Measuring Goodness

On what level can goodness be measured?

Goodness can be measured at 4 levels

• Legal Entity, total for the whole organization, examples are ESG scores
• Location, for example sustainability profile of a production location
• Brand, combined scores for all products within a certain brand.
• Product, for example the LCA (life cycle assessment) for any individual product.

ESG

ESG stands for environmental social governance and is used to indicate the sustainability of a company or organisation. ESG investing means that you only invest in companies that score better on the environment, for example, biodiversity, carbon dioxide emissions or on social for example suitable employment, or on governance, for instance, the way a company is governed. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG becomes more important and popular to use, however, ESG has no standard in disclosing ESG factors and information and there are no restrictions on how transparent a company has to be or that only a separate party can objectively decide the score of the ESG of a company. Because of this ESG is very potent for getting used by companies to greenwash or only used for the feelgood factor instead of making big changes in favour of the environment and global warming. ESG should get more restrictions and laws limiting the ways of reporting ESG and ways to use it as greenwashing so that ESG is transparent and trustworthy.

The 3 Factors of ESG

ESG is divided into 3 Factors: Environmental, Social and Governance.

The 'E' of ESG

Environmental is the most important one of the 3 because of the global warming crisis that is playing more and more an important role in our global society. Environmental is divided into different topics each contributing to climate change and global warming

• Climate change
  • Greenhouse gas emission
• Natural resources
  • Biodiversity and Land use
  • Raw material sourcing
  • Water stress
• Pollution
  • Production material waste
  • Packaging material and Waste
  • Air, Water and Land pollution

The 'S' of ESG

Social factors refer to the relationship of an organization or company with its stakeholders. Examples of what companies or organizations are measured are Human Capital Management (HCM) for instance fair pay and employee engagement but also the impact of the company or organisation on the communities in which it operates.

The 'G' of ESG

Governance factors are about the way a company or organisation is led and managed. Factors that a company or organisation can be measured in are for instance how the leadership's incentives are aligned with stakeholders' expectations, how the leadership of a company or organisation views the right of stakeholders and honours the rights of stakeholders or how transparency and accountability is promoted in a company or organisation when it comes to the leadership of the company or organisation itself.

How to rate a company for ESG investment

To rate a company for ESG investment there are different options: Someone who wants to invest can look up ESG reports from a company itself or look at a stock market indicator like MSCI to look what companies are best for ESG investment or invest in a fund that does ESG investment and has ESG analyst look for the best companies to invest in. LCA plays a big role in reporting the environmental information of a company.

LCA

LCA is a method to calculate the environmental impact of a service, delivery, work or entire contract divided over life phases. LCA can be converted to MKI in order to interpret and compare the LCA environmental profiles.

LCA phases

• Production phase
• Construction phase
• Use phase
• Demolition and processing stage
• Possibility for reuse, recovery and recycling

The LCA executor calculates the energy used, the raw materials and released waste and emissions for each life phase. These results can be added to NMD (National Environmental Database) and are then available to everyone. Environmental efforts such as extra sustainable transport are also reflected in the MKI. The MKI also encourages tenderers to select the most sustainable supplier of products and services in order to arrive at the lowest possible MKI contract and to get contracts awarded. A circular economy is extremely important. Especially when it comes to scarce raw materials. However, circular material does not always mean that it is also sustainable. It has been found that some circular materials have a negative effect on the environment. This only emerges in an LCA. Buyers can rest assured that the MKI values are reliably provided the LCA has been verified by an independent verifier. MKI has the advantage that sustainable investments really come forward and this makes sustainable products more attractive to buyers. A prepared LCA can be used for 5 years, so the costs are only incurred once every 5 years.

LCA

Life cycle assessment or LCA is a methodology for assessing environmental impacts associated with all the stages of the life cycle of a commercial product, process, or service.