Tracking Climate Impact: CSR & ESG Explained
New Climate Governance
On March 21st 2022, the US Securities and Exchange Commission (SEC) proposed stricter regulatory practices of publicly traded businesses to disclose how their operations impact the climate via Scope 1, 2 & 3 emissions. What has driven the demand for transparency and accountability? Let’s revisit the past to explain the current state of corporate sustainability metrics.
CSR to ESG:
The Rise of Consumer Power
Corporate social responsibility (CSR) was coined in 1953 by an American economist Howard R. Bowen in observation of business ethics and social responsibility. This era (1950’s) was the start of ‘society as stakeholder’ activism, where consumers demanded large corporations take responsibility for their impact on society and strengthen accountability in the future. Since the late 1990’s and early 2000’s, CSR initiatives have taken the form of philanthropic giving, employee volunteerism, and better human rights policies.
The 2010's introduced the concept of environmental disclosure, complimenting the existing CSR movement. With the 2015 Paris Agreement, companies set environmental targets to lower emissions (from operations) to respond to growing global concerns over climate change. However, ESG disclosure has become vital for public companies' long-term success (and will soon be critical for private and SMBs). Since 2020, nearly all S&P 500 companies regularly publish ESG Reports (also referred to as annual Sustainability Reports).
Why the rise in transparency into corporate sustainability topics? ESG plays an important role. Environmental, social, and governance (ESG) was coined in 2005 in a landmark study aptly titled: Who Cares Wins 2005 Conference Report: Investing for Long-Term Value. “Who Cares Wins” may sound like a game show. In actuality, ESG ratings are a game-changer for how the financial market assess a company's potential response to climate opportunities and risk by valuing intangible factors.
ESG DEFINITIONS:
The “E” captures energy efficiencies, carbon footprints, greenhouse gas emissions, deforestation, biodiversity, climate change and pollution mitigation, waste management and water usage.
The “S” covers labor standards, wages and benefits, workplace and board diversity, racial justice, pay equity, human rights, talent management, community relations, privacy and data protection, health and safety, supply-chain management and other human capital and social justice issues.
The “G” covers the governing of the “E” and the “S” categories—corporate board composition and structure, strategic sustainability oversight and compliance, executive compensation, political contributions and lobbying, and bribery and corruption.(1)
You Can Only Manage What You Measure
When companies publicly disclose their climate commitments and benchmarks, ESG reporting allows them to demonstrate performance and progress (i.e., what targets are getting met and what are not).
Sounds pretty straightforward? Set goals, hit goals, high-five your manager! ESG program management is an ever-evolving journey, and not a box to check. Business’s must decide WHAT activities to measure and HOW to measure them.
The GHG Protocol + Scope 1, 2, and 3 Emissions
The early 2000s gave society a lot of gems: the first iPod, Gilmore Girls, and Outkast's pop hits. However, most people probably missed another rising star: Greenhouse Gas Protocol (GHG Protocol). Climate leaders came together to address the issue of managing and measuring greenhouse gasses. The World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) worked in partnership to develop globally standardized frameworks to measure and manage greenhouse gas (GHG) emissions.
The GHG Protocol covers the seven greenhouse gas emissions outlined in the Kyoto Protocol (1997): carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulfur hexafluoride (SF6) and nitrogen trifluoride (NF3).
GHG emissions = a carbon footprint. Carbon Dioxide Equivalents (know as CO2e), popularly short-handed to ‘Carbon’, is the agreed upon metric for total emission footprint from all GHGs.
The GHG Protocol establishes standards and reporting frameworks for Scope 1, 2, and 3 emissions from private and public sector operations, value chains, and mitigation actions through a series of publications. Why three scopes? GHG emissions occur at all phases of business operations (including upstream and downstream) and are directly or indirectly related to the end product or service.
Below is an overview of what each scope (1, 2, 3) accounts for and how it relates to a corporation (the reporting company):
Scheme 1,2,3 scope emissions Credit: Plan A based on GHG protocol.
For a deeper dive on Scope 1, 2, 3 emissions, check out PlanA Academy’s guide.
Scope 3 Emissions: Who’s Keeping Track?
Scope 3 emissions are currently not required within corporate climate disclosures (the SEC is pushing to change that). You may notice above that there are A LOT OF activities to measure to quantify Scope 3 emissions completely. Typically, there are more possible sources of Scope 3 emissions than Scope 1 + 2 combined.
Scope 3 emissions largely account for the everyday movement of goods, services, and people. At each step, GHG emissions generate, from how employees commute to how consumers use the final product and dispose of it. As you probably realize by this point, YOU are a part of the puzzle of Scope 3 emissions —and corporations should ultimately take responsibility for those externalized costs (more on this in part 2). Silver lining? Individuals don’t have to wait for policy to mandate companies to reduce their emissions; we can have a significant impact starting today. Whether you are an employee or a consumer —you can make a difference with Scope 3 emissions.
Read Part 2: Corporate Consumer Responsibility Defined
〰️ CLICK HERE 〰️
Read Part 2: Corporate Consumer Responsibility Defined 〰️ CLICK HERE 〰️
Footnote
“Introduction to ESG”, Harvard Law School Forum on Corporate Governance,, last modified August 1, 2020, https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg/