Which ESG Metrics Should You Track? A Comprehensive Guide

Recent years have seen a drive towards improved transparency over the manner in which companies track their performance in relation to environmental, social and governance (ESG) matters. Sustainably minded investors want to know that issuers are doing all they can to manage a range of ESG risks, customers are keen to spend their money with ethical brands and regulators in the EU are implementing legislation to help Europe become the first climate-neutral continent.

Euronext’s data shows an increase in reporting on a range of ESG metrics across the market and accompanying improvements in performance. For example:

• Mid-cap companies are disclosing their greenhouse gas emissions in greater numbers, with 57% reporting on Scope 1+2 GHG emissions in 2023 – an increase from 47% in 2020. Furthermore, this coincides with a decrease in average emissions by mid-caps, from 349 kilotonnes in 2021 to 248 kilotonnes in 2023. 
• The introduction of the Professional Equality Index in France in 2019 mandated that companies in the country report their index score every year, based on five indicators relating to gender equality. The average score of Euronext-listed issuers rose from 86.3% in 2021 to 88.9% in 2023. 

This article discusses what ESG metrics are and which ones you should track. It also discusses how to implement this into your operations to help with shareholder engagement and compliance with related legislation, such as the Corporate Sustainability Reporting Directive (CSRD). 

Key takeaways

• Tracking relevant ESG metrics helps businesses manage sustainability risks, engage with stakeholders and comply with frameworks such as the Corporate Sustainability Reporting Directive (CSRD). 
• Companies should report on both quantitative (e.g. greenhouse gas emissions, energy usage) and qualitative metrics (e.g. governance policies, sustainability strategies), depending on what’s materially important to their operations. 
• By aligning their reporting with global frameworks like the European Sustainability Reporting Standards (ESRS), companies can ensure consistency, avoid greenwashing and improve stakeholder confidence.

What are ESG metrics?

ESG metrics are the criteria companies use to evaluate their performance in environmental, social and governance topic areas. These key metrics help businesses track their progress over a period of time and allow investors and other stakeholders to assess how well the organisation manages sustainability, ethical risks and opportunities. 

Not all companies will track the same ESG metrics, although there are some that are relevant to most, if not all, businesses. Those companies in the scope of CSRD must track and report on the ESG metrics identified by the European Sustainability Reporting Standards and which materially impact the business’s performance, as well as those where the company has a material impact in the area. However, ESG reporting does not need to be limited to these areas. 

Businesses usually report on both qualitative and quantitative ESG metrics. Examples include: 

Thorough ESG metric reporting allows investors to compare the performance of all the companies in which they are interested in investing, providing a standardised benchmark. This allows you, as an issuer, to show them the opportunity that your company provides. It also forms the core of your ESG story, which helps you show stakeholders a deep understanding of and commitment to sustainability from your business. 

ESG frameworks

ESG frameworks are a collection of standards for reporting ESG metrics. There is no universal framework for all companies to adhere to, but each framework provides a set of ESG metrics on which to report as well as a rating system so that stakeholders can compare the businesses that use that framework against each other. 

Many ESG frameworks feature companies that volunteer to use them in order to formalise their reporting. Others offer more structured guidance on what constitutes sustainable behaviour from a company and others are mandated through pieces of ESG legislation. 

Here are examples of the different ESG frameworks: 

ESG metrics that you should track

There are a multitude of ESG metrics available to track for businesses. However, not all of them will be relevant for each organisation. The ESRS, for example, provides 12 reporting standards across the three ESG topics and an additional cross-cutting category. Within these standards, there are 1,178 data points on which companies could report. 

Experts suggest that it would take a business 375 hours of work to fill in all of these data points. For this reason, CSRD requires companies to implement a double materiality analysis so that they only spend their time calculating and reporting on those points where the company has a significant impact or where the ESG topic could affect the business’s performance. 

With this in mind, here are a range of ESG metrics that will apply to most organisations and which are, therefore, important to track to ensure you are working in a sustainable manner. 

Environmental metrics examples

• Greenhouse gas emissions: ESRS provides a number of GHG metrics on which to report, including both the company’s expected GHG emission reduction and its actual reductions. Another qualitative metric from ESRS that helps show the commitment of the organisation to sustainability is a declaration that its GHG emission reduction target is science-based and compatible with limiting global warming to one and a half degrees Celsius.
• Energy usage: This tracks the amount of energy consumed in operations, highlighting opportunities for energy efficiency improvements. More specific metrics include total energy consumption from fossil fuels, total consumption from nuclear power, percentage of fossil fuels in overall consumption and renewable energy production. 
• Water usage: Evaluates the volume of water used in the company’s operations, addressing sustainability concerns in water-scarce regions. You might also want to explore the total amount of water you recycle and reuse, as well as disclosures on the actions you take in areas of water risk to reduce that risk. 
• Waste management: This area of ESG assesses the effectiveness of your recycling and waste reduction initiatives. ESRS includes data points for the rates of recyclable content in a company’s products and its packaging, as well as the levels of waste generated, including hazardous and radioactive waste. 
• Biodiversity impact: These data points focus on the company’s effects on local ecosystems and the species that live there. Include a report on the financial effects of biodiversity offsets and the number and area of sites related to the company causing negative effects in or near protected areas or key biodiversity sites. 

Social metrics examples

• Diversity and inclusion: Metrics in this category help to evaluate workforce diversity and the inclusiveness of the company’s workplaces. To gain a clearer picture, track metrics such as the number and percentage of workers in various age and ethnic groups, in addition to the gender pay gap within the organisation, the number of incidents of discrimination and the numbers of underrepresented groups in leadership positions. 
• Employee turnover rates: A high turnover rate indicates that employees are not satisfied with the conditions in which they work. The levels of satisfaction and retention reflect the organisational health of the business. ESRS suggests companies report employee turnover as both a number and a percentage. 
• Labour standards: Assess your compliance with labour laws in the countries in which you operate and ensure that you provide fair treatment of workers. Metrics to help understand these goals include the number of work-related accidents within the workforce, the number of reports made raising concerns about wrongdoing and the average number of training hours per employee.  
• Community engagement: Measures the company’s involvement in the local communities in which it operates. Report on the engagement that occurs between the company and affected communities. In addition, note the channels through which communities can report concerns about the actions of the business and the measures in place to handle these reports. 
• Human rights: Report on the approach the company has towards respecting the human rights of direct employees and workers in the value chain. You should also disclose the total fines or compensation payments made to parties relating to human rights issues and incidents. ESRS also requires businesses to report on any areas in which they work where there is a risk of forced labour or child labour. 

Governance metrics examples

• Board diversity: The balance of board members has a tangible effect on the decision-making process of the board, with a balance of backgrounds, skills and experience. Evaluate board diversity in terms of gender, ethnicity, outlooks and skill sets.
• Corruption and bribery: Due to the risks caused by corruption and bribery, it is important to detail your policies to prevent and mitigate these activities. Alternatively, you can prepare a timeline for implementation if it does not already exist. In ESRS, companies should create a policy consistent with the United Nations Convention against Corruption. Track the total amount of fines issued to the company relating to corruption and bribery incidents. 
• Risk management: Assess the ability to identify, evaluate and mitigate risks across all operations and strategic initiatives. This includes disclosing the number of functions-at-risk to which there is a training programme attached. 

How to implement ESG metrics

Step 1: Set ESG goals

Consider the sustainability goals that are important to your business and its stakeholders. This will vary from business to business. For example, a drinks manufacturer might be interested in reducing water waste, whilst an organisation with a base in a South American rainforest might want to make its policies around environmental protection more robust. Define clear objectives for your business that are specific and achievable so that you can create a coherent strategy to improve your performance and track your progress. 

Step 2: Set ESG reporting standards

Carry out a double materiality assessment to understand which ESG areas are most pertinent to your organisation. Use an ESG framework, such as the ESRS, to help guide you through the relevant areas. Consider your business strategy and think about how it aligns with sustainability. 

Step 3: Collect data

Work with other departments to collect the relevant data relating to your ESG goals. Your data could include numbers, percentages, monetary terms, narrative statements and other forms of data, depending on the metric. 

Once you have collected the information you need, analyse your current performance and consider how you will improve on that for the next year. Archive the data for future comparison so that you can track your progress. 

FAQ

What are the benefits of implementing ESG metrics?

Monitoring ESG metrics brings many benefits. Primarily, it helps you comply with sustainability legislation requiring ESG disclosures. In addition, you can create an ESG story that shows your sustainability efforts have substance and do not constitute greenwashing. Transparency over ESG can also attract investors and customers who are looking to engage with ethical organisations. 

What are the common mistakes in ESG reporting? 

It is a mistake to provide inconsistent or incomplete data when reporting on ESG performance. This makes it difficult for stakeholders to understand how you are performing in these areas and could cause regulatory issues when audited for legislation such as CSRD. If investors cannot accurately compare your business to others, they may be wary to engage. 

How often should ESG reports be updated?

It makes sense to report on your ESG metrics on an annual basis. This is required if you are in the scope of CSRD, but it is also a long enough period for any business to make changes and progress that stakeholders will want to find out about.