As the world shifts toward a more conscious investing approach, ESG performance has become an essential part of any business plan. Investors and stakeholders are now demanding that companies ensure sustainability, social responsibility, and ethical governance practices across their operations. Assessing the impact of these initiatives is no small feat though - ESG encompasses numerous elements which must be considered carefully when making decisions.

If you want to keep an eye on how your business is doing with ESG and make necessary improvements, using key performance indicators (KPIs) can prove immensely useful. In this article, we will explore the top KPIs for ESG that are most effective in tracking progress against pre-defined goals.

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What are ESG KPIs?

Environmental, social and governance (ESG) KPIs are essential for venture capital and private equity managers to monitor the ESG consequences of their funds' investments. These trackable metrics enable firms to gain insight into the impacts that their operations have on the environment, society and governance initiatives. By closely monitoring these figures, they can make informed decisions about potential investments in companies with a positive ESG impact, as well as the risks associated with them.

ESG KPIs are also increasingly expected for regulatory compliance. As such, European GPs must be able to accurately report on these metrics, such as the Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR). Failing to do so can put large LP's at risk of legal implications due to lack of compliance.

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Top KPIs to Track Your ESG Strategy

To begin, organisations may find it helpful to review the Sustainability Accounting Standards Board (SASB), composed of ESG issues that have been identified for many industries, with guidance on metrics and accounting. Also, the Global Disclosure System also features industry-specific questions in its yearly questionnaires, and the benefits of reporting are clearly defined, as per the Carbon Disclosure Project (CDP). For those in listed real estate companies specifically, EPRA's Sustainability Best Practices Recommendations provide superb standards to measure sustainability performance.

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Greenhouse Gas (GHG) Emissions

Quantifying GHG emissions is a pivotal gauge of an organisation's environmental footprint. Climate change, caused by these gases, is exerting far-reaching effects on the economy, environment and society as a whole. By assessing their own GHG output, businesses are able to identify areas where they can reduce carbon pollution in order to minimise climate risks. A few key sources of such emissions that should be monitored include transportation usage, energy needs and waste production.

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Water Usage

As the essential resource of water becomes more and more scarce around the world, companies must take measures to ensure their conservation practices are up-to-date. To do this, businesses should measure their water usage, which can be done through various metrics such as water intensity, employee/business ratio or production unit/water consumption rate. Knowing these figures will not only help you gain valuable insights into your company's use of precious resources but also give you a chance to make positive changes towards greater efficiency in both conserving and using it responsibly.

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Employee Turnover

Employee turnover is a critical measurement for any business - it speaks volumes about their regard for employee wellbeing. Dismal rates may signify dissatisfaction, negligent management practices, or inadequate benefits packages - all of which could lead to stagnation in the workforce. Observing such metrics provides organisations with valuable insight into how they can better engage and retain employees by providing meaningful development programmes and higher levels of reward and recognition.

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Diversity and Inclusion

Crafting a successful and robust workforce requires diverse representation in all aspects. Evaluating diversity and inclusion can help companies identify where they must improve their hiring practices as well as employee retention rates. To measure the success of these initiatives, we can look at various factors like gender identity, racial background, ethnicity, age group or sexual orientation.

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For practical guidance, see how your organization can promote equality, diversity, inclusion, and human rights.

Health and Safety

Ensuring the health and security of employees is a vital part of corporate social responsibility. By monitoring safety issues in the workplace, businesses can recognise areas for improvement with regard to their protocols and education programmes. Health hazards, incidents involving injury or illness, as well as accidents occurring on-site are all factors that need to be taken into consideration when assessing this data.

Supply Chain Sustainability

Companies can experience meaningful ESG progress by evaluating their supply chain sustainability. Measuring this area of operations allows organisations to recognise opportunities for improvement in supplier engagement, resource conservation, and the potential risks associated with these activities. To evaluate a company's supply chain responsibly, there are multiple metrics available such as diversity amongst suppliers, environmental friendliness of vendors' processes and product offerings, or labour practices that meet established standards.

McKinsey has provided an in-depth, readable overview of supply chain ESG initiatives.

Ethics and Compliance

A business's success is contingent upon ethical and compliant operations. Evaluating ethics and compliance helps organisations recognise potential areas of improvement in their policies, educational programmes, and reporting methods. Various strategies can be used to assess the company's adherence with regulations such as tracking ethics violations, measuring employee training hours expended or monitoring whistleblower accounts.

Of course, the act of tracking ethical violations may itself pose an ethical dilemma to some. Harvard Business Review has a helpful guide with suggestions such as ensuring ethical transparency is visible up to the very top of the operating structure, as well as the establishment of an ombudsman's office for confidential reporting needs and employee protection.

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Product Quality and Safety

Earning and maintaining customer trust is essential for any business. A primary way to do this is by ensuring product quality and safety which can be achieved through various measurements, including recalls, satisfaction ratings, or defect rate assessment. By monitoring these metrics, companies are able to pinpoint areas where they must improve their manufacturing processes as well as how they control the overall quality of their products.

Community Engagement

A company's responsibility to its community goes beyond just financial contributions - it involves active engagement with the people living in and around that area. To ensure such outreach is effective, companies should measure their level of community engagement using indicators like employee volunteer hours, charitable donations, or even impact assessments on how they are helping the local population. This will help them identify any gaps and make improvements to better serve their communities.

Waste Reduction

Achieving waste reduction is a key element of any organisation's sustainability strategy since reducing waste helps protect the environment, preserve resources, and boost productivity. By monitoring their progress in reducing waste production, companies can recognise potential areas for improvement-- from bettering management practices to upping the use of renewable materials—and take necessary steps towards reaching their goals.

The Bottom Line

ESG KPIs are of the utmost importance since success in this area is determined by tracking a company's performance on related metrics. Such indicators can help gauge how a business' sustainability initiatives, including their investment and risk management strategies for suppliers, supplier compliance reviews, etc., impact the quality of products/services that its customers receive. As such, these measures help ensure that all stakeholders benefit from responsible ESG practices.

If you are leading an organisation that has ESG metrics as part of its core mission, it is your role to guarantee these methods are being monitored correctly so you can illustrate how effective your ESGs have been.

The Bottom Line

Commit to acquiring transparent, unbiased data. Without this, no KPI can truly be measured, and no real progress and research will be made. There's no 'workaround' other than committing to improvement, but the results can only help companies develop more robust processes.

Find out which companies are making real progress at our .

Frequently Asked Questions (FAQs)

1. What are the most important environmental KPIs for ESG reporting?

Environmental KPIs are critical for tracking a company's environmental impact and commitment to sustainability. Key metrics include energy consumption, GHG emissions, waste reduction, water usage, and recycling rates. These KPIs help organisations set targets aligned with frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), enabling accurate ESG reporting and performance analysis.

2. How do companies measure social KPIs like community investment and human rights?

Companies assess social KPIs through data on employee turnover, diversity and inclusion, community investment, human rights initiatives, and health and safety measures. These metrics show how businesses support their workforce, protect stakeholder interests, and maintain ethical practices. Aligning these indicators with European Sustainability Reporting Standards (ESRS) helps meet stakeholder expectations and build long-term social value.

3. Why are governance KPIs essential for ESG investment and stakeholder trust?

Governance KPIs reflect a company's commitment to ethical leadership, transparency, and compliance. These include supplier code of conduct adherence, anti-corruption policies, board diversity, and executive accountability. Strong governance KPIs, backed by recognised frameworks, increase investor confidence, support ESG investment decisions, and position the company at the forefront of responsible corporate behaviour.

4. What are ESG Key Performance Indicators (KPIs)?

ESG KPIs are measurable metrics that help organizations evaluate their environmental, social, and governance performance. They track how business operations align with sustainability goals, such as reducing carbon emissions, improving energy efficiency, and fostering ethical governance.

5. Why are ESG KPIs important for business operations?

These indicators allow companies to manage risks, ensure regulatory compliance, and make informed decisions based on reliable data. Strong ESG performance also builds trust with investors, customers, and other key stakeholders.

6. Which environmental KPIs are most commonly tracked?

Common environmental KPIs include greenhouse gas (GHG) emissions, waste reduction, water usage, renewable energy sources, and energy efficiency rates. These metrics reflect a company’s overall carbon footprint and environmental sustainability commitment.

7. How can companies measure and reduce greenhouse gas emissions?

Businesses can quantify direct emissions from facilities and vehicles, as well as indirect emissions from purchased electricity. Reduction strategies include transitioning to renewable energy sources, improving energy use, and enhancing waste management practices.

8. What role does data collection play in ESG monitoring?

Accurate and consistent data collection ensures that ESG metrics are measurable and comparable across time. It helps companies assess progress, meet global sustainability goals, and maintain transparency in reporting to key regulators and stakeholders.

9. How do social KPIs contribute to a company’s ESG strategy?

Social KPIs measure factors such as employee turnover, diversity and inclusion, health and safety, and community engagement. These indicators help companies promote a safe working environment, support local communities, and develop a diverse board.

10. What are governance KPIs and why are they critical?

Governance KPIs evaluate ethical business conduct, compliance with regulatory requirements, and transparent decision-making. They include tracking ethics violations, reporting procedures, and board diversity to strengthen long-term ESG goals.

11. What are KPIs for ESG?

KPIs for ESG are measurable indicators used to assess a company’s performance in environmental, social, and governance areas. They help track sustainability metrics, such as renewable energy use, biodiversity preservation, and ethical governance practices.

12. How does biodiversity preservation fit into ESG KPIs?

Biodiversity preservation is an environmental KPI that measures efforts to protect ecosystems and natural habitats. Companies can track actions like restoring degraded land, reducing pollution, and supporting conservation projects.

13. How can companies ensure KPI accuracy and reliability?

They can implement consistent data collection processes, conduct third-party audits, and align metrics with global standards to ensure reporting accuracy and build stakeholder trust