG score on public opinion since a virtuous company is unlikely to be targeted by anti-greenwashing campaigns, boycotts, and buyouts. Not to mention the positive long-term outlook for your stakeholders.

We at zeroCO2 are not a rating agency, but when it comes to the E of ESG, the environment, we are your starting point.

In fact, with the first step, the one we deal with, you lay the foundation for an environmentally sustainable company.

What is this first step?

Conducting a measurement to identify critical areas for GHG emissions, which must be measured through an organisation’s carbon footprint, the company’s carbon footprint.

By measuring with zeroCO2 carbon footprint, a company will have an accurate snapshot of the state of affairs, its impact in terms of GHG emissions (expressed in CO2 equivalents), and be able to understand the critical areas and opportunities for improvement of its environmental impact, the first fundamental step in a sustainable company’s green journey.