Methodology of Metrics: Analyzing the Environmental, Social and Governance Criteria

Abstract

The Environmental, Social and Governance criteria, better known as ESG, is now a well-known concept to almost half the world. It is also described as ‘an alternate asset class’ and that is self-explanatory of the large size of the asset pool. ESG is a set of metrics that measures an organization’s behaviour towards the environment and how it fares on the social and governance side. Carbon emissions, waste disposal techniques, employee relations, management quality and at least forty more metrics are examples of this. Financial services organization Bloomberg has stated that ESG assets may hit fifty-three trillion dollars by 2025, and that will roughly be one-third of the Global assets under management. Conscious investors use this criterion to invest in organizations that are perceived to be sustainable and growth-oriented. This criterion, despite being a significant breakthrough in investors’ behaviour and argued to be having a positive impact on an organization’s value is still nebulous and vaguely defined. Based on the research done on ESG metrics and their impact, it has been pointed out numerous times that the metrics still suffer by not being standardized and the ESG reports being readily available, leading to misinterpretation of data. The study aims to look into this idea of ESG metrics and try to analyze why ESG metrics might be inconsistent and why there is a need to standardize them.

Keywords: metrics, ESG, criteria, inconsistencies, data, standards, research