Talk show on ESG: How ESG actually works

Hello, Hi, welcome back to the talk show on Eir's Sheep Podcast, where we talk about all things Eir's Sheep and I'm super super happy that you have listened to last episode and we got really great fit back on the same people have said that it is raw, it is good. It has given them some value and 6 minute of podcasts can do that with you. So, following up and for today we have a topic, how Eir's Sheep actually works. So, in the previous podcast episode we understood what Eir's Sheep is trying to do, but a natural question follows, how does any of this work in the real world? After all it is one thing to say, major environmental and social impact, major environmental and social impact and another to actually do it inside a company. To understand this, it helps to step inside this system. So, let's imagine a company that wants to start doing Eir's Sheep, the first thing it realizes is that Eir's Sheep is not a single activity. It is a combination of data, processes and disclosures and more importantly it involves multiple stakeholders who are all looking at the company from different angles. Broadly there are 4 key players in the Eir's Sheep system, ecosystem we call it, Eir's Sheep system let's call it that way, 4 key players, 1 Eir's Sheep system, 1st one companies, 2nd frameworks, 3rd Eir's Sheep, and 4th one is investors, this is the Eir's Sheep system. So, let's start with the company, the company sits at the center of everything, it generates data which is emission data, employee data, governance related disclosure and more. A draw data by itself is not very useful, it needs to be structured, majored and reported in a way that others can understand and as far as we as Eir's Sheep consultant or whoever looking at them might as well understand. This is where a framework enters the picture, okay, so frameworks act like a common language without them every company would report whatever it wants, however it wants. One company might talk about carbon emissions in detail, another might completely ignore it, one might disclose employee diversity, another might not even track it. Framework solves this chaos, okay, so they provide guidance on what to disclose, how to major it, how to present it and when multiple companies follow the same framework, their data become more comparable, that comparability is what makes Eir's Sheep useful for decision making. Now, you tell me which framework you have used or known or heard about, one of them I would say is GRI, second one which we use in India which is BRSR and currently internationally globally standards which are using IFRS CSRD. But even with the framework in place, there is still a gap. Most investors or stakeholders do not have the time to read through hundreds of pages of Eir's Sheep report for every company they are evaluating. So they need something simpler, a way to quickly assess how companies performing, okay, so this is where Eir's Sheet ratings come in. Now we talk about ecosystem part, it's rating. Rating agencies take Eir's Sheet Disclosure from companies, apply then their own methodology, so all Eir's Sheet ratings industries have their own methodology like MSCI, ISS/CIRG, S&P Global and Assigned scores or ratings. These ratings attempt to summarize a company's Eir's Sheet performance into something digestible. Of course, the simplification comes with trade-offs, different rating agencies use different methodology which means the same company can receive very different rating depending on who is evaluating it. Okay, so this is one of the biggest criticism of Eir's Sheet ratings and we will explore that later. Finally, we have investor, the last pillar of Eir's Sheet ecosystem, investors use Eir's Sheet data and ratings to make decision about where to allocate their own capital. Some may avoid companies with poor Eir's Sheet performance, other may actively invest in companies that are improving. In many cases, Eir's Sheet is not the only factor but has become increasingly important one. If you step back and look at this entire system, it starts to form a loop. Companies generate data and disclose it using framework, rating agencies interpret the data and assigns poor, investor use this force to make decisions and those decisions in turn push companies to improve their Eir's Sheet performance. That's how Eir's Sheet sustain itself. But it is not always this mode. There are inconsistencies in reporting, there are gaps in report, there are disagreements between rating agencies and sometimes companies focus more on appearing good rather than actually improving. That's what we call as a green washing. You must have heard about that term a lot or Google it might be as well find some good example of how bad Eir's Sheet reporting can be done and can get to the investor. Despite all its imperfections, this system has created structure where none existed before. That structure is what makes Eir's Sheet actionable. This is our part 2 episode of season 3. I hope you understood the Eir's Sheet ecosystem. I hope I navigated you through this. If you listen to it properly, you will get it. If you want to see the transcript of this podcast episode, you can go to sustainability 101 website. You will find the entire transcript and you will understand it better for the next interview. Bye bye. See you in the next episode. Our next episode would be Eir's Sheet framework. The backbone of everything.