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ESG is becoming an important part of any business looking to comply with upcoming environmental regulations or develop overall improved sustainability efforts, but what about ESG data screening in particular?
ESG data screening is becoming an increasingly popular way for companies to demonstrate their transparency and ESG efforts to customers, investors, and stakeholders.
In this article, we’ll explain what ESG data screening is, why it’s important, some of the challenges of ESG data screening, and how your company can get started with it.
ESG data screening refers to the method of verifying that only sustainable options have been chosen on behalf of a company – such as sustainable funds or investments.
Think of when a future employee is to be screened for a background check in order to ensure they do not have a criminal record or are mentally and physically capable of doing the proposed job. ESG data screening serves the same purpose for companies when trying to determine whether they are truly exhibiting good ESG morale.
ESG data screening, sometimes referred to as sustainability screening, can be used for any company regardless of sector – but it is most often used for the following purposes:
👉 Ultimately, ESG data screening serves as a way to ensure companies are being honest about their sustainable efforts – most often when it comes to their financial activities and investments.
Data screening is important to an organization as it allows for greater investor confidence, transparency, and helps to prevent a company from falling subject to greenwashing.
There are several reasons why data screening is becoming an essential facet for businesses – here are just a few reasons why:
👉 As a result, the benefits of data screening often can encourage improved business behaviors that can prove efficacious for long-term business success in the future.
The two different types of ESG data screening include positive screening and negative screening – and the type of data screening to be used on the company in question is often based on preference seeing as both types of data screening are conceptually similar.
Here are the differences between the two different types of data screening that can be used for ESG purposes:
👉 Although negative screening is often viewed as the more pessimistic approach to ESG data screening, it is more likely to encourage adjustments to a business model as opposed to positive screening – as it reveals what a company can improve upon.
👉 The main difference between negative and positive data screening is that negative data screening highlights all of the downsides of a company’s ESG endeavors while positive data screening reveals all of the good things a company is currently doing to accelerate their transition in sustainability.
Some of the challenges of ESG data screening include being unable to control the type of data screening companies may choose to verify their ESG endeavors and difficulties in confirming the information with the company’s suppliers.
Companies that make use of positive data screening can show off their good side to potential investors, whereas companies that choose negative data screening will demonstrate their transparency – but perhaps leave their successes behind in the process. This makes it difficult for investors to get a full-scope of a company, unless both types of data screening techniques are used.
Another issue with ESG data screening is that suppliers may not be considered in the screening process, which presents room for error – seeing as suppliers often account for the bulk of emissions or the overall environmental impact for any company. In addition to this, it can prove difficult to make contact with each and every supplier associated with the company undergoing the screening process.
👉 Overall, is it important for investors to remember that ESG data screening may not be the simple, black-and-white straight forward answer they are looking for when seeking confirmation for the green light to invest in a company.
Your company can get started with ESG data screening by seeking to improve your current ESG score, sustainability rating, or altering the current investors or enterprises your company is associated with.
Here are a few of the ways your company can improve its chances in ESG data screening:
As the world continues to shift to greater sustainability and even low-carbon economies, it is becoming more imperative than ever for companies to partake in sustainable investments to help ensure a good ESG score when partaking in data screening – as investors continue to grow interested in not just how much money a company can make, but the kind of difference they can make in the world.
If reading this article on data screening has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
Keeping track of how data screening could impact your business can be confusing, but don’t worry – Greenly is here to help! Click here to schedule a demo to see how Greenly can help you comply with all of the upcoming regulations relevant to your company.
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