Who's responsible for ESG reporting inside a company?

Ultimate accountability for ESG reporting usually rests with the board or a designated executive, such as a Chief Sustainability Officer, while sustainability, finance, HR, and operations teams contribute the underlying data and coordinate the report itself.

Do small or private companies need to worry about ESG criteria?

Most small and private companies fall outside mandatory ESG reporting requirements, and following the EU's Omnibus I Directive, even listed SMEs are now exempt from CSRD specifically. That said, many still adopt ESG practices voluntarily, since larger customers, investors, and supply-chain partners increasingly expect it even where the law doesn't require it.

Is ESG the same thing as sustainability?

Not exactly. Sustainability is a broad, values-driven concept covering environmental and social well-being generally, while ESG is a specific, measurable framework used by investors and regulators to score a company's performance against defined environmental, social, and governance criteria. A company can pursue sustainability without ever being formally assessed on ESG criteria, and vice versa.

What happens if a company doesn't comply with ESG reporting requirements?

Consequences vary by jurisdiction, but they're real and growing: California's SB 253, for example, carries penalties of up to $500,000 per year for non-compliance, and companies that fall short elsewhere risk regulatory fines, exclusion from certain investment portfolios, and reputational damage with investors and customers.

How is an ESG score calculated?

Rating agencies collect data from a company's public disclosures, regulatory filings, and media coverage, then apply their own proprietary methodology to score performance across environmental, social, and governance criteria. Because each agency chooses different data sources, scope, and weighting, the same company can end up with different scores from different raters.

Media > All articles > ESG Initiatives > ESG criteria: what you need to know

ESG criteria: what you need to know

ESG / CSRESG Initiatives

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By Kara Anderson, UK Copywriter, on 09/29/2022

Updated by Agnès Potier-Murphy, on 07/31/2026

What is ESG?
What are ESG criteria?
Is ESG reporting mandatory?
What is the difference between ESG and CSR?
How does ESG criteria relate to investing?
How can ESG create value for companies?
Why ESG criteria are no longer optional
How can Greenly help your company?

A company's success is no longer judged by profit alone.

ESG criteria are the environmental, social, and governance standards investors, regulators, and rating agencies use to evaluate a company's non-financial performance. Environmental criteria cover emissions, energy use, and resource management; social criteria cover labor practices, human rights, and community impact; governance criteria cover board composition, executive pay, and anti-corruption controls. Companies are assessed against these criteria by rating agencies such as MSCI, Sustainalytics, and Bloomberg, whose scores can differ meaningfully for the same company depending on methodology.

Investors, regulators, and consumers are paying closer attention to ESG criteria.

Strong ESG performance can build trust, attract investment, and even improve financial resilience — but it takes real, measurable action to get there.

Companies that take ESG criteria seriously are finding that the benefits go beyond compliance. From reducing risk to driving innovation, integrating ESG into business strategy can create long-term value in ways that aren't always obvious at first glance.

Here's what each pillar means in practice, and where these standards are already being written into law.

In this article, we'll explore:

why ESG rating agencies like MSCI, Sustainalytics, and Bloomberg often disagree, even when scoring the same company
how major regulations are shifting, from the EU's narrower CSRD to the US SEC's proposed rollback of its climate disclosure rule
why strong ESG performance is linked to lower costs, stronger talent retention, and measurably better long-term stock performance
how ESG reporting remains widespread even where it isn't legally required

What is ESG?

ESG stands for Environmental, Social, and Governance — three factors used to evaluate a company's impact beyond financial performance, covering environmental responsibility, social impact, and corporate governance.

How does ESG differ from traditional financial analysis?

Traditional financial analysis measures a company through profit and loss alone. ESG adds a second, non-financial layer of assessment — looking at how a business manages its environmental footprint, social impact, and governance practices alongside its financial results.

Companies that take ESG seriously are working toward long-term sustainability, building trust with investors, employees, and customers along the way.

Note : strong ESG performance doesn’t just benefit businesses, it also creates value for society, shaping the way companies interact with their stakeholders, from local communities to global markets.

Environmental, Social and Governance (ESG) | Framework and Standards

Why ESG matters

ESG has gone from a niche concern to a major force shaping business decisions.

Today, it influences how consumers shop, where employees want to work, and where investors put their money. Companies that prioritize ESG are positioning themselves for long-term success.

Why ESG Matters	What It Means
Consumers care about ESG	Did you know that sustainability is a selling point? A 2023 McKinsey and NielsenIQ analysis found that products making ESG-related claims grew 28% cumulatively over five years, compared with 20% for those without. Consumers are increasingly choosing brands that align with their values, whether that means responsible sourcing, lower emissions, or ethical labor practices.
Employees want purpose-driven workplaces	Today's workers weigh a company's values alongside its paycheck when deciding where to work. A global PwC survey (2024 Global Workforce ESG Preferences Study) found that : 68% of employees consider a company's environmental practices important when choosing an employer, and most also factor in its governance and broader societal impact. Companies with strong ESG commitments tend to attract and retain talent more effectively, boosting engagement and reducing turnover.
Investors are paying attention	For investors, ESG is increasingly a signal of both risk and long-term value. According to G&A Institute's most recent tracking, 90% of S&P 500 companies and 94% of Russell 1000 companies now publish sustainability reports, reflecting near-universal adoption among the largest US public companies. Investors see ESG as a measure of resilience, helping businesses navigate regulatory shifts, reputational challenges, and evolving market expectations.

What are ESG criteria?

ESG criteria are the standards investors, regulators, and companies use to assess a business's impact and performance beyond the financial bottom line, grouped into three categories: Environmental, Social, and Governance.

Environmental criteria: Addressing climate and sustainability challenges

The environmental aspect of ESG has gained significant attention, driven largely by growing concerns over climate change, pollution, and resource depletion.

Businesses are under increasing pressure to reduce their environmental footprint, driven by the expectations of investors, customers, and the wider community as much as by regulatory compliance.

In addition to helping the planet, companies that integrate strong environmental policies into their business strategies are building long-term resilience and reducing financial risks linked to resource shortages, extreme weather events, and shifting regulations.

Some key areas covered under environmental ESG criteria include:

ESG Criteria	Description
Climate change	Reducing carbon emissions, investing in renewable energy, participating in carbon offset programs, and setting science-based targets.
Energy efficiency	Cutting energy consumption through efficiency upgrades, smart energy management, and green technologies.
Water management	Addressing water scarcity by recycling water, improving water-use efficiency, and protecting watersheds.
Pollution control	Reducing air and water pollution by using non-toxic materials, installing pollution control systems, and adhering to environmental regulations.
Waste and resource management	Minimising waste, promoting recycling, and transitioning to a circular economy model.
Deforestation prevention	Preventing deforestation, promoting sustainable forestry, and supporting conservation efforts.
Biodiversity protection	Preserving ecosystems, protecting endangered species, and promoting responsible land use.

Social ESG criteria: How companies impact people

The social aspect of ESG focuses on how a company interacts with people - its employees, customers, suppliers, and the wider community.

Strong social policies help businesses foster inclusivity, fairness, and ethical responsibility, creating positive ripple effects across entire industries.

These criteria influence every part of a company, from boardroom decisions to working conditions in supply chains. Customers, investors, and local communities benefit alongside employees when businesses commit to responsible social practices.

Some key areas covered under social ESG criteria include:

ESG Criteria	Description
Human rights observance	Ensuring ethical and fair treatment for all individuals, both within the company and across supply chains.
Compliance with labor standards	Upholding fair wages, safe working conditions, and employee rights in line with regulations.
Customer satisfaction measures	Actively improving customer experience through feedback, quality service, and responsible business practices.
Data protection and privacy safeguards	Safeguarding personal data through strong security policies and compliance with privacy laws.
Promotion of gender equality and diversity	Promoting workplace equality, supporting underrepresented groups, and ensuring diverse leadership.
Employee engagement strategies	Encouraging workplace involvement, fostering motivation, and creating a positive culture.
Community relations initiatives	Building strong local relationships by investing in education, social programs, and environmental initiatives.

Governance: Central to ethical business practices

Governance is the backbone of ESG, shaping how a company is run and ensuring it operates with integrity, accountability, and transparency. It covers everything from leadership structures and financial reporting to executive pay and ethical decision-making. Strong governance policies help prevent corporate misconduct, such as fraud, bribery, and conflicts of interest, while fostering trust among investors, employees, and the public.

Good governance instills a culture of fairness and accountability. Companies with clear policies, diverse leadership, and rigorous oversight mechanisms are better equipped to manage risks, make sound decisions, and build long-term success.

Some key governance ESG criteria include:

ESG Criteria	Description
Executive pay	Ensuring fair, transparent compensation that aligns with the company’s long-term goals.
Board composition and diversity	Maintaining a balanced board with diverse backgrounds, skills, and perspectives to strengthen decision-making.
Anti-bribery and corruption measures	Implementing strict measures to prevent fraud, bribery, and unethical business practices.
Lobbying regulations	Adhering to ethical standards in lobbying activities, ensuring accountability in corporate influence.
Oversight of political contributions	Regulating political donations to prevent conflicts of interest and maintain ethical business practices.
Implementation of whistleblower schemes	Providing secure, anonymous channels for employees to report unethical or illegal behavior without fear of retaliation.
Audit committee structure and functioning	Establishing strong audit committees to uphold transparency, compliance, and sound financial practices.

Is ESG reporting mandatory?

ESG reporting is becoming increasingly regulated worldwide, though requirements vary by region. Some jurisdictions have introduced mandatory ESG disclosures, while others leave it as a voluntary practice driven by investor expectations and market pressure.

Mandatory ESG reporting

Regulations requiring companies to disclose ESG-related data are expanding, particularly in the EU, UK, and US.

1. European Union (EU)

The EU has some of the world's most advanced ESG reporting requirements, designed to push businesses toward greater sustainability and transparency. Key regulations include:

Regulation	Description
Corporate Sustainability Reporting Directive (CSRD)	CSRD requires large in-scope companies to report detailed sustainability information using the European Sustainability Reporting Standards (ESRS). Following the EU's Omnibus I Directive (in force 18 March 2026), the regulation's scope was narrowed substantially: it now applies only to companies exceeding both 1,000 employees and €450 million net turnover, a dual threshold that excludes an estimated 80–90% of the roughly 50,000 companies previously in scope, including all listed SMEs.
Sustainable Finance Disclosure Regulation (SFDR)	Requires financial market participants to disclose how ESG factors influence investment decisions and ensure transparency in sustainable investments.
EU Taxonomy	Establishes a classification system for environmentally sustainable economic activities, helping companies and investors align with the EU’s climate goals.

2. United Kingdom (UK)

The UK does not have a single ESG reporting law but enforces several regulations requiring businesses to disclose environmental and social impacts.

Regulation	Description
Companies Act 2006	Under the Companies Act 2006 medium and large companies must disclose principal risks and uncertainties in their directors’ report, including environmental and social risks if relevant. Section 172 statements require large companies to report on stakeholder engagement, including supply chain and environmental impact.
Streamlined Energy & Carbon Reporting (SECR)	Large companies, LLPs, and quoted companies must report UK energy use, emissions, and efficiency actions in their directors' report. SECR applies to businesses with a turnover of £36M+, a balance sheet of £18M+, or 250+ employees.
Climate-related Financial Disclosures (CRFD) & TCFD	Since April 2022, large UK companies and LLPs (500+ employees, £500M+ turnover) must report on climate risks, governance, and emissions strategies. Listed companies must also comply with TCFD-aligned reporting.
Corporate Sustainability Reporting Directive (CSRD) – Impact on UK Companies	Following the EU's Omnibus I Directive (in force 18 March 2026), UK businesses are only brought into CSRD's scope if they generate over €450 million net turnover in the EU and have an EU subsidiary or branch exceeding €200 million turnover — a substantially higher bar than previously applied.

3. United States (US)

The US lacks a single, unified ESG reporting framework, but regulatory pressure is increasing.

Regulation	Description
SEC Climate Disclosure Rule (proposed)	Adopted by the SEC in March 2024, then stayed pending litigation. Following a May 2026 SEC vote, the rule is now proposed for full rescission, with a public comment period running to early August 2026.
State-Level Regulations	Certain states, such as California, have introduced stricter ESG requirements. California's Climate Corporate Data Accountability Act requires companies doing business in the state (with $1B+ in revenue) to report their Scope 1 and 2 emissions, with Scope 3 reporting following from 2027 — exact reporting deadlines have shifted several times and should be confirmed against CARB's latest guidance close to publish.
ESG Regulations for Investors	The Department of Labor's current rule allows retirement plan fiduciaries to consider ESG factors, but this is actively being replaced: since mid-2025 the DOL has been developing a new rule expected to significantly limit ESG's role in retirement investment decisions, currently under White House review as of mid-2026.
Voluntary Disclosure Trends	While ESG reporting remains mostly voluntary at the federal level, growing regulatory efforts and investor pressure are pushing US companies toward greater transparency.

Non-mandatory ESG reporting

In many countries, ESG reporting is not legally required, but companies voluntarily disclose ESG performance to meet investor expectations, enhance transparency, and improve sustainability practices.

Common voluntary ESG reporting frameworks include:

Framework	Focus Area	Who Uses It?
GRI (Global Reporting Initiative)	Broad ESG reporting across industries	Companies worldwide
SASB (Sustainability Accounting Standards Board)	Industry-specific ESG disclosures, now maintained as part of the IFRS Foundation's ISSB standards	Companies applying ISSB (IFRS S1/S2) industry-specific metrics worldwide
CDP (Carbon Disclosure Project)	Climate, water, and deforestation reporting	Companies, cities, and investors globally
UN PRI (Principles for Responsible Investment)	ESG-focused investment principles	Institutional investors
TCFD (Task Force on Climate-related Financial Disclosures)	Climate-related risk and governance reporting — the task force disbanded in 2023, with its recommendations now built into the ISSB's IFRS S2 standard	Companies still referencing "TCFD-aligned" reporting as a bridge to full IFRS S1/S2 adoption
ISO 14001	Environmental management systems	Businesses focusing on sustainability

Even when not legally required, ESG transparency is increasingly expected by investors, consumers, and regulators. Many large companies now publish annual ESG reports to track progress on climate action, social impact, and governance.

Note : ESG rating agencies like MSCI, Sustainalytics, and Bloomberg also assess companies' ESG performance, influencing investor decisions.

What is the difference between ESG and CSR?

Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) are both concepts that address the ethical and sustainable practices of a company, but they differ in terms of their scope, focus, and application.

Aspect	Corporate Social Responsibility (CSR)	Environmental, Social, and Governance (ESG)
Definition	A company’s voluntary commitment to ethical and responsible business practices.	A set of measurable criteria used to assess a company’s environmental, social, and governance impact.
Scope & Focus	Broad and value-driven, focusing on philanthropy, volunteer work, and community engagement.	Data-driven and standardised, focusing on risk management, sustainability, and financial impact.
Application	Implemented through company-led initiatives such as donationsand ethical supply chain practices.	Used by investors, regulators, and stakeholders to evaluate company performance based on measurable sustainability metrics.
Measurement	Subjective and varies by company - often communicated through marketing and sustainability reports.	More structured - follows recognised reporting frameworks like GRI, SASB, TCFD, and CDP.
Investor Relevance	Not typically factored into investment decisions.	Widely used in investment decision-making to assess long-term risks and financial sustainability.

CSR reflects a company’s voluntary ethical stance, while ESG provides a standardized, measurable framework for assessing sustainability risks and performance.

How does ESG criteria relate to investing?

ESG investing has seen a significant rise in popularity, reflecting a shift in how investors assess risk and long-term value.

According to the Global Sustainable Investment Alliance, $30.3 trillion USD was invested globally in sustainable assets and socially responsible investments as of 2022, with a 20% increase in non-US markets since 2020. A newer GSIA review (2024/25) reports a lower headline figure, but that reflects a change in data-collection methodology rather than a shrinking market — the 2022 figure remains the most directly comparable measure of overall scale.

This impressive growth reflects more than a passing trend: it highlights the growing awareness that companies with strong ESG performance often present lower investment risk, stronger returns, and long-term resilience. Responsible investing takes ESG criteria into account to ensure that capital is directed toward businesses that align with ethical, environmental, and governance principles, making it a critical factor in portfolio management.

Note : numerous studies have demonstrated the financial relevance of ESG investing. According to Morningstar's index research results vary year to year, but over the five-year period ending in 2021, 88 of 110 Morningstar ESG indexes with five-year track records (80%) outperformed their non-ESG equivalents. This is why ESG-themed ETFs (Exchange-Traded Funds), socially responsible investing, and impact investing strategies have gained traction among institutional investors seeking exposure to companies with high ESG ratings.

The emphasis on ESG investing reflects a broader transformation from passive to active investment strategies. ESG investing focuses on a range of approaches that allow investors to align financial goals with sustainability objectives, including:

Negative screening: Excluding companies that fail to meet ESG standards, such as fossil fuel companies or firms with poor labor practices.
Sustainable investing: Actively selecting investments based on ESG performance and alignment with sustainability goals.
Shareholder activism: Investors use proxy voting and direct engagement to push companies toward stronger ESG policies.

ESG investing challenges

While ESG investing has become mainstream, it still faces challenges, primarily around data quality and consistency. For ESG to be fully integrated into the investment process, companies need to provide clear and standardized ESG disclosures that investors can use to assess long-term risk and opportunity.

Some of the biggest challenges in ESG investing include:

Lack of consistent ESG disclosures: Many companies report selectively, making it difficult to compare ESG performance across industries.
Data gaps in environmental impact: Investors need clear carbon emissions data, energy efficiency metrics, and biodiversity commitments, yet these are often missing or inconsistent.
Varying governance standards: Transparency in executive pay, board diversity, and corporate ethics can differ significantly between companies and regions.
Diverging rating agency scores: research from MIT Sloan's "Aggregate Confusion" project found ESG ratings across major agencies such as MSCI and Sustainalytics correlate at only 0.54–0.56 on average, compared with over 0.92 for traditional credit ratings. Two reputable raters can reach very different conclusions about the same company, largely because of how each one builds its score — what they measure, what they include, and how heavily they weight each factor.

Note : despite these challenges, ESG criteria remain an important tool for investors to evaluate long-term risk and sustainability performance. The shift toward responsible investment demonstrates that businesses integrating ESG principles into their strategy are more resilient, competitive, and financially viable in the long run.

How can ESG create value for companies?

ESG is shaping how companies grow, compete, and stay profitable. It’s about unlocking growth, efficiency, and long-term resilience. Companies that take ESG seriously gain a competitive edge, reduce costs, strengthen stakeholder relationships, and attract top talent.

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Core business growth and competitive advantage

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Cost savings through sustainability

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Regulation and compliance

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Employee attraction, motivation and retention

Core business growth and competitive advantage

Consumer and investor demand for sustainability translates directly into strategic advantage for the businesses that respond to it:

How ESG Helps	What It Means for Businesses
Market expansion	ESG-aligned companies can tap into sustainable markets, attracting eco-conscious consumers and investors.
Stronger brand positioning	Businesses that integrate sustainability into their core offerings differentiate themselves in competitive industries.
Innovation & efficiency	ESG encourages life cycle analysis and process improvements, helping companies design more sustainable products and reduce inefficiencies.
Cross-industry benefits	Even high-impact sectors like mining and steel can use ESG strategies to build public trust and manage regulatory risks.

Cost savings through sustainability

Reducing waste and optimizing energy use pays off financially as much as environmentally.

ESG-driven efficiency strategies help companies lower operating costs and prevent resource waste, directly improving their bottom line.

How ESG Helps	What It Means for Businesses
Lower operational costs	Sustainable practices like energy efficiency, waste reduction, and resource optimisation reduce long-term expenses.
Minimised waste	Identifying inefficiencies in waste streams (water, materials, unsold products) helps businesses recover lost value.
Circular economy benefits	Redesigning products to incorporate recycled materials cuts costs while conserving natural resources.

Regulation and compliance

Regulatory pressures around ESG are increasing, and businesses that fail to adapt could see significant financial consequences.

According to McKinsey's 2019 analysis, up to a third of corporate profits could be at risk due to evolving ESG-related regulations.

How ESG Helps	What It Means for Businesses
Proactive regulatory adaptation	ESG helps businesses stay ahead of evolving regulations, reducing legal risks.
Lower compliance costs	Early ESG integration minimises litigation risks, regulatory fees, and penalties.
Sector-specific impact	Exposure varies by sector: banking can see 50–60% of profits at stake from capital and consumer-protection rules, while automotive, aerospace, defense, and tech face similar exposure tied to their reliance on government subsidies and other interventions.

Employee attraction, motivation and retention

Beyond cost and compliance, ESG shapes whether people want to work for a company at all:

How ESG Helps	What It Means for Businesses
Enhanced employer brand	Companies with strong ESG commitments stand out in competitive job markets, making it easier to attract skilled talent.
Higher employee satisfaction	Employees are more engaged and motivated when they see their company making a real social or environmental impact.
Stronger financial performance	Research shows that businesses with positive workplace cultures – like those on Fortune's “100 Best Companies to Work For” list – consistently outperform market averages.

Why ESG criteria are no longer optional

ESG criteria have moved from voluntary commitments to essential business benchmarks, shaping how companies are assessed by investors, consumers, and regulators. Businesses that fail to integrate environmental, social, and governance criteria risk falling behind as sustainability and ethical business practices become core expectations.

The impact is already clear:

Regulatory pressure is increasing: Governments worldwide are making ESG criteria a legal requirement, mandating disclosures on carbon emissions, supply chain ethics, and corporate governance practices. Companies that proactively meet these expectations avoid fines and gain regulatory goodwill.
Consumers expect transparency: products making ESG-related claims have grown 28% cumulatively over five years, compared with 20% for those without (McKinsey and NielsenIQ, 2023), meaning businesses that meet strong ESG criteria stand to gain a competitive advantage in brand loyalty and market share.
Investors are using ESG criteria to assess risk and value: ESG ratings help investors identify companies with strong sustainability performance. Factoring ESG considerations into investment decisions allows investors to evaluate both financial and non-financial risks, ensuring long-term resilience and profitability.

ESG criteria are essential to business resilience, risk management, and future-proofing in an evolving global economy. Companies that embed ESG into their strategy today will be the industry leaders of tomorrow.

Frequently Asked Questions about ESG Criteria

Who's responsible for ESG reporting inside a company?
Ultimate accountability for ESG reporting usually rests with the board or a designated executive, such as a Chief Sustainability Officer, while sustainability, finance, HR, and operations teams contribute the underlying data and coordinate the report itself.
Do small or private companies need to worry about ESG criteria?
Most small and private companies fall outside mandatory ESG reporting requirements, and following the EU's Omnibus I Directive, even listed SMEs are now exempt from CSRD specifically. That said, many still adopt ESG practices voluntarily, since larger customers, investors, and supply-chain partners increasingly expect it even where the law doesn't require it.
Is ESG the same thing as sustainability?
Not exactly. Sustainability is a broad, values-driven concept covering environmental and social well-being generally, while ESG is a specific, measurable framework used by investors and regulators to score a company's performance against defined environmental, social, and governance criteria. A company can pursue sustainability without ever being formally assessed on ESG criteria, and vice versa.
What happens if a company doesn't comply with ESG reporting requirements?
Consequences vary by jurisdiction, but they're real and growing: California's SB 253, for example, carries penalties of up to $500,000 per year for non-compliance, and companies that fall short elsewhere risk regulatory fines, exclusion from certain investment portfolios, and reputational damage with investors and customers.
How is an ESG score calculated?
Rating agencies collect data from a company's public disclosures, regulatory filings, and media coverage, then apply their own proprietary methodology to score performance across environmental, social, and governance criteria. Because each agency chooses different data sources, scope, and weighting, the same company can end up with different scores from different raters.

laptop with spend based and activity based data

How can Greenly help your company?

Greenly offers practical solutions to help your business measure ESG criteria and adopt sustainable practices.

How Greenly Helps	What It Means for Your Business
Measure your GHG emissions	Measure Scope 1, 2, and 3 emissions across your operations using advanced technology to understand your footprint and set meaningful reduction targets.
Custom action plans	Work with climate experts to design action plans tailored to your business strategy and sustainability goals, using physical and monetary data for deeper insight.
Decarbonise your supply chain	Collaborate with suppliers to reduce emissions, improve sourcing, address Scope 3 challenges, and develop transition plans for a greener value chain.
Intuitive and seamless platform	Use Greenly’s streamlined interface to measure, monitor, and manage your carbon footprint — making carbon accounting efficient and stress-free.

With Greenly's help, your business can significantly reduce its environmental impact, meet ESG goals, and enhance sustainability, all while making smart business decisions.

Get in touch with us today to find out more.

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