ESG: meaning, certification and how it fits into a brand’s strategy

Tre lettere che oggi pesano nei bilanci, nei rating e nelle decisioni dei board.

For many organisations the acronym ESG is still an item in the sustainability report, written to meet regulatory obligations and read by few.
For institutional investors, banks and large B2B clients, however, it has become a selection criterion.

This gap between how ESG is handled internally and how it is read externally is the starting point for any organisation that genuinely wants to understand what this acronym means, how certification works and what integrating it into its brand strategy entails.

Here, then, is everything you need to know about “Environmental, Social, Governance”, better known as ESG.

ESG: meaning and acronym

ESG is the acronym for Environmental, Social, Governance. It refers to a set of non-financial criteria used to assess the sustainability and ethical impact of an organisation’s activities, alongside traditional economic and financial indicators. More specifically:

• The Environmental component concerns the organisation’s environmental impact. Greenhouse gas emissions, consumption of natural resources, waste management, energy efficiency, policies for transitioning to low-impact models.

• The Social component concerns the organisation’s relationship with people. Working conditions, diversity and inclusion, health and safety, community relations, supply chain management from a human rights perspective.

• The Governance component concerns the organisation’s decision-making structure. Board composition and independence, transparency in financial reporting, anti-corruption policies, management of conflicts of interest, executive remuneration structure.

Three distinct dimensions. A single overall assessment criterion.

The acronym dates back to the early 2000s, specifically to the Who Cares Wins report published in 2004 by the United Nations Global Compact initiative, which for the first time proposed systematically integrating these three criteria into investment decisions. Since then, ESG has moved from niche initiative to structural criterion across global financial markets.

ESG criteria: how an organisation is actually assessed

Each ESG dimension translates into specific, measurable criteria, used by rating agencies, investors and certification bodies to assess an organisation’s performance.

ESG criteria are not uniformly standardised at global level.
Different frameworks exist, each with its own weightings and methodologies. The Global Reporting Initiative, the Sustainability Accounting Standards Board (now integrated into the International Sustainability Standards Board) and the European Corporate Sustainability Reporting Directive propose distinct approaches, with partial but not complete overlap.

This methodological fragmentation is one of the reasons why an organisation can receive different ESG ratings from different rating agencies, despite starting from the same underlying data.
The choice of which criteria to prioritise, and the relative weight assigned to each dimension, varies from one methodology to another.

ESG rating: what it is and who assigns it

An ESG rating is a summary assessment, generally expressed on an alphabetical or numerical scale, that measures an organisation’s performance against environmental, social and governance criteria. It works in a similar way to a credit rating, but it measures exposure to ESG risk and the quality of sustainability practices, not financial soundness in the strict sense.

The main agencies assigning ESG ratings internationally include MSCI, Sustainalytics, S&P Global, Moody’s ESG Solutions and ISS ESG. Each uses a proprietary methodology, with different weighting criteria across industry sectors and across the Environmental, Social and Governance dimensions.

The same brand can receive different ratings from different agencies. The methodology matters as much as the data.

The ESG rating has a direct impact on two fronts. The first is access to capital: many institutional investment funds apply minimum ESG filters before including a security in their portfolio, and a low rating can exclude an organisation from a significant share of the liquidity available on the markets. The second is the cost of capital: some banks offer more favourable financing terms, so-called green loans or sustainability-linked loans, to organisations with a solid ESG rating.

ESG certification: how it is obtained and what it entails

ESG certification is a formal recognition, issued by an accredited third-party body, attesting that an organisation complies with specific environmental, social and governance standards. Unlike the rating, which is a comparative assessment on a scale, certification is generally binary: the organisation either meets or does not meet the requirements of the reference standard.

Among the most widely adopted certification standards are ISO 14001 for environmental management systems, SA8000 for social responsibility, B Corp certification, which assesses overall impact on workers, communities, the environment and customers, and, in Italy, the UNI/PdR 125 gender equality certification, which is also a requirement for access to specific rewards in PNRR calls for tender.

The certification process generally follows four stages. A preliminary assessment to measure the gap between the organisation’s current practices and the requirements of the standard. A compliance plan to close the gaps identified. An audit conducted by the certification body, often divided into a documentary review and an on-site inspection. The issuing of the certification, generally valid for a defined period and subject to periodic surveillance audits.

The cost and duration of the certification process vary significantly depending on the chosen standard and the size of the organisation. For a medium-sized company, ISO 14001 certification generally takes between six and twelve months. B Corp certification, which assesses the organisation’s overall impact, typically requires a longer process, often exceeding twelve months, given the depth of assessment involved.

How ESG is integrated into a brand’s strategy

The most common mistake among organisations approaching ESG for the first time is to treat it as a communications exercise. A report is drafted, a few positive figures are communicated, some sustainability-related visual elements are introduced into external communications. This approach creates a specific risk, now precisely regulated by the European Green Claims directive, which requires every environmental claim made by a brand to be verifiable with reliable data before publication (something we explored in our article on Greenwashing).

Integration that generates real value follows a different logic. ESG is not a communications topic added on top of the brand. It is a structure of criteria that, if authentic, must run through the entire brand architecture. What the organisation does, how it does it, how it declares it, and how consistent these three things are with one another.

An ESG data point declared without structure is an exposure. An ESG data point that is governed is an asset.

For a brand, this means three things. The first is that every ESG claim communicated externally must be anchored to verifiable data and a traceable source, not to an intention or a future target presented as a present result. The second is that ESG performance, when robust, must be integrated into the brand’s positioning with the same rigour used to communicate any other element of competitive differentiation, not isolated in a separate section of the website or annual report. The third is that consistency between actual ESG performance and how it is communicated is itself an element of brand credibility, and its absence is one of the most significant reputational risks for organisations of large size, which are particularly exposed to scrutiny from investors, the media and regulators.

For organisations that operate with robust ESG criteria and integrate them consistently into their brand architecture, the result is not merely a better reputation. It is an asset that affects access to capital, the cost of financing, the ability to attract talent and trust in B2B relationships with clients who, in turn, must meet their own supply-chain sustainability criteria.

New Connections (FAQ)

What does the acronym ESG stand for?

ESG stands for Environmental, Social, Governance. It refers to a set of non-financial criteria used to assess an organisation’s environmental sustainability, social impact and quality of governance, alongside traditional economic and financial indicators.

What is the difference between an ESG rating and ESG certification?

The ESG rating is a comparative assessment, expressed on an alphabetical or numerical scale, assigned by rating agencies such as MSCI or Sustainalytics and used mainly by financial markets. ESG certification is a certificate of compliance with a specific standard, such as ISO 14001 or B Corp, issued by an accredited body and also used in commercial communication with clients and partners.

Which ESG criteria matter most for an organisation?

The criteria are spread across the three dimensions of the acronym. For Environmental, the relevant factors are emissions, energy consumption and waste management. For Social, working conditions, diversity and supply chain management. For Governance, board independence, transparency and anti-corruption policies. The relative weight of each criterion varies according to the industry sector and the assessment methodology used.