How to Improve Your Corporate ESG Credit Rating

September 23, 2022

How to Improve Your Corporate ESG Credit Rating

Does your company have an impressive ESG score? As the focus on climate change impact and the need to take prompt action intensifies, financial institutions such as banks and equity firms are facing intense pressure to factor in ESG when making investment decisions. The rapidly changing regulatory landscape has further accelerated the adoption of sustainability into their operations. This adoption means that these financial services providers are now checking ESG credit ratings for every party seeking their services.  

It is not just the financial organisations that have adopted ESG credit ratings in their operations. Suppliers, compliance organisations, partners, and investors, among other stakeholders, also want to be associated with parties with high credit scores. So, how exactly do you improve your ESG credit score? Keep reading to learn the best sustainable strategies you should adopt. 

What is ESG?

ESG, shortening for environmental, social, and governance, is a collective term that refers to impacts from an organisation’s operations. It also helps to determine how transparent a company's leadership and internal controls are. Note that ESG touches on all functions of a company, including its association with other parties in the global supply chains. Third-party international standards organisations, such as MCSI, Global Reporting Initiatives (GRI) and Sustainability and Accounting Standards Board (SASB), provide sustainability ratings to help stakeholders to identify the most sustainable. 

Benefits of Good Credit Rating for Your Company 

The most notable benefit of having a positive ESG credit rating is to win the affection of the investors. Most individuals and corporations investment firms looking for investment opportunities want to see their resources/ funds going into areas that will generate positive impacts. With a positive score or high rating, you are sure of convincing them that your company is the right choice. Other benefits of good ESG credit rating: 

  • It is an excellent way to improve your brand image. 
  • Helps to improve compliance with local and international regulations, such as financial markets. 
  • High ratings can help your organisation to attract and retain talented staff. 
  • Adopting ESG in your company operations can help in cutting down the cost of operations. 
  • Crucial in helping your company to cut down the cost of operations. 

Tips for Improving Your ESG Credit Rating 

The benefits we have looked at above are only a drop in the ocean of what you should anticipate for adopting sustainability and improving ESG credit rating. So, here are some expert tips that you should employ to improve your ESG rating. 

  • Cut Down Your Carbon Footprint

The problems of global warming and climate change have become the bottom line when defining the strategies for sustainability in most companies. The problems are mainly caused by the excessive release of greenhouse gases (GHG) into the atmosphere, and scientists are warning that the planet is at the tipping point. This is the reason why the Paris Agreement has called for the adoption of every viable effort to help push down GHG emissions and keep the surface temperatures below 2°C above the pre-industrial levels. 

Your company should be part of the efforts to cut down emissions and reduce global warming. You can do this by cutting down your carbon footprint. Make your efforts to cut down on carbon footprint factors in all sources of emissions and further ensure that the data is accurate and verifiable. We must say that most investors and other stakeholders check on carbon footprint as the first indicator of the risk level, and it will be an excellent idea to include it as part of your efforts to improve ESG credit rating.  

  • Cut Down Pollution from Your Company’s Operations 

Every time you travel to different cities or urban regions, from Europe to Asia, one of the biggest issues or risks is pollution. Analysis indicates that the biggest contributors to this problem are companies because of their extensive operations. As a company, you can improve your ESG credit rating by reducing pollution. You can achieve this by changing the product design, turning to alternative raw materials, going paperless and using predictive management/ maintenance of your machinery. 

Remember that even if your company does not cause direct pollution from its operations, other companies involved in the supply chain might still be damaging the environment. For example, a software development company might not be causing pollution, but the companies involved in producing the tech devices it uses might be negatively impacting the water, soil, or air. Your credit rating also factors in these extended risks, and it is crucial to take interest because investors/ consumers are now checking the extended impacts. 

  • Support Initiatives that Help to Improve Species Diversity

One of the growing concerns for sustainability today is the rapid loss of biodiversity. As a corporate organisation, you can improve your ESG rating by supporting species diversity. One of the best ways of doing this is identifying the organisations involved in conservation and supporting them. Remember that conservation issues are cross-boundary, implying that you can work with firms at the local or international levels and achieve the targeted impact.  

  • Adopt ESG Reporting for Your Company

ESG credit rating for a business or company is only done based on the available information about its commitment to sustainability. ESG reporting is the disclosure of a company's environmental, social, and governance impacts from its operations. The disclosure further highlights how the company is being impacted by different ESG factors, from global warming to pollution. 

When you adopt ESG reporting, it provides stakeholders, such as investors and financial organisations, with a reliable basis for assessing your sustainability effectiveness. Remember that reporting should be guided by core principles for sustainability, including materiality and verifiability. Below are the main steps that you should follow for ESG reporting to improve your score.

  1. Review your company to identify key ESG risks and opportunities
  2. Reach out to stakeholders of interest to determine what they want. 
  3. Carry out a materiality assessment for your company. 
  4. Select an appropriate ESG framework and ESG sustainability reporting software. 
  5. Gather data accurately using appropriate ESG software, analyse it, and create reports for stakeholders to read. 
  6. Determine the key areas of interest for the next reporting phase. Remember that this should be in line with the principle of continuity. Therefore, if you have targeted reaching zero carbon emissions in 10 years and have already managed 50% by now, the next reporting phase should aim at achieving higher reduction percentages. 

ESG credit rating is an important factor being considered by almost every stakeholder that wants to do business with you. This post has demonstrated the benefits of a high ESG credit score and, more importantly, the strategies to employ to improve it. Remember to always work with the right ESG app to make your sustainability strategy effective and avoid the risk of greenwashing. Contact our Diginex.com experts for professional assistance and the best ESG sustainability management software. 

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