ESG criteria are environmental, social, and governance factors that organizations use to evaluate and improve their business practices beyond financial performance. They measure how companies impact the planet, treat people, and maintain ethical leadership. ESG has become essential for attracting investors, meeting regulatory requirements, and building stakeholder trust in today’s business landscape.
What exactly are ESG criteria and why do they matter?
ESG criteria are standards that measure an organization’s impact across three pillars: environmental responsibility, social practices, and governance structures. Think of them as a sustainability report card that goes beyond profit margins to assess what kind of corporate citizen a company really is.
The three pillars encompass distinct but interconnected aspects of corporate responsibility:
- Environmental pillar: Covers how a company interacts with the natural world, including carbon emissions, water usage, waste management, energy efficiency, and environmental footprint throughout operations and supply chains
- Social pillar: Examines how organizations treat people, encompassing employee wellbeing, diversity and inclusion, labour practices, community engagement, and human rights considerations
- Governance pillar: Focuses on how companies are run, including board composition, executive compensation, business ethics, transparency, and anti-corruption measures
Together, these three pillars create a comprehensive framework for evaluating corporate responsibility. The environmental pillar addresses planetary impact, the social pillar ensures ethical treatment of stakeholders, and the governance pillar establishes accountability structures. This holistic approach recognizes that sustainable business success depends on balancing ecological stewardship, social equity, and ethical leadership—each pillar reinforcing the others to build resilient, responsible organizations.
ESG has shifted from nice-to-have to business imperative. Investors increasingly use ESG criteria to guide decisions, recognizing that companies with strong ESG performance demonstrate better risk management and long-term resilience. Regulations like the CSRD are making ESG disclosure mandatory for many European companies. Customers, employees, and partners expect businesses to demonstrate genuine commitment to sustainability and social responsibility.
How are ESG criteria actually measured and reported?
Measuring ESG performance involves quantitative metrics and qualitative assessments. The approach varies based on which ESG area you’re focusing on and your organization’s size and nature.
ESG measurement relies on two complementary approaches:
- Quantitative metrics: Track concrete data like tonnes of carbon emissions, water consumption, waste diversion rates, percentage of board members from underrepresented groups, and employee turnover rates
- Qualitative assessments: Evaluate policies and practices including environmental management systems, diversity initiatives, and ethics training programmes
Both approaches work in tandem to provide a complete picture of ESG performance. Quantitative metrics offer measurable, comparable data points that demonstrate tangible progress and allow benchmarking against industry standards. Qualitative assessments capture the strategic frameworks, cultural commitments, and systemic approaches that drive those numbers. Together, they reveal not just what results a company achieves, but how embedded sustainability and responsibility are within organizational DNA.
Several major reporting frameworks have emerged to standardize ESG disclosure:
- CDP (formerly Carbon Disclosure Project): Focuses on environmental data, particularly climate change, water security, and deforestation
- CSRD (Corporate Sustainability Reporting Directive): Requires eligible European companies to report on how sustainability issues affect their business and how their activities impact people and the environment
- EU Taxonomy: Provides a classification system defining which economic activities are environmentally sustainable
These frameworks serve different but complementary purposes in the ESG landscape. CDP enables companies to demonstrate environmental leadership through detailed climate and resource disclosures. CSRD establishes mandatory transparency requirements that create accountability across European markets. The EU Taxonomy provides clear definitions that help investors identify genuinely sustainable economic activities. While navigating multiple frameworks can seem complex, each contributes to building a more transparent, standardized approach to ESG reporting that benefits companies, investors, and society alike.
Data collection involves collaboration across departments. Finance teams track governance metrics, operations teams gather environmental data, and HR collects social information. Many organizations work with sustainability reporting experts who understand framework nuances and ensure data accuracy.
What’s the difference between ESG ratings and ESG reporting?
ESG ratings and reporting are related but fundamentally different, and understanding the distinction matters when navigating the ESG landscape.
The key differences reflect who controls the process and the purpose each serves:
- ESG reporting: The process of disclosing your own ESG data, policies, and performance to stakeholders, where you control the narrative within bounds of accuracy and compliance
- ESG ratings: External assessments assigned by rating agencies like MSCI, Sustainalytics, or EcoVadis that evaluate companies using their own methodologies
This distinction shapes how companies approach ESG communication. Reporting represents your direct voice—the opportunity to tell your sustainability story, highlight initiatives, and demonstrate progress on your own terms while meeting disclosure requirements. Ratings represent external validation—independent evaluations that provide investors and stakeholders with comparable, standardized assessments across companies and industries. Understanding both elements helps organizations develop comprehensive ESG strategies that satisfy internal disclosure obligations while positioning themselves favorably in external evaluations.
Rating agencies analyze publicly available information, company disclosures, and news sources. They assess policy comprehensiveness, industry benchmarks, and improvement over time. The same company can receive different ratings from different agencies because they use different methodologies and weight factors differently.
Transparent, comprehensive ESG reporting generally leads to more favorable ratings because it gives agencies the information needed to assess performance accurately.
Getting started with ESG measurement
Getting started with ESG measurement doesn’t have to be overwhelming. Begin by identifying which ESG areas are most material to your business and which regulatory requirements apply to you.
Working with specialized ESG experts makes the journey smoother. CSRD reporting experts can guide you through directive requirements. CDP specialists structure climate disclosures for maximum impact. EU Taxonomy consultants determine which activities qualify as environmentally sustainable.
At Dazzle, we connect you with pre-screened sustainability experts who specialize in the areas where you need support. Whether you need help with specific reporting frameworks or broader ESG strategy development, we match you with the right professional within 48 hours.
ESG measurement isn’t about perfection from day one. It’s about starting the journey, gathering data, and showing continuous improvement. With the right expert support, what seems overwhelming becomes manageable.
If you are interested in learning more, reach out to our team of experts today.
