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ESG Criteria

ESG EVALUATION CRITERIA – WORLD ECONOMIC FORUM 2020

Aristotle is the father of Western thoughtAristotle is the father of Western thought

The acronym ESG, which stands for Environmental, Social and Governance, encompasses a number of assessment elements used in the financial sector to judge the sustainability of investments, with a view to the overall evaluation of a company that goes beyond purely economic performance.

In order to assess an investment, the ESG (or sustainability) rating expresses a synthetic judgement that certifies our commitment to environmental, social and governance issues, but to understand it better, let's look at the criteria in more detail.

ENVIRONMENTAL IMPACT CRITERIA

These look at a company's performance as a guardian of nature, the environmental risks it faces and how these are managed. Criteria might include: pollution, carbon dioxide emissions, efficiency in the use of natural resources such as water, attention to climate change and the prevention of related risks, biodiversity, deforestation, resource scarcity and waste management.

SOCIAL CRITERIA

It looks at how a company manages its relationships with relevant stakeholders, including local communities, supply chains, human resources and others, and their impact on communities. Social criteria could include: human rights, community relations, gender and diversity, employee engagement, labour standards, including health and safety, consumer safety and consumer satisfaction. For example, does the company ensure that its suppliers uphold the same values that it does? How does the company contribute to the local community and encourage employees to volunteer? Do the company's working conditions show a high regard for the health and safety of employees?

CRITERIA IN THE GOVERNANCE SPHERE

Governance covers issues such as executive compensation, audits and shareholder rights. These criteria include the presence of independent directors with diversity policies (gender, ethnicity, etc.) in the composition of boards, top management remuneration linked to sustainability objectives, audit committee structure, fighting corruption, fiscal transparency, compliance, lobbying and whistleblowing systems.

For example, investors may be concerned that the company uses transparent accounting methods and that shareholders have the opportunity to vote on important issues, that conflicts of interest are avoided in the selection of board members, that political donations are not misused to obtain undue favourable treatment and that the company does not engage in illegal or unethical practices.

No one company will meet all the criteria in every category, so each must decide which criteria are most important and how they should be prioritised. This approach reinforces the strategic value of sustainability for companies.

Investors may want to limit their investments in companies involved in coal mining, nuclear power or weapons and avoid companies with recent workplace controversies involving discrimination, corporate governance or animal welfare. The benefit for investors in following ESG when making investments could include avoiding companies with risk factors such as the 2010 BP oil spill, the VW emissions scandal, and the illegal waste management of synthetic turf fields.

ESG STRATEGIES MUST STAND UP TO SCRUTINY IN THE DIGITAL AGE.

  • Technology facilitates management controlTechnology facilitates management control

    ESG metrics have become increasingly important to investors and clients.

  • They demand more transparency and disclosure in this area.
  • Data quality and ill-defined targets are holding companies back from improving their ESG reporting.

It is undeniable that we are in an era of change regarding the impact of human behaviour on our world. Our food, transport, energy sources and way of life are undergoing a fundamental transformation. Companies like those represented in Davos have the opportunity and the imperative to lead the way in supporting the sustainability of our communities and our planet. Our stakeholders are already asking for this - along with reliable proof of our efforts.

Over the past three years, environmental, social and governance (ESG) metrics have become a key input into the decision-making process of investors, employees and customers, with an emphasis on "E" - even for those companies that are not otherwise regulated by environmental laws.

Investors initially used ESG as a screening factor - to limit investments in particular sectors or companies with reputational problems. From there, investors built portfolios with companies with higher ESG scores, and today both active and passive investors are on the hunt to determine which ESG attributes are the best indicator of long-term performance.

As far as other stakeholders are concerned, it is certainly clear that a company's reputation and position on environmental and social issues is a significant factor contributing to consumers' purchasing decisions. Surveys and employment data show that our workforce and recruitment successes are influenced by them.

Even without stakeholder interest, regulators around the world are demanding transparency and disclosure in all sectors, even those not traditionally known for ESG issues.

While, thematically, the direction is clear - more disclosure and transparency - there are two issues that currently limit the impact of ESG reporting and assessment:

Data quality. It is not uncommon to hear business leaders, investors and regulators point out the lack of quality in published ESG data. While many companies are working to improve their data and related analysis, and a whole new industry of consultants, auditors and analysis experts has emerged to assist in these efforts, progress and true visibility will be limited until we agree on meaningful common standards and build trust in the way data is reported. Without common standards, even high-quality data will result in an apples-to-oranges comparison.
Objectives and targets. The metrics and models that exist as standards today are looked backwards and, as a result, only tell part of the story. Yes, past behaviour can tell us a lot about future trends and behaviours. But this wealth of information comes without the goals, objectives or commitments of each company. What are companies aiming for in terms of reducing their carbon footprint? How are they improving diversity in their boards and senior staff? Are they investing in their employees to realise their future?
Our stakeholders can lead the way by telling us what they care about, and our regulators are pushing hard for change, but it is up to the industry to give our investors, employees, customers, regulators and policymakers the visibility they are asking for. Companies need to engage more deeply with ESG reporting processes and help information service providers get to the right data. And we all need to be bold and identify ambitious ESG targets, to help our stakeholders see where we are going, and how and when we hope to get there.

All of us, we have a responsibility to take the lead on one of the greatest challenges our world has ever known. We must drive towards sustainability in our actions and share our successes and failures with our stakeholders. We can rise to this challenge - but the time to act is now.

ESG ASSESSMENT CRITERIA - APPLIED TO SPORTS FIELD MANAGEMENT

Como Calcio tests the Cislago pitch, 24 March 2021Como Calcio tests the Cislago pitch, 24 March 2021

In the environmental field, the management of the routine maintenance of a turf makes a lot of difference because it has to prevent and mitigate biotic and abiotic stresses, making limited use of pesticides or herbicides, extend the life of the pitch and if it is designed with care and foresight can even offer a positive environmental impact.

On a sports pitch, frequent cutting of the natural grass combined with balanced feeding, restoration of the playing fields and supplementary reseeding not only makes the grass more resistant to play but also increases its photosynthetic potential, which captures more CO2, fine dust and lowers the temperature due to the more efficient cooling effect the grass produces.

Probes to monitor the condition of the plant substrate provide useful information for the technician to better manage maintenance operations and, above all, allow him to save more water for irrigation by optimising the growing conditions.

Aerating the growing medium mitigates compaction from play and promotes soil biology that mineralises nutrients; it also allows rainwater to be absorbed to a greater extent, contributing to hydraulic management and the prevention of damage due to climate change.

The removal of the thatch accumulated on the surface, combined with all other maintenance practices, inspired by the principles of regenerative agriculture, makes the plants healthier, more resistant to disease and less attractive to insects.

Waste management, during the maintenance period and at the end of the field's life cycle, the waste disposal process must be documented and the process must be controlled in several stages, including unannounced ones, to avoid controls being circumvented.

In the social sphere, the use of specialised companies with workers and technical staff employed on a permanent contract, who have been with the company for a long time, ensures a commitment to high labour standards and proof of attention to workers' rights consolidated through a long-term employment relationship. When their personal CVs show that they are qualified because they have participated in the company's work team during the completion of at least three jobs similar to the contract in question, they ensure greater efficiency due to experience, safe working standards and customer satisfaction. The recruitment of apprentices chosen by the local community ensures the growth of human capital in the area.

The selection criteria among companies that carry out training and information activities contribute to the dissemination of its skills, which is a proof of transparency and safety for consumers and community relations. Checking that the company's suppliers respect the same values ensures that its efforts are not thwarted or hidden through the illicit management of subcontracting.

Within the framework of governance, the principle of equal opportunities must be ensured. Therefore, qualitative criteria must not include the technical data sheet of a given supplier, except where there is an objective technical, functional or aesthetic reason.

The verification of fair prices, effective planning of the timeframe for the execution of the works during the tender are the key elements to offer a fair compensation to the company, as a driver to allow it to respect the criteria of a fair remuneration to its employees and other elements in the social sphere. 

Checking that subcontracting contracts are also remunerative and the integrated and direct management of subcontractors' staff during the execution phase can prevent exploitation and irregularities with penal repercussions for all those involved.

The guarantee contract must contain clear and transparent clauses, while the after-sales service must list in detail the services offered and whether they are sufficient to meet the needs of the sports ground management project.

In the management of sports facilities, the use of an external technical advisor to monitor the correct execution of maintenance ensures the necessary control for contractual compliance.

The appointment of an independent laboratory to analyse the state of preservation of the infrastructures further ensures that the maintenance is effective and that no conflict of interest or admixture of stakeholders is created.

Italian regulations require that the final design of any work be verified by a second engineer who issues a conformity opinion before validation by the client's RUP. Most of the time, however, the technician limits himself to checking the documents and not the contents, also because entering into the merits of the contents creates conflicts between the technicians and the verification times can be lengthened. This is why it is always necessary to apply the rules with greater clarity and transparency, but without restricting progress and innovation because the latter remains at the free will of the client. For example, the prior opinion of the LND, which verifies the conformity of the project of a synthetic pitch to the standard, is therefore considered a necessary step that should also be replicated by other professional associations, provided that the technicians in charge do not have a double role (proposers and controllers). At the same time, the realisation of an innovative field, in the absence of specific standards, cannot be constrained if it captures the interest and confidence of the client who is willing to run the risk that every innovation entails.

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